II 

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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Business Activity Tax 

5 Simplification Act of 2006’’. 

6 SEC. 2. REMOVAL OF CERTAIN LIMITATIONS ON THE AP7 PLICATION OF PUBLIC LAW 86–272. 

8 (a) SOLICITATIONS WITH RESPECT TO SALES AND

9 TRANSACTIONS OF OTHER THAN TANGIBLE PERSONAL

10 PROPERTY.—Section 101 of the Act entitled ‘‘An Act reVerDate Aug 31 2005 21:01 May 06, 2006 Jkt 049200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2721.IS S2721

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1 lating to the power of the States to impose net income 

2 taxes on income derived from interstate commerce, and 

3 authorizing studies by congressional committees of mat4 ters pertaining thereto’’, approved September 14, 1959 

5 (15 U.S.C. 381 et seq.), is amended— 

6 (1) in subsection (a)(1) by striking ‘‘of tan7 gible’’ and all that follows through ‘‘State; and’’ and 

8 inserting the following: ‘‘or transactions, which or9 ders are sent outside the State for approval or rejec10 tion and, if approved, are— 

11 ‘‘(A) in the case of tangible personal prop12 erty, filled by shipment or delivery from a point 

13 outside the State; and 

14 ‘‘(B) in the case of all other forms of prop15 erty, services, and other transactions, fulfilled 

16 from a point outside the State; and’’; 

17 (2) in subsection (c)— 

18 (A) by inserting ‘‘or fulfilling transactions’’ 

19 after ‘‘making sales’’; 

20 (B) by inserting ‘‘or transactions’’ after 

21 ‘‘sales’’ the other places it appears; and 

22 (C) by striking ‘‘of tangible personal prop23 erty’’ each place it appears; and 


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1 (3) in subsection (d)(1) by striking ‘‘the sale of, 

2 tangible personal property’’ and inserting ‘‘a sale or 

3 transaction,’’. 

4 (b) APPLICATION OF PROHIBITIONS TO OTHER BUSI5 NESS ACTIVITY TAXES.—Title I of the Act entitled ‘‘An 

6 Act relating to the power of the States to impose net in7 come taxes on income derived from interstate commerce, 

8 and authorizing studies by congressional committees of 

9 matters pertaining thereto’’, approved September 14, 

10 1959 (15 U.S.C. 381 et seq.), is amended by adding at 

11 the end the following: 

12 ‘‘SEC. 105. Beginning with taxable periods beginning 

13 on or after the first day of the first calendar year that 

14 begins after the date of the enactment of the Business 

15 Activity Tax Simplification Act of 2006, the prohibitions 

16 of section 101 that apply with respect to net income taxes 

17 shall also apply with respect to each other business activity 

18 tax, as defined in section 4 of the Business Activity Tax 

19 Simplification Act of 2006. A State or political subdivision 

20 thereof may not assess or collect any tax which by reason 

21 of this section the State or political subdivision may not 

22 impose.’’. 

23 (c) EFFECTIVE DATE OF SUBSECTION (a) AMEND24 MENTS.—The amendments made by subsection (a) shall 

25 apply with respect to the imposition, assessment, and colVerDate Aug 31 2005 21:01 May 06, 2006 Jkt 049200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2721.IS S2721

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1 lection of taxes for taxable periods beginning on or after 

2 the first day of the first calendar year that begins after 

3 the date of the enactment of the Business Activity Tax 

4 Simplification Act of 2006. 

5 SEC. 3. JURISDICTIONAL STANDARD FOR STATE AND 

6 LOCAL NET INCOME TAXES AND OTHER BUSI7 NESS ACTIVITY TAXES. 

8 (a) IN GENERAL.—No taxing authority of a State 

9 shall have power to impose, assess, or collect a net income 

10 tax or other business activity tax on any person relating 

11 to such person’s activities in interstate commerce unless 

12 such person has a physical presence in the State during 

13 the taxable period with respect to which the tax is im14 posed. 

15 (b) REQUIREMENTS FOR PHYSICAL PRESENCE.—For 

16 the purposes of subsection (a), a person has a physical 

17 presence in a State only if such person’s business activities 

18 in the State include any of the following, collectively and 

19 on more than 21 days in the aggregate, during such per20 son’s taxable year: 

21 (1) Being an individual physically in the State, 

22 or assigning one or more employees to be in the 

23 State, except that the following shall be excluded in 

24 determining whether such 21-day limit has been ex25 ceeded: 


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1 (A) Activities in connection with a possible 

2 or an actual purchase of goods or services, for 

3 consumption by the person’s business. 

4 (B) Gathering news and covering events 

5 for print, broadcast, or other distribution 

6 through the media. 

7 (C) Gathering information needed in order 

8 to perform services outside the State. 

9 (D) Meeting government officials for pur10 poses other than selling goods or services, for 

11 consumption by such government. 

12 (E) Merely attending educational or train13 ing conferences, seminars or other similar func14 tions. 

15 (F) Participating in charitable activities. 

16 (2) Using the services of an agent (excluding an 

17 employee) to establish or maintain the market in the 

18 State, if such agent does not perform business serv19 ices in the State for any other person during such 

20 taxable year. 

21 (3) The leasing or owning of tangible personal 

22 property or of real property in the State, except that 

23 the following shall be excluded in determining wheth24 er such 21-day limit has been exceeded: 


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1 (A) Tangible personal property located in 

2 the State for purposes of being assembled, man3 ufactured, processed, or tested by another per4 son for the benefit of the owner or lessee, or 

5 used to furnish a service to the owner or lessee 

6 by another person. 

