II

106TH CONGRESS

2D SESSION S. 2401

To provide jurisdictional standards for the imposition of State and local

business activity, sales, and use tax obligations on interstate commerce,

and for other purposes.

IN THE SENATE OF THE UNITED STATES

APRIL 11, 2000

Mr. GREGG (for himself and Mr. KOHL) introduced the following bill; which

was read twice and referred to the Committee on Finance

A BILL

To provide jurisdictional standards for the imposition of

State and local business activity, sales, and use tax obligations on 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 ‘‘New Economy Tax

5 Simplification Act (NETSA)’’.
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1 SEC. 2. JURISDICTIONAL STANDARDS FOR THE IMPOSI2 TION OF STATE AND LOCAL BUSINESS ACTIV3 ITY, SALES, AND USE TAX OBLIGATIONS ON

4 INTERSTATE COMMERCE.

5 Title I of the Act entitled ‘‘An Act relating to the

6 power of the States to impose net income taxes on income

7 derived from interstate commerce, and authorizing studies

8 by congressional committees of matters pertaining there9 to’’, approved on September 14, 1959 (15 U.S.C. 381 et

10 seq.), is amended to read as follows:

11 ‘‘TITLE I—JURISDICTIONAL

12 STANDARDS

13 ‘‘SEC. 101. IMPOSITION OF STATE AND LOCAL BUSINESS AC14 TIVITY, SALES, AND USE TAX OBLIGATIONS

15 ON INTERSTATE COMMERCE.

16 ‘‘(a) IN GENERAL.—No State shall have power to im17 pose, for any taxable year ending after the date of enact18 ment of this title, a business activity tax or a duty to col19 lect and remit a sales or use tax on the income derived

20 within such State by any person from interstate com21 merce, unless such person has a substantial physical pres22 ence in such State. A substantial physical presence is not

23 established if the only business activities within such State

24 by or on behalf of such person during such taxable year

25 are any or all of the following:
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1 ‘‘(1) The solicitation of orders or contracts by

2 such person or such person’s representative in such

3 State for sales of tangible or intangible personal

4 property or services, which orders or contracts are

5 approved or rejected outside the State, and, if ap6 proved, are fulfilled by shipment or delivery of such

7 property from a point outside the State or the per8 formance of such services outside the State.

9 ‘‘(2) The solicitation of orders or contracts by

10 such person or such person’s representative in such

11 State in the name of or for the benefit of a prospec12 tive customer of such person, if orders or contracts

13 by such customer to such person to enable such cus14 tomer to fill orders or contracts resulting from such

15 solicitation are orders or contracts described in para16 graph (1).

17 ‘‘(3) The presence or use of intangible personal

18 property in such State, including patents, copy19 rights, trademarks, logos, securities, contracts,

20 money, deposits, loans, electronic or digital signals,

21 and web pages, whether or not subject to licenses,

22 franchises, or other agreements.

23 ‘‘(4) The use of the Internet to create or main24 tain a World Wide Web site accessible by persons in

25 such State.
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1 ‘‘(5) The use of an Internet service provider,

2 on-line service provider, internetwork communication

3 service provider, or other Internet access service pro4 vider, or World Wide Web hosting services to main5 tain or take and process orders via a web page or

6 site on a computer that is physically located in such

7 State.

8 ‘‘(6) The use of any service provider for trans9 mission of communications, whether by cable, sat10 ellite, radio, telecommunications, or other similar

11 system.

12 ‘‘(7) The affiliation with a person located in the

13 State, unless—

14 ‘‘(A) the person located in the State is the

15 person’s agent under the terms and conditions

16 of subsection (d); and

17 ‘‘(B) the activity of the agent in the State

18 constitutes substantial physical presence under

19 this subsection.

20 ‘‘(8) The use of an unaffiliated representative

21 or independent contractor in such State for the pur22 pose of performing warranty or repair services with

23 respect to tangible or intangible personal property

24 sold by a person located outside the State.
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1 ‘‘(b) DOMESTIC CORPORATIONS; PERSONS DOMI2 CILED IN OR RESIDENTS OF A STATE.—The provisions

3 of subsection (a) shall not apply to the imposition of a

4 business activity tax or a duty to collect and remit a sales

5 or use tax by any State with respect to—

6 ‘‘(1) any corporation which is incorporated

7 under the laws of such State; or

8 ‘‘(2) any individual who, under the laws of such

9 State, is domiciled in, or a resident of, such State.

10 ‘‘(c) SALES OR SOLICITATION OF ORDERS OR CON11 TRACTS FOR SALES BY INDEPENDENT CONTRACTORS.—

12 For purposes of subsection (a), a person shall not be con13 sidered to have engaged in business activities within a

14 State during any taxable year merely by reason of sales

15 of tangible or intangible personal property or services in

16 such State, or the solicitation of orders or contracts for

17 such sales in such State, on behalf of such person by one

18 or more independent contractors, or by reason of the

19 maintenance of an office in such State by one or more

20 independent contractors whose activities on behalf of such

21 person in such State consist solely of making such sales,

22 or soliciting orders or contracts for such sales.

