Testimony of Vernon Turner
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Testimony
by
Vernon T. Turner
Vice President, Corporate Tax
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
On the Issue of State Jurisdiction to Tax Business Activity
Before the United States House of Representatives
Committee on the Judiciary
Subcommittee on Courts, Commercial and Administrative Law
The Honorable Howard Coble, Chairman
April 13, 2011
Mr. Chairman and members of the subcommittee,
On behalf of Smithfield Foods, Inc, I respectfully submit the below testimony for the
record. My name is Tracy Turner, and I am Vice President, Corporate Tax for Smithfield
Foods, Inc. I last testified before the Committee on the Judiciary, Subcommittee on
Courts, Commercial and Administrative Law, in 2004. In my testimony, I stated that
current state interpretation of the business activity tax was doing a substantial amount of
damage to the American business community and to companies like Smithfield Foods.
Since that time, the state tax landscape has gotten significantly more complex, and the
various state tax authorities are far more aggressive. It is our hope that the House
Business Activity Tax Simplification Act of 2011 can ameliorate this situation.
I. Introduction

Background on Smithfield Foods
Smithfield Foods, Inc. is the world's largest pork processor and hog producer,
headquartered in Smithfield, Virginia. We have worldwide sales of over $11 billion, and
are a "Fortune 200" company. Our company has experienced remarkable growth from its
early origins as a small pork processor. Today, we are a worldwide company, with sales
in all fifty states. Our various subsidiaries have physical operations in twenty states.

Why Smithfield is Testifying
We incur substantial costs to meet our state tax obligations. On an annual basis, we are
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required to file 1,100 state income tax returns, 400 sales and use tax returns, 2,600 state
payroll tax returns and 1,100 real and personal property tax returns. This results in
various state payments of approximately $105 million. In spite of our efforts to comply
with laws with all the states, we continue to find state interpretation of the business
activity tax to be difficult and troublesome.
II. The Problem — Bureaucratic Arbitrariness
The U.S. Supreme Court and Congress have decided that states may not unduly burden
companies that have no physical presence in a state with "business activity taxes."
In 1992, the U.S. Supreme Court held in Quill Corporation v. North Dakota that the U.S.
Constitution requires a bright line physical presence rule for the imposition of use tax
collection responsibility. Many scholars and state tax experts believe that the Quill
standard applies to all state taxes, not just use tax.
Public Law 86-272, still good law, was enacted by the U.S. Congress to provide a similar
bright line standard. It bars states from imposing a net income tax on companies whose
only in-state activity is the solicitation of sales of tangible personal property.
Despite the decision of the U.S. Supreme Court and Congress, states continue to attempt
to tax companies regardless of physical presence. States have, for example, enacted and
imposed gross receipts taxes, net worth taxes and fixed dollar minimum taxes on out of
state companies under the theory that Public Law 86-272 bars imposition of only net
income tax. States have argued too, that Quill applies only to use tax. As a result,
businesses struggle with multistate tax compliance in the face of conflicting and
confusing guidance. This situation needs to be clarified, and BATSA seeks to do that and
not more.
III. BATSA
Interstate sales are today more the rule than the exception, not only for large corporations
like Smithfield, but small and medium sized enterprises as well. The current state of
confusing and arbitrary taxation of multi-state companies that are selling product across
state lines only serves to chill interstate commerce. BATSA will eliminate confusion and
the need for companies to engage in protracted and costly litigation as the way of
ameliorating discrepancies in tax enforcement. BATSA does not diminish the ability of
states to collect tax revenue. It rationalizes and makes more predictable the process of
doing so.
IV. A Smithfield Experience with State Tax Law
We experienced a prime example of the arbitrary and confusing application of state
income tax laws. This example is not a gross exception. In fact, it is just a metaphor of a
larger problem. A collection agent with the New Jersey Department of Taxation stopped
one of our trucks, loaded with refrigerated product, on the New Jersey turnpike. The
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agent held the truck and its driver for several hours, and demanded that, in order to
release the truck, Smithfield had to wire $150,000 immediately to the New Jersey
Department of Taxation. The agent claimed that he had the right to hold the truck and its
contents because we had failed to properly file New Jersey tax returns.
I informed the Jersey agent that his claim was unfounded. I explained that Public Law 86272 protected our subsidiary from New Jersey income taxation since it only engaged in
mere solicitation in New Jersey and had no physical operations in the State. The agent
refused to accept this explanation. However, he finally agreed to release the truck and its
driver in return for $8,000.
We appealed this aggressive and incorrect application of Public Law 86-272 to the New
Jersey State tax commissioner. Ultimately, New Jersey accepted our contention that we
have no physical presence in the State and are not subject to New Jersey income tax.
They issued a refund and an apology for their roadside justice system.
Our experience is not unique; it is shared by many businesses, large and small. Many
small companies do not have the ability to make an immediate wire transfer of funds
much less obtain ultimate recourse from aggressive states. We believe that BATSA will
clarify the physical presence standard embodied in Public Law 86-272 and the Quill
decision. This is sound public policy and we urge its passage.