Congress reviews Longshore and BAT issues
Friday, July 13, 2012
At a July 12 hearing of the House Subcommittee
on Investigations, Oversight, and Regulations of the Small Business Committee,
Congress looked into problems with the newly written regulation on the
Longshore issue and problems with interstate transportation of boats that is
addressed by the Business Activity Tax Simplification Act (H.R. 1439).
LONGSHORE — The
Department of Labor is responsible for the implementation of the Longshore and
Harbor Workers’ Compensation Act (LHWCA), a Federal program that requires
employment-injury protection for workers who are injured on the navigable
waters or in adjoining areas. Until 2009, the Act excluded from coverage any
employee covered by workers’ compensation plans and "employed to build, repair,
or dismantle any recreational vessel under 65 feet in length.” Employers with
employees subject to the Act are required to purchase insurance or self-insure.
For small businesses in the marine industry, self-insurance is usually not an
option, and they must purchase expensive coverage. The American Recovery and
Reinvestment Act of 2009 (ARRA) amended the LHWCA in two ways: it defined as an
employee only those individuals building recreational vessels over 65 feet in
length, and it excluded from the definition of employee any individual employed
to repair a recreational vessel or dismantle it without regard to length.
On August 17, 2010, the Department of
Labor issued a proposed rule executing the changes contained in the ARRA by
changing the definition of "recreational vessel” to include a repair yard
knowing the purpose of how the vessel is being used. The amendment made by DOL
has added confusion concerning where coverage is required for repair of
recreational vessels. The question is: does a boat yard need LHWCA or state
workers compensation or both? The concern is many associations, including MRAA,
submitted comments that the DOL regulation does not conform to Congressional
intent of completely exempting businesses that repair and dismantle
recreational vessels of any length.
On December 30, 2011, the DOL issued
its final rule implementing the changes passed by Congress. Little or no
changes were made to the language of the proposed rule to reflect the concerns
by the boating industry in regard to the definition of "recreational vessel.”
On July 12, the House Small Business
Committee heard testimony from Kristina Hebert of Ward’s Marine Electric and
the Marine Industries Association of South Florida, who stated that workers’
compensation insurance represents a significant cost to small business in the
recreational boating industry, which is complicated by the duplicative coverage
of the LHWCA. She stated the changes to the definition of "recreational boat”
made by DOL completely ignored Congressional intent and explicitly limited the
exemption for the repair industry. In other words, the DOL did the opposite of
what Congress intended by adopting the new definition of "recreational vessel.”
The new definition has created confusion in both the recreational marine repair
industry and the insurance industry.
She advocated for a narrow fix to the
problem with DOL withdrawing the rule as it applies to the repair industry and
then revising it. This action has a big economic benefit of keeping the cost of
workers’ compensation insurance low, allowing for more workers to have
coverage, and keeping jobs from going offshore.
BAT — The U.S.
Constitution prohibits a state from imposing any tax on a taxpayer that lacks a
substantial nexus within the state. Substantial nexus remains unclear. In a narrow
interpretation of the Supreme Court’s 1992 decision in Quill Corp v. North Dakota, a business requires a physical presence
in the state to satisfy a substantial nexus applies only to state sales taxes. So,
some states have begun to charge use taxes or BATs on cargo shipped through a
state. This has led to considerable uncertainty for businesses attempting to
estimate and reserve capital for this tax liability. This hodgepodge of state
requirements and laws is difficult for marine manufacturers dealing with
intra-state commerce. Most do not have the resources to research the
requirements of all states through which they do business. As a result,
confiscations of boats being transported through a state and imposition of
large fines have occurred.
H.R 1439, the Business Activity
Simplification Act, seeks to reduce this uncertainty by conforming the Quill decision to BATs. The act
establishes a physical presence requirement in order for states to impose or
collect net income taxes or other BATs on multi-state businesses, prohibits
states from imposing taxes on net income of interstate sellers of tangible
property, and restricts the means by which a state may apportion the income of
a business to only that portion conducted in that state.
Mark Ducharme of Monterey Boats represented
the boat manufacturers’ testimony by citing an example of how states have
charged his company with BATs. Michigan, for example, allocates the entire
worldwide sales to the state rather than only that portion of sales and income
made in the state. He asked Congress to step in to clarify the Constitution’s
requirement of a physical presence in a state to end the confusion that exists
today. He said Congress should not delay and end unfair business taxation.
MRAA — MRAA is
submitting testimony for the record that supports both positions given by
industry representatives on the Longshore issue and the BAT. In addition, MRAA
is calling for Congress to review the regulations made of federal government
agencies before they become final for complying with Congressional intent of
the original law. Misunderstanding of Congressional intent or a desire to
follow particular agency interests is causing great confusion.