II 

110TH CONGRESS 

1ST SESSION S. 1726 

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

purposes. 

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 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 2007’’. 

6 SEC. 2. MODERNIZATION OF PUBLIC LAW 86–272. 

7 (a) SOLICITATIONS WITH RESPECT TO SALES AND

8 TRANSACTIONS OF OTHER THAN TANGIBLE PERSONAL

9 PROPERTY.—Section 101 of the Act entitled ‘‘An Act re10 lating to the power of the States to impose net income 


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1 taxes on income derived from interstate commerce, and 

2 authorizing studies by congressional committees of mat3 ters pertaining thereto’’, approved September 14, 1959 

4 (15 U.S.C. 381 et seq.) is amended— 

5 (1) in section (a), by striking ‘‘either, or both,’’ 

6 and inserting ‘‘any one or more’’; 

7 (2) in subsection (a)(1), by striking ‘‘by such 

8 person’’ and all that follows and inserting ‘‘(which 

9 are sent outside the State for approval or rejection) 

10 or customers by such person, or his representative, 

11 in such State for sales or transactions, which are— 

12 ‘‘(A) in the case of tangible personal prop13 erty, filled by shipment or delivery from a point 

14 outside the State; and 

15 ‘‘(B) in the case of all other forms of prop16 erty, services, and other transactions, fulfilled 

17 or distributed from a point outside the State;’’; 

18 (3) in subsection (a)(2), by striking the period 

19 at the end and inserting a semicolon; 

20 (4) in subsection (a), by adding at the end the 

21 following new paragraphs: 

22 ‘‘(3) the furnishing of information to customers 

23 or affiliates in such State, or the coverage of events 

24 or other gathering of information in such State by 

25 such person, or his representative, which information 


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1 is used or disseminated from a point outside the 

2 State; and 

3 ‘‘(4) those business activities directly related to 

4 such person’s potential or actual purchase of goods 

5 or services within the State if the final decision to 

6 purchase is made outside the State.’’; 

7 (5) by striking subsection (c) and inserting the 

8 following new subsection: 

9 ‘‘(c) For purposes of subsection (a) of this section, 

10 a person shall not be considered to have engaged in busi11 ness activities within a State during any taxable year 

12 merely— 

13 ‘‘(1) by reason of sales or transactions in such 

14 State, the solicitation of orders for sales or trans15 actions in such State, the furnishing of information 

16 to customers or affiliates in such State, or the cov17 erage of events or other gathering of information in 

18 such State, on behalf of such person by one or more 

19 independent contractors; 

20 ‘‘(2) by reason of the maintenance of an office 

21 in such State by one or more independent contrac22 tors whose activities on behalf of such person in 

23 such State consist solely of making sales or fulfilling 

24 transactions, soliciting order for sales or trans25 actions, the furnishing of information to customers 


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1 or affiliates, or the coverage of events or other gath2 ering of information; or 

3 ‘‘(3) by reason of the furnishing of information 

4 to an independent contractor by such person ancil5 lary to the solicitation of orders or transactions by 

6 the independent contractor on behalf of such per7 son.’’; and 

8 (6) in subsection (d)(1)— 

9 (A) by inserting ‘‘or fulfilling trans10 actions,’’ after ‘‘selling’’; and 

11 (B) by striking ‘‘the sale of, tangible per12 sonal property’’ and inserting ‘‘a sale or trans13 action, furnishing information, or covering 

14 events, or otherwise gathering information’’. 

15 (b) APPLICATION OF PROHIBITIONS TO OTHER BUSI16 NESS ACTIVITY TAXES.—Title I of the Act entitled ‘‘An 

17 Act relating to the power of the States to impose net in18 come taxes on income derived from interstate commerce, 

19 and authorizing studies by congressional committees of 

20 matters pertaining thereto’’, approved September 14, 

21 1959 (15 U.S.C. 381 et seq.) is amended by adding at 

22 the end the following: 

23 ‘‘SEC. 105. For taxable periods beginning on or after 

24 January 1, 2008, the prohibitions of section 101 that 

25 apply with respect to net income taxes shall also apply 


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1 with respect to each other business activity tax, as defined 

2 in section 3(g) of the Business Activity Tax Simplification 

3 Act of 2007. A State or political subdivision thereof may 

4 not assess or collect any tax which by reason of this sec5 tion the State or political subdivision may not impose.’’. 

6 (c) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply with respect to the imposition, as8 sessment, and collection of taxes for taxable periods begin9 ning on or after January 1, 2008. 

