\-\-\-\--Original Message\-\-\-\--

From: Richard Weiss - Mintax, Inc.
\[[[mailto:r.weiss@mintax.com]{.underline}](mailto:r.weiss@mintax.com)\]

Sent: Tuesday, March 15, 2005 9:53 AM

To: comments

Subject: Comment #1

Gentlemen:

Attached is a Word document with comments from Mintax Inc. Please let me
know if you have difficulty opening it.

Thank you.

Regards,

Richard Weiss

Executive Director of Incentive Services

Mintax Inc.

41 Arthur Street

East Brunswick, New Jersey 08816

\(732\) 723-9000 ext. 230 (office)

\(516\) 568-6061 (home office)

"BUSINESS" Submission to President's

Advisory Panel on Federal Tax Reform

Request for Comments #1

Richard Weiss

Executive Director of Incentive Services

Mintax Inc.

41 Arthur Street

East Brunswick, New Jersey 08816

516-568-6061

<r.weiss@mintax.com>

I appreciate this opportunity to submit comments with regard to federal
tax reform. Mintax is a nationally recognized consulting firm
specializing in state and federal tax incentives and grants. In addition
to my position of Executive Director of Incentive Services at Mintax, I
am also an adjunct professor of accounting and tax at Queens College,
CUNY.

One "headache" and "complexity", which our current tax system presents,
results from the interrelationship between the federal tax systems and
the state tax systems. Over the years, state systems have grown
extremely interrelated with the federal systems. Despite these
interrelationships, tax legislation has been enacted at the federal
level with minimal consideration of the ramifications the law changes
have on state systems. Instead of functioning synergistically, the two
systems are operating independently without coordination of legislation
that impact other tax regimes.

A recent example of this is the Tsunami Disaster Relief Act. This bill
amended federal income tax law to allow deductions in 2004 for donations
made for tsunami disaster relief in January 2005. This change altered
the computation of "taxable income" which is relied on by states in
computing their state income taxes. States then have to decide whether
they want to adopt the new provision (which would cause a slight
reduction in state tax revenues) or decouple from the federal rule on
this item. Some states automatically adopt federal changes, and others
require legislation to adopt the changes. The result is that states take
varying positions on alterations which Congress makes to taxable income.
Multistate corporations and individuals who file personal income taxes
in numerous states have to keep track of these adjustments. Tax returns
for corporate and personal income taxes are unique for each state and
generally are significantly diverse in form and computations.

Where the changes relate to depreciation, the administrative burden is
even more significant. The 50% bonus depreciation enacted in the Jobs
and Growth Tax Relief Reconciliation Act of 2003 similarly spawned a
broad range of responses where some states followed the federal change,
while others decoupled (adopting earlier versions of federal tax law),
or adopted their own unique approaches.

The solution to the issue of disparate state tax reactions to federal
tax changes in taxable income is to have the federal government provide
incentives through other vehicles than adjusting taxable income. Had the
capital expenditure relief from bonus depreciation been provided in the
form of a tax credit rather than accelerated depreciation, the economic
benefit to taxpayers could have been accomplished without disturbing the
states' tax bases. Likewise, the tsunami charitable deduction relief
could have been provided by a credit (say 10% of any donation made in
January 2005) without accelerating a deduction. If a state wanted to
afford similar relief as a policy matter, they could enact their own
state income tax credit. Where a federal tax structure forms the
foundation for state taxes, Congress should be extremely reluctant to
change relevant computations.

When a tax credit is offered, it should be structured so as to not
impact taxable income. In many instances, the amounts claimed as credits
are required by federal tax law to be added back to taxable income. The
expenses creating the credit are in essence reduced by the amount of the
credit and cannot be deducted even though they represent valid expenses
of the taxpayer. The credit for clinical testing for drugs for rare
diseases (IRC Section 45C) must either result in an increase to taxable
income (by denying a deduction) or reducing the tax basis of an
amortizable cost. Either of these adjustments creates changes to taxable
income which have to be monitored and which often result in disparate
treatment among states. A good approach would be similar to the elective
provision in IRC Section 280C(c)(3) where taxable income is not adjusted
if a lower credit is claimed. The federal tax benefit derived as a
result of claiming a reduced credit is exactly the same as claiming the
larger credit with an add back to taxable income, but the state income
tax impact is removed from the equation. The Advisory Panel on Federal
Tax Reform should consider providing the option of reduced tax credits
or an add back to federal taxable income on all credits with addbacks.
This election (for lower credits offered without impact to taxable
income) would be significant simplification in administration. \[This
could be offered in combination with allowing transferability of credits
for taxpayers which otherwise could not utilize them.\]

