Key Takeaways
- Budget bill looks to curb state income taxes on multistate goods sellers.
- External Revenue Service?
- Hundreds accept deferred resignation offer at IRS Appeals.
- GOP may target executive pay deductions to pay for tax bill.
- Car tax idea ripped.
- SALT deduction impasse.
- Two dolls.
- Happy May Day!
P.L. 86-272 Expansion Added to Federal Reconciliation Component - Amy Hamilton, Tax Notes ($):
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Included in the proposal is the text of H.R. 427, the Interstate Commerce Simplification Act of 2025, which would amend P.L. 86-272, the 1959 federal statute that bars states from imposing net income tax on income derived in the state from interstate commerce if the only business activity performed in the state is the solicitation of orders for sales of tangible personal property.
Congress has never amended P.L. 86-272, which does not define the phrase "solicitation of orders." But the Judiciary Committee's text would define the term to mean “business activity that facilitates the solicitation of orders even if that activity may also serve some independently valuable business function apart from solicitation.”
P.L. 86-272 does not protect taxpayers in service businesses. It also does not apply to sales taxes.
State tax authorities hate P.L. 86-272 because of the limits it places on their ability to impose income tax on companies selling goods from out-of-state. They have been working to erode these taxpayer protections by treating things like online chat bots as unprotected activity, subjecting taxpayers to income taxes.
Related: Eide Bailly State and Local Tax Services.
The Continuing Crisis at IRS
Lutnick Says Administration Wants to Replace the IRS - Benjamin Valdez, Tax Notes ($):
Lutnick, during an April 30 meeting with President Trump and members of his Cabinet, said that “hundreds and hundreds of billions of dollars” from Trump’s proposed tariff regime will allow for the creation of an “External Revenue Service” that would administer tariffs instead of taxes.
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This isn’t the first time Lutnick has floated replacing the IRS, but it’s the first time he’s done so in a Cabinet meeting alongside Trump and Treasury Secretary Scott Bessent, neither of whom addressed the proposal during the gathering. Bessent, however, said the Department of Government Efficiency is working to improve the IRS’s information technology infrastructure, making it uncertain whether Trump intends to eliminate the agency.
Related: Five Things To Know About Trump’s Income Tax and Tariff Idea
Hundreds at IRS Appeals Office to Take Deferred Resignations - Caleb Harshberger, Bloomberg ($):
“That hurts in some respects, but we are going to do our best to not let that long-term disrupt operations too much,” Askey said on a panel.
Appeals had 1,663 staffers as of April 5, according to data Askey presented—down from around 1,777 at the beginning of the year. The April number doesn’t include the staffers that took the deferred resignations, she said.
Don't expect these positions to be easily automated.
IRS Likely To Feel Strain Of Layoffs Now Filing Season's Over - Asha Glover, Law360 Tax Authority ($). "The Internal Revenue Service has made improvements in recent years by beefing up its customer service staff, recruiting younger employees as others retire and boosting enforcement efforts, mostly thanks to the funding boost the Inflation Reduction Act provided. But the agency's impending loss of 7,000 probationary employees and over 20,000 employees who accepted early buyouts by the fall is likely to reverse some of those gains."
In Congress
GOP Weighs More Taxes on Companies for Top Executives’ Pay - Richard Rubin, Wall Street Journal:
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Limiting those deductions would raise taxes on corporations and could indirectly hit high-income households, perhaps in a more politically palatable way than the top marginal income tax-rate increase on millionaires that President Trump recently considered and rejected. The resulting revenue could offset some of the tax cuts in the bill, including extensions of expiring provisions from the 2017 tax law and Trump’s plans to eliminate taxes on tips, overtime pay and Social Security benefits.
Micromanaging executive compensation through the tax law was a bad idea when it was enacted in 1993. It hasn't improved with age.
‘Are you out of your fricking mind?’ Republicans balk at new passenger car fee proposal - Chris Marquette, Sam Ogozalek and Mia McCarthy, Politico:
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But Rep. Chip Roy (R-Texas) was outraged by the proposal and put it forward as an example of why he’s skeptical about how much the Republicans’ party-line package of tax cuts, border security investments, energy policies and more will actually reduce the federal deficit.