23 ‘‘(d) ATTRIBUTION OF ACTIVITIES AND PRES24 ENCE.—For purposes of this section, the substantial phys25 ical presence of any person shall not be attributed to any
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1 other person absent the establishment of an agency rela2 tionship between such persons that—

3 ‘‘(1) results from the consent by both persons

4 that one person act on behalf and subject to the con5 trol of the other; and

6 ‘‘(2) relates to the activities of the person with7 in the State.

8 ‘‘(e) DEFINITIONS.—For purposes of this title—

9 ‘‘(1) BUSINESS ACTIVITY TAX.—The term ‘busi10 ness activity tax’ means a tax imposed on, or meas11 ured by, net income, a business license tax, a busi12 ness and occupation tax, a franchise tax, a single

13 business tax or a capital stock tax, or any similar

14 tax or fee imposed by a State.

15 ‘‘(2) INDEPENDENT CONTRACTOR.—The term

16 ‘independent contractor’ means a commission agent,

17 broker, or other independent contractor who is en18 gaged in selling, or soliciting orders or contracts for

19 the sale of, tangible or intangible personal property

20 or services for more than one principal and who

21 holds himself or herself out as such in the regular

22 course of his or her business activities.

23 ‘‘(3) INTERNET.—The term ‘Internet’ means

24 collectively the myriad of computer and tele25 communications facilities, including equipment and
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1 operating software, which comprise the inter2 connected world-wide network of networks that em3 ploy the Transmission Control Protocol/Internet

4 Protocol, or any predecessor or successor protocols

5 to such Protocol.

6 ‘‘(4) INTERNET ACCESS.—The term ‘Internet

7 access’ means a service that enables users to access

8 content, information, electronic mail, or other serv9 ices offered over the Internet, and may also include

10 access to proprietary content, information, and other

11 services as a part of a package of services offered to

12 users.

13 ‘‘(5) REPRESENTATIVE.—The term ‘representa14 tive’ does not include an independent contractor.

15 ‘‘(6) SALES TAX.—The term ‘sales tax’ means

16 a tax that is—

17 ‘‘(A) imposed on or incident to the sale of

18 tangible or intangible personal property or serv19 ices as may be defined or specified under the

20 laws imposing such tax; and

21 ‘‘(B) measured by the amount of the sales

22 price, cost, charge, or other value of or for such

23 property or services.

24 ‘‘(7) SOLICITATION OF ORDERS OR CON25 TRACTS.—The term ‘solicitation of orders or con-
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1 tracts’ includes activities normally ancillary to such

2 solicitation.

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

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

5 territory or possession of the United States, or any

6 political subdivision thereof.

7 ‘‘(9) USE TAX.—The term ‘use tax’ means a

8 tax that is—

9 ‘‘(A) imposed on the purchase, storage,

10 consumption, distribution, or other use of tan11 gible or intangible personal property or services

12 as may be defined or specified under the laws

13 imposing such tax; and

14 ‘‘(B) measured by the purchase price of

15 such property or services.

16 ‘‘(10) WORLD WIDE WEB.—The term ‘World

17 Wide Web’ means a computer server-based file ar18 chive accessible, over the Internet, using a hypertext

19 transfer protocol, file transfer protocol, or other

20 similar protocols.

21 ‘‘(f) APPLICATION OF SECTION.—This section shall

22 not be construed to limit, in any way, constitutional re23 strictions otherwise existing on State taxing authority.
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1 ‘‘SEC. 102. ASSESSMENT OF BUSINESS ACTIVITY TAXES.

2 ‘‘(a) LIMITATIONS.—No State shall have power to as3 sess after the date of enactment of this title any business

4 activity tax which was imposed by such State or political

5 subdivision for any taxable year ending on or before such

6 date, on the income derived for activities within such State

7 that affect interstate commerce, if the imposition of such

8 tax for a taxable year ending after such date is prohibited

9 by section 101.

10 ‘‘(b) COLLECTIONS.—The provisions of subsection

11 (a) shall not be construed—

12 ‘‘(1) to invalidate the collection on or before the

13 date of enactment of this title of any business activ14 ity tax imposed for a taxable year ending on or be15 fore such date; or

16 ‘‘(2) to prohibit the collection after such date of

17 any business activity tax which was assessed on or

18 before such date for a taxable year ending on or be19 fore such date.

20 ‘‘SEC. 103. TERMINATION OF SUBSTANTIAL PHYSICAL PRES21 ENCE.

22 ‘‘If a State has imposed a business activity tax or

23 a duty to collect and remit a sales or use tax on a person

24 as described in section 101, and the person so obligated

25 no longer has a substantial physical presence in that

26 State, the obligation to pay a business activity tax or to
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1 collect and remit a sales or use tax on behalf of that State

2 applies only for the period in which the person has a sub3 stantial physical presence.

4 ‘‘SEC. 104. SEPARABILITY.

5 ‘‘If any provision of this title or the application of

6 such provision to any person or circumstance is held in7 valid, the remainder of this title or the application of such

8 provision to persons or circumstances other than those to

9 which it is held invalid, shall not be affected thereby.’’.

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