[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 2721 Introduced in Senate (IS)]








109th CONGRESS
  2d Session
                                S. 2721

 To simplify the taxation of business activity, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 4, 2006

   Mr. Schumer (for himself, Mr. Crapo, Mr. Johnson, Mr. Thune, Mr. 
 DeMint, and Mr. Allen) introduced the following bill; which was read 
             twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To simplify the taxation of business activity, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Business Activity Tax Simplification 
Act of 2006''.

SEC. 2. REMOVAL OF CERTAIN LIMITATIONS ON THE APPLICATION OF PUBLIC LAW 
              86-272.

    (a) Solicitations With Respect to Sales and Transactions of Other 
Than Tangible Personal Property.--Section 101 of the Act entitled ``An 
Act relating to the power of the States to impose net income taxes on 
income derived from interstate commerce, and authorizing studies by 
congressional committees of matters pertaining thereto'', approved 
September 14, 1959 (15 U.S.C. 381 et seq.), is amended--
            (1) in subsection (a)(1) by striking ``of tangible'' and 
        all that follows through ``State; and'' and inserting the 
        following: ``or transactions, which orders are sent outside the 
        State for approval or rejection and, if approved, are--
                    ``(A) in the case of tangible personal property, 
                filled by shipment or delivery from a point outside the 
                State; and
                    ``(B) in the case of all other forms of property, 
                services, and other transactions, fulfilled from a 
                point outside the State; and'';
            (2) in subsection (c)--
                    (A) by inserting ``or fulfilling transactions'' 
                after ``making sales'';
                    (B) by inserting ``or transactions'' after 
                ``sales'' the other places it appears; and
                    (C) by striking ``of tangible personal property'' 
                each place it appears; and
            (3) in subsection (d)(1) by striking ``the sale of, 
        tangible personal property'' and inserting ``a sale or 
        transaction,''.
    (b) Application of Prohibitions to Other Business Activity Taxes.--
Title I of the Act entitled ``An Act relating to the power of the 
States to impose net income taxes on income derived from interstate 
commerce, and authorizing studies by congressional committees of 
matters pertaining thereto'', approved September 14, 1959 (15 U.S.C. 
381 et seq.), is amended by adding at the end the following:
    ``Sec. 105.  Beginning with taxable periods beginning on or after 
the first day of the first calendar year that begins after the date of 
the enactment of the Business Activity Tax Simplification Act of 2006, 
the prohibitions of section 101 that apply with respect to net income 
taxes shall also apply with respect to each other business activity 
tax, as defined in section 4 of the Business Activity Tax 
Simplification Act of 2006. A State or political subdivision thereof 
may not assess or collect any tax which by reason of this section the 
State or political subdivision may not impose.''.
    (c) Effective Date of Subsection (a) Amendments.--The amendments 
made by subsection (a) shall apply with respect to the imposition, 
assessment, and collection of taxes for taxable periods beginning on or 
after the first day of the first calendar year that begins after the 
date of the enactment of the Business Activity Tax Simplification Act 
of 2006.

SEC. 3. JURISDICTIONAL STANDARD FOR STATE AND LOCAL NET INCOME TAXES 
              AND OTHER BUSINESS ACTIVITY TAXES.

