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Union Calendar No. 330 

109TH CONGRESS 

2D SESSION H. R. 1956 

[Report No. 109–575] 

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 

JULY 17, 2006 

Additional sponsors: Mrs. BLACKBURN, Mr. WILSON of South Carolina, Mr. 

UPTON, Mr. GALLEGLY, Mr. CARTER, Mr. SOUDER, Mr. RAMSTAD, Mr. 

KING of Iowa, Ms. HART, Mr. COLE of Oklahoma, Mr. GARRETT of New 

Jersey, Mr. BARRETT of South Carolina, Mr. PENCE, Mrs. JO ANN

DAVIS of Virginia, Mr. LATHAM, Mr. MARCHANT, Mr. BROWN of South 

Carolina, Mr. ROGERS of Kentucky, Mr. KOLBE, Mr. FLAKE, Mr. 

FRANKS of Arizona, Mr. ENGLISH of Pennsylvania, Ms. HERSETH, Mr. 

MURPHY, Mr. BISHOP of Utah, Mr. JENKINS, Mr. FEENEY, and Mr. 

DANIEL E. LUNGREN of California 

JULY 17, 2006 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 


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[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on April 28, 2005] 

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 2006’’. 

6 SEC. 2. REMOVAL OF CERTAIN LIMITATIONS ON THE APPLI7 CATION 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 relat11 ing to the power of the States to impose net income taxes 

12 on income derived from interstate commerce, and author13 izing studies by congressional committees of matters per14 taining thereto’’, approved September 14, 1959 (15 U.S.C. 

15 381 et seq.) is amended— 

16 (1) in subsection (a)(1) by striking ‘‘of tangible’’ 

17 and all that follows through ‘‘State; and’’ and insert18 ing the following: 


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

2 State for approval or rejection and, if approved, 

3 are— 

4 ‘‘(A) in the case of tangible personal prop5 erty, filled by shipment or delivery from a point 

6 outside the State; and 

7 ‘‘(B) in the case of all other forms of prop8 erty, services, and other transactions, fulfilled 

9 from a point outside the State; 

10 and’’; 

11 (2) in subsection (c)— 

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

13 after ‘‘making sales’’; 

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

15 ‘‘sales’’ the other places it appears; 

16 (C) by striking ‘‘of tangible personal prop17 erty’’ the first place it appears; and 

18 (D) by striking ‘‘, of tangible personal prop19 erty’’; and 

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

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

22 transaction,’’. 

23 (b) APPLICATION OF PROHIBITIONS TO OTHER BUSI24 NESS ACTIVITY TAXES.—Title I of the Act entitled ‘‘An Act 

25 relating to the power of the States to impose net income 


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1 taxes on income derived from interstate commerce, and au2 thorizing studies by congressional committees of matters 

3 pertaining thereto’’, approved September 14, 1959 (15 

4 U.S.C. 381 et seq.) is amended by adding at the end the 

5 following: 

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

7 on or after the first day of the first calendar year that be8 gins after the date of the enactment of the Business Activity 

9 Tax Simplification Act of 2006, the prohibitions of section 

10 101 that apply with respect to net income taxes shall also 

11 apply with respect to each other business activity tax, as 

12 defined in section 4 of the Business Activity Tax Sim13 plification Act of 2006. A State or political subdivision 

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

15 of this section the State or political subdivision may not 

16 impose.’’. 

17 (c) EFFECTIVE DATE OF SUBSECTION (a) AMEND18 MENTS.—The amendments made by subsection (a) shall 

19 apply with respect to the imposition, assessment, and collec20 tion of taxes for taxable periods beginning on or after the 

21 first day of the first calendar year that begins after the date 

22 of the enactment of the Business Activity Tax Simplifica23 tion Act of 2006. 


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1 SEC. 3. JURISDICTIONAL STANDARD FOR STATE AND 

2 LOCAL NET INCOME TAXES AND OTHER BUSI3 NESS ACTIVITY TAXES. 

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

5 have power to impose, assess, or collect a net income tax 

6 or other business activity tax on any person relating to such 

7 person’s activities in interstate commerce unless such per8 son has a physical presence in the State during the taxable 

9 period with respect to which the tax is imposed. 

10 (b) REQUIREMENTS FOR PHYSICAL PRESENCE.—For 

11 the purposes of subsection (a), a person has a physical pres12 ence in a State only if such person’s business activities in 

13 the State include any of the following, collectively and on 

14 more than 21 days in the aggregate, during such person’s 

15 taxable year: 

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

17 or assigning one or more employees to be in the State, 

18 except that the following shall be excluded in deter19 mining whether such 21-day limit has been exceeded: 

20 (A) Activities in connection with a possible 

21 or an actual purchase of goods or services, for 

22 consumption by the person’s business. 

23 (B) Gathering news for print, broadcast, or 

24 other distribution through the news media. 


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1 (C) Meeting government officials for pur2 poses other than selling goods or services, for con3 sumption by such government. 

4 (D) Merely attending educational or train5 ing conferences, seminars or other similar func6 tions. 

7 (E) Nonprofit participation in charitable 

8 activities. 

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

10 employee) to establish or maintain the market in the 

11 State, if such agent does not perform business services 

12 in the State for any other person during such taxable 

13 year. 