7 (B) Marketing or promotional materials 

8 distributed in the State. 

9 (C) Any property to the extent used ancil10 lary to an activity excluded from the computa11 tion of the 21-day period based on paragraph 

12 (1) or (2). 

13 (c) TAXABLE PERIODS NOT CONSISTING OF A

14 YEAR.—If the taxable period for which the tax is imposed 

15 is not a year, then any requirements expressed in days 

16 for establishing physical presence under this Act shall be 

17 adjusted pro rata accordingly. 

18 (d) EXCEPTIONS.— 

19 (1) DOMESTIC BUSINESS ENTITIES AND INDI20 VIDUALS DOMICILED IN, OR RESIDENTS OF, THE

21 STATE.—Subsection (a) does not apply with respect 

22 to— 

23 (A) a person (other than an individual) 

24 that is incorporated or formed under the laws 


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1 of the State (or domiciled in the State) in which 

2 the tax is imposed; or 

3 (B) an individual who is domiciled in, or a 

4 resident of, the State in which the tax is im5 posed. 

6 (2) TAXATION OF PARTNERS AND SIMILAR PER7 SONS.—This section shall not be construed to modify 

8 or affect any State business activity tax liability of 

9 an owner or beneficiary of an entity that is a part10 nership, an S corporation (as defined in section 

11 1361 of the Internal Revenue Code of 1986 (26 

12 U.S.C. 1361)), a limited liability company, a trust, 

13 an estate, or any other similar entity, if the entity 

14 has a physical presence in the State in which the tax 

15 is imposed. 

16 (3) PRESERVATION OF AUTHORITY.—This sec17 tion shall not be construed to modify, affect, or su18 persede the authority of a State to bring an enforce19 ment action against a person or entity that may be 

20 engaged in an illegal activity, a sham transaction, or 

21 any perceived or actual abuse in its business activi22 ties if such enforcement action— 

23 (A) is of a kind customarily used by the 

24 State; and 


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1 (B) does not modify, affect, or supersede 

2 the operation of any provision of this Act or of 

3 any other Federal law. 

4 (4) CERTAIN ACTIVITIES.—With respect to the 

5 following, subsection (b) shall be read by sub6 stituting ‘‘at least one day’’ for ‘‘more than 21 days 

7 in the aggregate’’: 

8 (A) The sale within a State of tangible 

9 personal property, if delivery of the property 

10 originates and is completed within the State. 

11 (B) The performance of services that phys12 ically affect real property within a State. 

13 (5) EXCEPTION RELATING TO CERTAIN PER14 FORMANCES AND SPORTING EVENTS.—With respect 

15 to the taxation of the following, subsection (b) shall 

16 be read by substituting ‘‘at least one day’’ for ‘‘more 

17 than 21 days in the aggregate’’: 

18 (A) A live performance in a State, before 

19 a live audience of more than 100 individuals. 

20 (B) A live sporting event in a State before 

21 more than 100 spectators present at the event. 

22 (e) RULE OF CONSTRUCTION.—This section shall not 

23 be construed to modify, affect, or supersede the operation 

24 of title I of the Act entitled ‘‘An Act relating to the power 

25 of the States to impose net income taxes on income derived 


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1 from interstate commerce, and authorizing studies by con2 gressional committees of matters pertaining thereto’’, ap3 proved September 14, 1959 (15 U.S.C. 381 et seq.). 

4 SEC. 4. DEFINITIONS. 

5 The following definitions apply in this Act: 

6 (1) NET INCOME TAX.—The term ‘‘net income 

7 tax’’ has the meaning given that term for the pur8 poses of the Act entitled ‘‘An Act relating to the 

9 power of the States to impose net income taxes on 

10 income derived from interstate commerce, and au11 thorizing studies by congressional committees of 

12 matters pertaining thereto’’, approved September 

13 14, 1959 (15 U.S.C. 381 et seq.). 

14 (2) OTHER BUSINESS ACTIVITY TAX.— 

15 (A) The term ‘‘other business activity tax’’ 

16 means— 

17 (i) a tax imposed on or measured by 

18 gross receipts, gross income, or gross prof19 its; 

20 (ii) a business and occupation tax; 

21 (iii) a franchise tax; 

22 (iv) a single business tax or a capital 

23 stock tax; or 

24 (v) any other tax imposed by a State 

25 on a business measured by the amount of, 


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1 or economic results of, business or related 

2 activity conducted in the State. 

3 (B) The term ‘‘other business activity tax’’ 

4 does not include a sales tax, a use tax, or a 

5 similar tax, imposed as the result of the sale or 

6 acquisition of goods or services, whether or not 

7 denominated a tax imposed on the privilege of 

8 doing business. 

9 (3) STATE.—The term ‘‘State’’ means any of 

10 the several States, the District of Columbia, or any 

11 territory or possession of the United States, or any 

12 political subdivision of any of the foregoing. 

13 (4) TANGIBLE PERSONAL PROPERTY.—The 

14 term ‘‘tangible personal property’’ does not include 

15 computer software that is owned and licensed by the 

16 owner to another person. 

17 SEC. 5. EFFECTIVE DATE. 

18 Except as provided otherwise in this Act, this Act ap19 plies with respect to taxable periods beginning on and 

20 after the first day of the first year that begins after the 

21 date of the enactment of this Act. 

Æ 


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