    (a) In General.--No taxing authority of a State shall have power to 
impose, assess, or collect a net income tax or other business activity 
tax on any person relating to such person's activities in interstate 
commerce unless such person has a physical presence in the State during 
the taxable period with respect to which the tax is imposed.
    (b) Requirements for Physical Presence.--For the purposes of 
subsection (a), a person has a physical presence in a State only if 
such person's business activities in the State include any of the 
following, collectively and on more than 21 days in the aggregate, 
during such person's taxable year:
            (1) Being an individual physically in the State, or 
        assigning one or more employees to be in the State, except that 
        the following shall be excluded in determining whether such 21-
        day limit has been exceeded:
                    (A) Activities in connection with a possible or an 
                actual purchase of goods or services, for consumption 
                by the person's business.
                    (B) Gathering news and covering events for print, 
                broadcast, or other distribution through the media.
                    (C) Gathering information needed in order to 
                perform services outside the State.
                    (D) Meeting government officials for purposes other 
                than selling goods or services, for consumption by such 
                government.
                    (E) Merely attending educational or training 
                conferences, seminars or other similar functions.
                    (F) Participating in charitable activities.
            (2) Using the services of an agent (excluding an employee) 
        to establish or maintain the market in the State, if such agent 
        does not perform business services in the State for any other 
        person during such taxable year.
            (3) The leasing or owning of tangible personal property or 
        of real property in the State, except that the following shall 
        be excluded in determining whether such 21-day limit has been 
        exceeded:
                    (A) Tangible personal property located in the State 
                for purposes of being assembled, manufactured, 
                processed, or tested by another person for the benefit 
                of the owner or lessee, or used to furnish a service to 
                the owner or lessee by another person.
                    (B) Marketing or promotional materials distributed 
                in the State.
                    (C) Any property to the extent used ancillary to an 
                activity excluded from the computation of the 21-day 
                period based on paragraph (1) or (2).
    (c) Taxable Periods Not Consisting of a Year.--If the taxable 
period for which the tax is imposed is not a year, then any 
requirements expressed in days for establishing physical presence under 
this Act shall be adjusted pro rata accordingly.
    (d) Exceptions.--
            (1) Domestic business entities and individuals domiciled 
        in, or residents of, the state.--Subsection (a) does not apply 
        with respect to--
                    (A) a person (other than an individual) that is 
                incorporated or formed under the laws of the State (or 
                domiciled in the State) in which the tax is imposed; or
                    (B) an individual who is domiciled in, or a 
                resident of, the State in which the tax is imposed.
            (2) Taxation of partners and similar persons.--This section 
        shall not be construed to modify or affect any State business 
        activity tax liability of an owner or beneficiary of an entity 
        that is a partnership, an S corporation (as defined in section 
        1361 of the Internal Revenue Code of 1986 (26 U.S.C. 1361)), a 
        limited liability company, a trust, an estate, or any other 
        similar entity, if the entity has a physical presence in the 
        State in which the tax is imposed.
            (3) Preservation of authority.--This section shall not be 
        construed to modify, affect, or supersede the authority of a 
        State to bring an enforcement action against a person or entity 
        that may be engaged in an illegal activity, a sham transaction, 
        or any perceived or actual abuse in its business activities if 
        such enforcement action--
                    (A) is of a kind customarily used by the State; and
                    (B) does not modify, affect, or supersede the 
                operation of any provision of this Act or of any other 
                Federal law.
            (4) Certain activities.--With respect to the following, 
        subsection (b) shall be read by substituting ``at least one 
        day'' for ``more than 21 days in the aggregate'':
                    (A) The sale within a State of tangible personal 
                property, if delivery of the property originates and is 
                completed within the State.
                    (B) The performance of services that physically 
                affect real property within a State.
            (5) Exception relating to certain performances and sporting 
        events.--With respect to the taxation of the following, 
        subsection (b) shall be read by substituting ``at least one 
        day'' for ``more than 21 days in the aggregate'':
                    (A) A live performance in a State, before a live 
                audience of more than 100 individuals.
                    (B) A live sporting event in a State before more 
                than 100 spectators present at the event.
    (e) Rule of Construction.--This section shall not be construed to 
modify, affect, or supersede the operation of title I of the Act 
entitled ``An Act relating to the power of the States to impose net 
income taxes on income derived from interstate commerce, and 
authorizing studies by congressional committees of matters pertaining 
thereto'', approved September 14, 1959 (15 U.S.C. 381 et seq.).

SEC. 4. DEFINITIONS.

    The following definitions apply in this Act:
            (1) Net income tax.--The term ``net income tax'' has the 
        meaning given that term for the purposes of the Act entitled 
        ``An Act relating to the power of the States to impose net 
        income taxes on income derived from interstate commerce, and 
        authorizing studies by congressional committees of matters 
        pertaining thereto'', approved September 14, 1959 (15 U.S.C. 
        381 et seq.).
            (2) Other business activity tax.--
                    (A) The term ``other business activity tax'' 
                means--
                            (i) a tax imposed on or measured by gross 
                        receipts, gross income, or gross profits;
                            (ii) a business and occupation tax;
                            (iii) a franchise tax;
                            (iv) a single business tax or a capital 
                        stock tax; or
                            (v) any other tax imposed by a State on a 
                        business measured by the amount of, or economic 
                        results of, business or related activity 
                        conducted in the State.
                    (B) The term ``other business activity tax'' does 
                not include a sales tax, a use tax, or a similar tax, 
                imposed as the result of the sale or acquisition of 
                goods or services, whether or not denominated a tax 
                imposed on the privilege of doing business.
            (3) State.--The term ``State'' means any of the several 
        States, the District of Columbia, or any territory or 
        possession of the United States, or any political subdivision 
        of any of the foregoing.
            (4) Tangible personal property.--The term ``tangible 
        personal property'' does not include computer software that is 
        owned and licensed by the owner to another person.

SEC. 5. EFFECTIVE DATE.

    Except as provided otherwise in this Act, this Act applies with 
respect to taxable periods beginning on and after the first day of the 
first year that begins after the date of the enactment of this Act.
                                 <all>