10 SEC. 3. MINIMUM JURISDICTIONAL STANDARD FOR STATE 

11 AND LOCAL NET INCOME TAXES AND OTHER 

12 BUSINESS ACTIVITY TAXES. 

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

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

15 tax or other business activity tax on any person relating 

16 to such person’s activities in interstate commerce unless 

17 such person has a physical presence in the State during 

18 the taxable period with respect to which the tax is im19 posed. 

20 (b) REQUIREMENTS FOR PHYSICAL PRESENCE.— 

21 (1) IN GENERAL.—For purposes of subsection 

22 (a), a person has a physical presence in a State only 

23 if such person’s business activities in the State in24 clude any of the following during such person’s tax25 able year: 


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1 (A) Being an individual physically in the 

2 State, or assigning one or more employees to be 

3 in the State. 

4 (B) Using the services of an agent (exclud5 ing an employee) to establish or maintain the 

6 market in the State, if such agent does not per7 form business services in the State for any 

8 other person during such taxable year. 

9 (C) The leasing or owning of tangible per10 sonal property or of real property in the State. 

11 (2) DE MINIMIS PHYSICAL PRESENCE.—For 

12 purposes of this section, the term ‘‘physical pres13 ence’’ shall not include— 

14 (A) presence in a State for less than 15 

15 days in a taxable year (or a greater number of 

16 days if provided by State law); or 

17 (B) presence in a State to conduct limited 

18 or transient business activity. 

19 (c) TAXABLE PERIODS NOT CONSISTING OF A

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

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

22 for establishing physical presence under this Act shall be 

23 adjusted pro rata accordingly. 

24 (d) MINIMUM JURISDICTIONAL STANDARD.—This 

25 section provides for minimum jurisdictional standards and 


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1 shall not be construed to modify, affect, or supersede the 

2 authority of a State or any other provision of Federal law 

3 allowing persons to conduct greater activities without the 

4 imposition of tax jurisdiction. 

5 (e) EXCEPTIONS.— 

6 (1) DOMESTIC BUSINESS ENTITIES AND INDI7 VIDUALS DOMICILED IN, OR RESIDENTS OF, THE

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

9 to— 

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

11 that is incorporated or formed under the laws 

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

13 the tax is imposed; or 

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

15 resident of, the State in which the tax is im16 posed. 

17 (2) TAXATION OF PARTNERS AND SIMILAR PER18 SONS.—This section shall not be construed to modify 

19 or affect any State business activity tax liability of 

20 an owner or beneficiary of an entity that is a part21 nership, an S corporation (as defined in section 

22 1361 of the Internal Revenue Code of 1986), a lim23 ited liability company (classified as a partnership for 

24 Federal income tax purposes), a trust, an estate, or 


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1 any other similar entity, if the entity has a physical 

2 presence in the State in which the tax is imposed. 

3 (3) PRESERVATION OF AUTHORITY.—This sec4 tion shall not be construed to modify, affect, or su5 persede the authority of a State to bring an enforce6 ment action against a person or entity that may be 

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

8 any perceived or actual abuse in its business activi9 ties if such enforcement action does not modify, af10 fect, or supersede the operation of any provision of 

11 this section or of any other Federal law. 

12 (f) 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 (g) DEFINITIONS, ETC.—For purposes of this section: 

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

21 tax’’ has the meaning given that term for the pur22 poses of the Act entitled ‘‘An Act relating to the 

23 power of the States to impose net income taxes on 

24 income derived from interstate commerce, and au25 thorizing studies by congressional committees of 


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1 matters pertaining thereto’’, approved September 

2 14, 1959 (15 U.S.C. 381 et seq.). 

3 (2) OTHER BUSINESS ACTIVITY TAX.— 

4 (A) IN GENERAL.—The term ‘‘other busi5 ness activity tax’’ means any tax in the nature 

6 of a net income tax or tax measured by the 

7 amount of, or economic results of, business or 

8 related activity conducted in the State. 

9 (B) EXCLUSION.—The term ‘‘other busi10 ness activity tax’’ does not include a sales tax, 

11 a use tax, or a similar transaction tax, imposed 

12 on the sale or acquisition of goods or services, 

13 whether or not denominated a tax imposed on 

14 the privilege of doing business. 

15 (3) PERSON.—The term ‘‘person’’ has the 

16 meaning given such term by section 1 of title 1 of 

17 the United States Code. 

18 (4) STATE.—The term ‘‘State’’ means any of 

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

20 territory or possession of the United States, or any 

21 political subdivision of any of the foregoing. 

22 (5) TANGIBLE PERSONAL PROPERTY.—For pur23 poses of subsection (b)(1)(C), the leasing or owning 

24 of tangible personal property does not include the 

25 leasing or licensing of computer software. 


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1 (h) EFFECTIVE DATE.—This section shall apply with 

2 respect to taxable periods beginning on or after January 

3 1, 2008. 

Æ 


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