I 

109TH CONGRESS 

1ST SESSION H. R. 1956

To regulate certain State taxation of interstate commerce; and for other 

purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 28, 2005

Mr. GOODLATTE (for himself, Mr. BOUCHER, Mr. CROWLEY, Mr. FORBES, 

Mr. MEEKS of New York, Mr. CHABOT, Mr. BACHUS, Mr. BOEHNER, 

Mrs. DRAKE, Mr. TIBERI, Mr. CANTOR, Mr. MORAN of Virginia, and Mr. 

SMITH of Texas) introduced the following bill; which was referred to the 

Committee on the Judiciary 

A BILL

To regulate certain State taxation of interstate commerce; 

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 2005’’. 

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
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1 PROPERTY.—Section 101 of the Act entitled ‘‘An Act re2 lating to the power of the States to impose net income 

3 taxes on income derived from interstate commerce, and 

4 authorizing studies by congressional committees of mat5 ters pertaining thereto’’, approved September 14, 1959 

6 (15 U.S.C. 381 et seq.) is amended—

7 (1) in subsection (a)(1) by striking ‘‘of tan8 gible’’ and all that follows through ‘‘State; and’’ and 

9 inserting the following: 

10 ‘‘or transactions, which orders are sent outside the 

11 State for approval or rejection and, if approved, 

12 are—

13 ‘‘(A) in the case of tangible personal prop14 erty, filled by shipment or delivery from a point 

15 outside the State; and 

16 ‘‘(B) in the case of all other forms of prop17 erty, services, and other transactions, fulfilled 

18 from a point outside the State; 

19 and’’; 

20 (2) in subsection (c)—

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

22 after ‘‘making sales’’; 

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

24 ‘‘sales’’ the other places it appears; and 
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1 (C) by striking ‘‘of tangible personal prop2 erty’’ each place it appears; and 

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

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

5 transaction,’’. 

6 (b) APPLICATION OF PROHIBITIONS TO OTHER BUSI7 NESS ACTIVITY TAXES.—Title I of the Act entitled ‘‘An 

8 Act relating to the power of the States to impose net in9 come taxes on income derived from interstate commerce, 

10 and authorizing studies by congressional committees of 

11 matters pertaining thereto’’, approved September 14, 

12 1959 (15 U.S.C. 381 et seq.) is amended by adding at 

13 the end the following: 

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

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

16 begins after the date of the enactment of the Business 

17 Activity Tax Simplification Act of 2005, the prohibitions 

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

19 shall also apply with respect to each other business activity 

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

21 Simplification Act of 2005. A State or political subdivision 

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

23 of this section the State or political subdivision may not 

24 impose.’’. 
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1 (c) EFFECTIVE DATE OF SUBSECTION (a) AMEND2 MENTS.—The amendments made by subsection (a) shall 

3 apply with respect to the imposition, assessment, and col4 lection of taxes for taxable periods beginning on or after 

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

6 the date of the enactment of the Business Activity Tax 

7 Simplification Act of 2005. 

8 SEC. 3. JURISDICTIONAL STANDARD FOR STATE AND 

9 LOCAL NET INCOME TAXES AND OTHER BUSI10 NESS ACTIVITY TAXES. 

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

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

13 tax or other business activity tax on any person relating 

14 to such person’s activities in interstate commerce unless 

15 such person has a physical presence in the State during 

16 the taxable period with respect to which the tax is im17 posed. 

18 (b) REQUIREMENTS FOR PHYSICAL PRESENCE.—For 

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

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

21 within the State include any of the following during such 

22 person’s taxable year:

23 (1) Being an individual physically within the 

24 State, or assigning one or more employees to be in 

25 the State, on more than 21 days, except that the fol-
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1 lowing shall be disregarded in determining whether 

2 such 21-day limit has been exceeded: 

3 (A) Activities in connection with a possible 

4 purchase of goods or services for the business. 

5 (B) Gathering news and covering events 

6 for print, broadcast, or other distribution 

7 through the media. 

8 (C) Meeting government officials for pur9 poses other than selling goods or services. 

10 (D) Participation in educational or train11 ing conferences, seminars or other similar func12 tions. 