Similar issues also occur with regard to the federal estate tax. Until
2001, there was an estate tax credit allowed under IRC Section 2011 for
state inheritance and estate taxes paid, up to a maximum amount computed
based on a progressive rate chart. States established tax structures
which relied on this structure. Between 2001 and 2004, the federal
credit was phased out and was replaced by a deduction in 2005 under IRC
Section 2058 (enacted by the Economic Growth and Tax Relief
Reconciliation Act of 2001). Depending on state laws, the legislatures
of states had to determine whether to decouple from the federal estate
tax law, to retain adoption of federal law as it existed in 2001 (before
these amendments), or to make other adjustments. This created
legislative issues in many states. Changes of this nature create
significant and often unnecessary problems.

Although these recent examples involve income and estate taxes, there
are other taxes where this potential for disruption exists. Where taxes
are determined using a common base for federal and state tax purposes,
the computation of the common base should be simple, straightforward,
objective, and consistent. Legislative enactments to encourage behavior
should be accomplished with tax credits, and provisions to discourage
behavior should be made with surtaxes (the opposite of credits). This
would make compliance much easier and would make the state tax
administrators' jobs simpler.

If the repeal of the federal estate tax (and generation-skipping
transfer tax) is made permanent, this could lead to a significant amount
of confusion. Some states may see this as an opportunity to increase
their state tax on estates (or inheritance) and absorb the savings the
repeal would have created for estates and beneficiaries. Other states
may follow federal law and repeal their "death taxes". Such a wide
disparity in tax results between states would cause significant economic
shifts (with retirees moving to states without estate tax). It would
also create incentives to manipulate the tax systems by establishing
fraudulent domicile in states without estate tax.

Rather than allow the estate tax to be repealed, a better approach would
be to raise the unified credit (also referred to as the applicable
credit under IRC Section 2010). That would reduce the number of
decedents' estates that have to file estate tax returns, and will
alleviate the problem of small businesses and farms that have to pay
estate tax when they have no cash available to make those payments
(requiring either a partial sale of the business or farm or borrowing
against those assets). Clearly, there are problems with the estate tax,
but repealing it seems to be an excessive reaction. Calling the estate
tax a "death tax" is hyperbole which should not form the basis of
rational tax policy. The estate tax generates significant tax revenues
and is a valuable tax on accumulated wealth which we should be very
reluctant to repeal.

Another issue with regard to tax policy which is important for Mintax is
the lack of certainty in the law. Provisions that are enacted with
expiration dates but which are generally renewed create an atmosphere of
uncertainty which has a dampening effect on taxpayers availing
themselves of incentives. When making plans for future expansion or
relocation, a business wants to be certain a benefit which it
anticipates will be available when the time comes to utilize it. With
credits that expire every couple of years, this certainty does not
exist. The Work Opportunity Tax Credit (IRC Section 51) and the Research
Credit (IRC Section 41) are two examples of credits that have existed in
various forms for over 20 years but which still are subject to periodic
renewal (and have been subject to periods when they were not in effect).
If this kind of uncertainty could be eliminated, that would be very
helpful.

Once again, let me extend my appreciation for an opportunity to submit
comments. I believe that the President's initiative to reform federal
taxes has enormous potential. I hope that you will be able to modernize
our tax structure to make it more equitable, simpler, and easier to
comply with.

Richard Weiss

Executive Director of Incentive Services

Mintax Inc.

41 Arthur Street

East Brunswick, New Jersey 08816

\(516\) 568 6061

<r.weiss@mintax.com>