II 110th CONGRESS 1st Session S. 1726 IN THE SENATE OF THE UNITED STATES June 28, 2007 Mr. Schumer (for himself and Mr. Crapo) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To regulate certain State taxation of interstate commerce, and for other purposes.

1.

Short title

This Act may be cited as the Business Activity Tax Simplification Act of 2007.

2.

Modernization 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 section (a), by striking either, or both, and inserting any one or more; (2)in subsection (a)(1), by striking by such person and all that follows and inserting “(which are sent outside the State for approval or rejection) or customers by such person, or his representative, in such State for sales or transactions, which 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 or distributed from a point outside the State; ; (3)in subsection (a)(2), by striking the period at the end and inserting a semicolon; (4)in subsection (a), by adding at the end the following new paragraphs: (3)the furnishing of information to customers or affiliates in such State, or the coverage of events or other gathering of information in such State by such person, or his representative, which information is used or disseminated from a point outside the State; and (4)those business activities directly related to such person’s potential or actual purchase of goods or services within the State if the final decision to purchase is made outside the State. ; (5)by striking subsection (c) and inserting the following new subsection: (c)For purposes of subsection (a) of this section, a person shall not be considered to have engaged in business activities within a State during any taxable year merely— (1)by reason of sales or transactions in such State, the solicitation of orders for sales or transactions in such State, the furnishing of information to customers or affiliates in such State, or the coverage of events or other gathering of information in such State, on behalf of such person by one or more independent contractors; (2)by reason of the maintenance of an office in such State by one or more independent contractors whose activities on behalf of such person in such State consist solely of making sales or fulfilling transactions, soliciting order for sales or transactions, the furnishing of information to customers or affiliates, or the coverage of events or other gathering of information; or (3)by reason of the furnishing of information to an independent contractor by such person ancillary to the solicitation of orders or transactions by the independent contractor on behalf of such person. ; and (6)in subsection (d)(1)— (A)by inserting or fulfilling transactions, after selling; and (B)by striking the sale of, tangible personal property and inserting a sale or transaction, furnishing information, or covering events, or otherwise gathering information. (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.For taxable periods beginning on or after January 1, 2008, 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 3(g) of the Business Activity Tax Simplification Act of 2007. 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

The amendments made by this section shall apply with respect to the imposition, assessment, and collection of taxes for taxable periods beginning on or after January 1, 2008.

3.

Minimum 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

(1)

In general

For 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 during such person’s taxable year: (A)Being an individual physically in the State, or assigning one or more employees to be in the State. (B)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. (C)The leasing or owning of tangible personal property or of real property in the State. (2)

De minimis physical presence

For purposes of this section, the term physical presence shall not include— (A)presence in a State for less than 15 days in a taxable year (or a greater number of days if provided by State law); or (B)presence in a State to conduct limited or transient business activity. (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)

Minimum jurisdictional standard

This section provides for minimum jurisdictional standards and shall not be construed to modify, affect, or supersede the authority of a State or any other provision of Federal law allowing persons to conduct greater activities without the imposition of tax jurisdiction. (e)

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), a limited liability company (classified as a partnership for Federal income tax purposes), 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 does not modify, affect, or supersede the operation of any provision of this section or of any other Federal law. (f)

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.). (g)

Definitions, etc

For purposes of this section: (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)

In general

The term other business activity tax means any tax in the nature of a net income tax or tax measured by the amount of, or economic results of, business or related activity conducted in the State. (B)

Exclusion

The term other business activity tax does not include a sales tax, a use tax, or a similar transaction tax, imposed on the sale or acquisition of goods or services, whether or not denominated a tax imposed on the privilege of doing business. (3)

Person

The term person has the meaning given such term by section 1 of title 1 of the United States Code. (4)

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. (5)

Tangible personal property

For purposes of subsection (b)(1)(C), the leasing or owning of tangible personal property does not include the leasing or licensing of computer software. (h)

Effective date

This section shall apply with respect to taxable periods beginning on or after January 1, 2008.