14 (3) The leasing or owning of tangible personal 

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

16 the following shall be excluded in determining whether 

17 such 21-day limit has been exceeded: 

18 (A) Tangible personal property located in 

19 the State for purposes of being assembled, manu20 factured, processed, or tested by another person 

21 for the benefit of the owner or lessee, or used to 

22 furnish a service to the owner or lessee by an23 other person. 

24 (B) Marketing or promotional materials 

25 distributed in the State. 


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1 (C) Any property to the extent used ancil2 lary to an activity excluded from the computa3 tion of the 21-day period based on paragraph (1) 

4 or (2). 

5 (c) TAXABLE PERIODS NOT CONSISTING OF A YEAR.— 

6 If the taxable period for which the tax is imposed is not 

7 a year, then any requirements expressed in days for estab8 lishing physical presence under this Act shall be adjusted 

9 pro rata accordingly. 

10 (d) EXCEPTIONS.— 

11 (1) DOMESTIC BUSINESS ENTITIES AND INDIVID12 UALS DOMICILED IN, OR RESIDENTS OF, THE

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

14 to— 

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

16 that is incorporated or formed under the laws of 

17 the State (or domiciled in the State) in which 

18 the tax is imposed; or 

19 (B) an individual who is domiciled in, or 

20 a resident of, the State in which the tax is im21 posed. 

22 (2) TAXATION OF PARTNERS AND SIMILAR PER23 SONS.—This section shall not be construed to modify 

24 or affect any State business activity tax liability of 

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1 nership, an S corporation (as defined in section 1361 

2 of the Internal Revenue Code of 1986 (26 U.S.C. 

3 1361)), a limited liability company, a trust, an es4 tate, or any other similar entity, if the entity has a 

5 physical presence in the State in which the tax is im6 posed. 

7 (3) PRESERVATION OF AUTHORITY.—This section 

8 shall not be construed to modify, affect, or supersede 

9 the authority of a State to bring an enforcement ac10 tion against a person or entity that may be engaged 

11 in an illegal activity, a sham transaction, or any 

12 perceived or actual abuse in its business activities if 

13 such enforcement action does not modify, affect, or su14 persede the operation of any provision of this Act or 

15 of any other Federal law. 

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

17 following, subsection (b) shall be read by substituting 

18 ‘‘at least one day’’ for ‘‘more than 21 days in the ag19 gregate’’: 

20 (A) The sale within a State of tangible per21 sonal property, if delivery of the property origi22 nates and is completed within the State. 

23 (B) The performance of services that phys24 ically affect real property within a State. 


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1 (5) EXCEPTION RELATING TO CERTAIN PERFORM2 ANCES AND SPORTING EVENTS.—With respect to the 

3 taxation of the following, subsection (b) shall be read 

4 by substituting ‘‘at least one day’’ for ‘‘more than 21 

5 days in the aggregate’’: 

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

7 live audience of more than 100 individuals. 

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

9 more than 100 spectators present at the event. 

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

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

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

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

14 from interstate commerce, and authorizing studies by con15 gressional committees of matters pertaining thereto’’, ap16 proved September 14, 1959 (15 U.S.C. 381 et seq.). 

17 SEC. 4. DEFINITIONS. 

18 The following definitions apply in this Act: 

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

20 tax’’ has the meaning given that term for the purposes 

21 of the Act entitled ‘‘An Act relating to the power of 

22 the States to impose net income taxes on income de23 rived from interstate commerce, and authorizing stud24 ies by congressional committees of matters pertaining 


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1 thereto’’, approved September 14, 1959 (15 U.S.C. 

2 381 et seq.). 

3 (2) OTHER BUSINESS ACTIVITY TAX.— 

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

5 means— 

6 (i) a tax imposed on or measured by 

7 gross receipts, gross income, or gross profits; 

8 (ii) a business license tax; 

9 (iii) a business and occupation tax; 

10 (iv) a franchise tax; 

11 (v) a single business tax or a capital 

12 stock tax; or 

13 (vi) any other tax imposed by a State 

14 on a business for the right to do business in 

15 the State or measured by the amount of, or 

16 economic results of, business or related ac17 tivity conducted in the State. 

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

19 does not include a sales tax, a use tax, or a simi20 lar tax, imposed as the result of the sale or ac21 quisition of goods or services, whether or not de22 nominated a tax imposed on the privilege of 

23 doing business. 

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

25 several States, the District of Columbia, or any terriVerDate Aug 31 2005 09:45 Jul 18, 2006 Jkt 049200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6203 E:\BILLS\H1956.RH H1956

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1 tory or possession of the United States, or any polit2 ical subdivision of any of the foregoing. 

3 (4) TANGIBLE PERSONAL PROPERTY.—The term 

4 ‘‘tangible personal property’’ does not include com5 puter software that is owned and licensed by the 

6 owner to another person. 

7 SEC. 5. EFFECTIVE DATE. 

8 Except as provided otherwise in this Act, this Act ap9 plies with respect to taxable periods beginning on and after 

10 the first day of the first year that begins after the date of 

11 enactment of this Act. 


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Union Calendar No. 330 

109TH CONGRESS 

2D SESSION H. R. 1956 

[Report No. 109

–575] 

A BILL 

To regulate certain State taxation of interstate 

commerce; and for other purposes. 

JULY 17, 2006 

Reported with an amendment, committed to the Comand ordered to be printed mittee of the Whole House on the State of the Union, 


cprice-sewell on PROD1PC66 with BILLS