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.