Short title

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

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:

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.

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.).

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.

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.