State Income Taxation--a Suggested Solution to the Present Confusion.

Abstract Because of the varying laws in different states of the U.S. and the varying interpretations of similar language in these laws, the filing of state income tax returns has become a major headache to corporations doing interstate business and to tax practitioners serving these corporations. Since at least 35 states presently impose taxes based on income, it was feared that many corporations doing interstate business would ultimately have to file tax returns in every state. These fears resulted in a plea by business men for Congressional relief. Consequently, the U.S. Congress came out with a bill which prohibited the imposition of a state income tax upon an out-of-state firm. The Congressional bill, while a step in the right direction, left many unsolved problems. For e.g. firms, which do not sell tangible personal property are not covered by the new law and therefore the states can still use the taxing power approved by the Supreme Court against such firms. The new law also failed to define "solicitation." The new law did not deal in any way with the major problem involved in state income taxation, the conflict in methods of allocation or apportionment of income between states. This article proposes that under such a statute, Congress could tack on a fixed percentage to the present Federal rates representing the state portion of the income tax and replacing present state taxes based on income. It assumes that the proposals contained herein could lead to satisfactory solutions of these problems.