Letter: Sales Tax May Bring Foreign Franchise Tax
Foreign franchise tax is the tax that out-of-state firms pay for the privilege of doing business outside their home state. The Commonwealth of Pennsylvania, for example, requires that every firm "doing business" in Pennsylvania pay an annual tax based on a formula derived from the percentage of a firm's Pennsylvania sales versus national sales.
What is taxed? Not sales, not income and not Pennsylvania assets (DMers presumably would have none). Pennsylvania taxes the firm's capital assets, wherever located. Pennsylvania includes solicitation of orders by mail and purchasing from vendors located in the state among its definitions of "doing business."
Sound incredible? It's not. The Direct Marketing Association is aware of the problem but has taken the approach that the sales tax issue should be addressed first. However, unless sales taxes and foreign franchise taxes are negotiated by the industry with the states as one package, once DMers register to pay sales tax, they will receive not only sales tax forms, but also corporate excise tax forms.
Richard C. Dabrowski, President, Shaker Workshops, Ashburnham, MA