13 (E) Participating in charitable activities. 

14 (2) Using the services of another person, except 

15 an employee, in the State, on more than 21 days to 

16 establish or maintain the market in the State, unless 

17 such other person performs similar functions on be18 half of at least one additional business entity during 

19 the taxable year. 

20 (3) The leasing or owning of tangible personal 

21 property or of real property in the State on more 

22 than 21 days, except that the following shall be dis23 regarded in determining whether such 21-day limit 

24 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 using mail or a common 

9 carrier, or as inserts in or components of publi10 cations. 

11 (C) Any property to the extent used ancil12 lary to an activity excluded from the computa13 tion of the 21-day period under paragraph (1) 

14 or (2). 

15 (c) TAXABLE PERIODS NOT CONSISTING OF A

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

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

18 for establishing physical presence under this Act shall be 

19 adjusted pro rata accordingly. 

20 (d) EXCEPTIONS.—

21 (1) DOMESTIC BUSINESS ENTITIES AND INDI22 VIDUALS DOMICILED IN THE STATE.—Subsection (a) 

23 does not apply with respect to—

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

25 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 the 

4 State in which the tax is imposed. 

5 (2) TAXATION OF PARTNERS AND SIMILAR PER6 SONS.—If a taxing authority is not prohibited by 

7 this section from taxing an entity that is a partner8 ship, an S corporation (as defined in section 1361 

9 of the Internal Revenue Code of 1986), a limited li10 ability company, a trust, or an estate, or another 

11 similar entity, that taxing authority is also not pro12 hibited by this section from taxing the owners or 

13 beneficiaries of the entity, if State law imposes the 

14 tax not on the entity itself but on the entity’s owners 

15 or beneficiaries, whether or not they are in the 

16 State, with respect to their ownership interest in the 

17 entity. 

18 (3) CERTAIN ACTIVITIES.—With respect to the 

19 following, subsection (b) shall be read by sub20 stituting ‘‘one day’’ for ‘‘more than 21 days’’: 

21 (A) The sale within a State of tangible 

22 personal property, where delivery of the prop23 erty originates and is completed within the 

24 State. 
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1 (B) The performance of services that phys2 ically affect real property within a State. 

3 (4) EXCEPTION RELATING TO CERTAIN PER4 FORMANCES AND SPORTING EVENTS.—With respect 

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

6 be read by substituting ‘‘one day’’ for ‘‘more than 

7 21 days’’: 

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

9 a live audience of more than 100 individuals. 

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

11 more than 100 spectators present at the event. 

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

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

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

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

16 from interstate commerce, and authorizing studies by con17 gressional committees of matters pertaining thereto’’, ap18 proved September 14, 1959 (15 U.S.C. 381 et seq.). 

19 SEC. 4. DEFINITIONS. 

20 The following definitions apply in this Act: 

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

22 tax’’ has the meaning given that term for the pur23 poses of the Act entitled ‘‘An Act relating to the 

24 power of the States to impose net income taxes on 

25 income derived from interstate commerce, and au-
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1 thorizing studies by congressional committees of 

2 matters pertaining thereto’’, approved September 

3 14, 1959 (15 U.S.C. 381 et seq.). 

4 (2) OTHER BUSINESS ACTIVITY TAX.—

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

6 means—

7 (i) a tax imposed on or measured by 

8 gross receipts, gross income, or gross prof9 its; 

10 (ii) a business license tax; 

11 (iii) a business and occupation tax; 

12 (iv) a franchise tax; 

13 (v) a single business tax or a capital 

14 stock tax; or 

15 (vi) any other tax imposed by a State 

16 on a business for the right to do business 

17 in the State or measured by the amount 

18 of, or economic results of, business or re19 lated activity conducted in the State. 

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

21 does not include a transaction tax. 

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

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

24 territory or possession of the United States, or any 

25 political subdivision of any of the foregoing. 
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1 SEC. 5. EFFECTIVE DATE. 

2 Except as provided otherwise in this Act, this Act ap3 plies with respect to taxable periods beginning on and 

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

5 date of enactment of this Act.

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