“Like, are you out of your fricking mind?” Roy said Tuesday upon reviewing the proposal. “Like, the party of limited government is gonna go out and, ‘say we’re gonna have [a car tax]?’”
Pro-SALT Republicans, House Leaders Divided Over Tax Break - Erik Wasson and Billy House, Bloomberg News:
The continued failure to reach a deal threatens to delay the speaker’s schedule to have the tax writing committee vote on its portion of the bill next week. But participants said they were optimistic a deal could be reached soon and plan to meet Thursday.
Johnson fails to solve SALT problem after key meeting - Brian Faler, Politico:
Capping the previously unlimited deduction was one of the main ways Republicans defrayed the cost of their 2017 tax cuts, and it’s been a source of angst for lawmakers from high-tax states in both parties ever since. Advocates say they are merely trying to make their constituents whole, though some still saw their taxes decline after the 2017 law, even with the cap. Undoing it would be costly, a big problem when lawmakers are straining to find the money needed to make the math behind Trump’s latest tax plans work.
Trump Tariff Talk
Trump says children could have ‘2 dolls instead of 30’ with his tariff plan - Alex Gangitano, The Hill:
He added, “You know, someone said, ‘Oh, the shelves, they’re going to be open.’ Well, maybe the children will have two dolls instead of 30 dolls, and maybe the two dolls will cost a couple of bucks more than they would normally. But we’re not talking about something that we have to go out of our way. They have ships that are loaded up with stuff, much of which — not all of it — but much of which we don’t need. And, we have to make a fair deal.”
Thus was the Barbie proliferation crisis solved.
Senate Republicans block rebuke of Trump’s tariffs - Daniel Desrochers, Politico:
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Three Republicans joined Democrats in rejecting the tariffs: Sens. Lisa Murkowski of Alaska, Susan Collins of Maine and Rand Paul of Kentucky. Paul was a cosponsor of the resolution with Sen. Ron Wyden, an Oregon Democrat.
Are there secret tariff opponents in the GOP?
Stanley Black & Decker Raising Prices to Offset Tariff Costs - Dean Seal, Wall Street Journal. "In response to the Trump administration’s tariff campaign, management introduced a high-single-digit percentage price increase in its U.S. tool and outdoor business in April and has notified customers that it expects to raise prices again at the beginning of the third quarter."
Not feeling tariff pains yet? Just wait. - Dominic Pino, Washington Post. "The giant container ships that carry most international trade take about a month to cross the Pacific. That means many of the goods loaded onto ships in China the day before April 2, or what Trump has called 'Liberation Day,' have not reached U.S. shores. It also means the effect of canceled sailings post-'Liberation Day' have hardly been felt."
Blogs and Bits
Tax and financial knowledge concerns during Financial Literacy Month - Kay Bell, Don't Mess With Taxes. "The poll’s finding including the distressing discovery that more than 61 percent of U.S. taxpayers did not know, or were not sure of, basic tax concepts related to filing income taxes."
Executor Beware: Personal Liability for Unpaid Estate Tax and More - Virginia La Torre Jeker, US Tax Talk. "Executors can be held personally liable for unpaid estate taxes under a strict liability standard."
My Conversation with the excellent Ken Rogoff - Tyler Cowen, Marginal Revolution. Quoting Rogoff: "I think in the United States, a lot of the choices, I’m sorry to say, probably point towards higher taxation because we’re hardly running a welfare state. All due respects — and I’m not sure I have any due respects to DOGE — there’re not that many things to cut in the United States compared to many other countries."
A Texas Mess
Kingsville business owner pleads guilty to tax fraud - IRS (emphasis added, Defendant name omitted):
Defendant owned and operated... a residential remodeling and fence installation business in Bishop and Kingsville.
He admitted that from 2019 through 2021, he was responsible for collecting and withholding employment taxes from his employees’ paychecks. These included federal income, Social Security and Medicare taxes.
Defendant admitted he withheld those monies from his employees but failed to pay them to the United States, as the law requires. Instead, Defendant used the funds to cover personal expenses.
Keeping withheld payroll taxes is a terrible idea, and it's hard for the IRS to miss. Diverting the funds to personal use is a quick ticket to a criminal problem. If it doesn't become a criminal problem, the employer is still personally on the hook for the funds - even if using an LLC or corporation.
What day is it?
Happy May Day! May your May baskets be plentiful.
