I 
115TH CONGRESS 
2D SESSION 
H. R. 6978 
To regulate certain State taxation of interstate commerce, and for other 
purposes. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 28, 2018 
Mr. CHABOT (for himself and Mr. SCOTT of Virginia) 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. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Business Activity Tax 
Simplification Act of 2018’’. 
SEC. 2. MODERNIZATION OF PUBLIC LAW 86–272. 
(a) SOLICITATIONS WITH RESPECT TO SALES AND 
TRANSACTIONS OF OTHER THAN TANGIBLE PERSONAL 
PROPERTY.—Section 101 of the Act entitled ‘‘An Act re-
lating to the power of the States to impose net income 
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taxes on income derived from interstate commerce, and 
authorizing studies by congressional committees of mat-
ters pertaining thereto’’, approved September 14, 1959 
(15 U.S.C. 381 et seq.), is amended— 
(1) in subsection (a), by striking ‘‘either, or 
both,’’ and inserting ‘‘any one or more’’; 
(2) in subsection (a)(1), by striking ‘‘by such 
person’’ and all that follows and inserting ‘‘(which 
are sent outside the State for approval or rejection) 
or customers by such person, or the representative 
of such person, in such State for sales or trans-
actions, which are— 
‘‘(A) in the case of tangible personal prop-
erty, filled by shipment or delivery from a point 
outside the State; and 
‘‘(B) in the case of all other forms of prop-
erty, services, and other transactions, fulfilled 
or distributed from a point outside the State;’’; 
(3) in subsection (a)(2), by striking the period 
at the end and inserting a semicolon; 
(4) in subsection (a), by adding at the end the 
following: 
‘‘(3) the furnishing of information to customers 
or affiliates in such State, or the coverage of events 
or other gathering of information in such State by 
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such person, or his representative, which information 
is used or disseminated from a point outside the 
State; 
‘‘(4) those business activities directly related to 
such person’s potential or actual purchase of goods 
or services within the State if the final decision to 
purchase is made outside the State; and 
‘‘(5) by reason of sales or transactions of a dig-
ital good or a digital service.’’; 
(5) by striking subsection (c) and inserting the 
following: 
‘‘(c) For purposes of subsection (a), a person shall 
not be considered to have engaged in business activities 
within a State during any taxable year merely— 
‘‘(1) by reason of sales or transactions in such 
State, the solicitation of orders for sales or trans-
actions in such State, the furnishing of information 
to customers or affiliates in such State, or the cov-
erage of events or other gathering of information in 
such State, on behalf of such person by one or more 
independent contractors; 
‘‘(2) by reason of the maintenance of an office 
in such State by one or more independent contrac-
tors whose activities on behalf of such person in 
such State are limited to making sales or fulfilling 
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transactions, soliciting orders for sales or trans-
actions, the furnishing of information to customers 
or affiliates, or the coverage of events or other gath-
ering of information; or 
‘‘(3) by reason of the furnishing of information 
to an independent contractor by such person ancil-
lary to the solicitation of orders or transactions by 
the independent contractor on behalf of such per-
son.’’; and 
(6) in subsection (d)(1)— 
(A) by inserting ‘‘or fulfilling transactions’’ 
after ‘‘selling’’; and 
(B) by striking ‘‘the sale of, tangible per-
sonal property’’ and inserting ‘‘a sale or trans-
action, furnishing information, or covering 
events, or otherwise gathering information’’. 
(b) APPLICATION OF PROHIBITIONS TO OTHER BUSI-
NESS ACTIVITY TAXES.—Title I of the Act entitled ‘‘An 
Act relating to the power of the States to impose net in-
come taxes on income derived from interstate commerce, 
and authorizing studies by congressional committees of 
matters pertaining thereto’’, approved September 14, 
1959 (15 U.S.C. 381 et seq.), is amended by adding at 
the end the following: 
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‘‘SEC. 105. For taxable periods beginning on or after 
January 1, 2019, the prohibitions of section 101 that 
apply with respect to net income taxes shall also apply 
with respect to each other business activity tax, as defined 
in section 5(a)(2) of the Business Activity Tax Simplifica-
tion Act of 2018. A State or political subdivision thereof 
may not assess or collect any tax which by reason of this 
section the State or political subdivision may not impose. 
‘‘SEC. 106. For purposes of this title— 
‘‘(1) the term ‘digital good’ means any software 
or other good that is delivered or transferred elec-
tronically, including sounds, images, data, facts, or 
combinations thereof, maintained in digital format, 
where such software or other good is the true object 
of the transaction, rather than the activity or service 
performed to create such software or other good, 
that results in the delivery to the customer of a com-
plete copy of such software or other good, with the 
right to use permanently or for a specified period, 
and includes as an incidental component charges for 
the delivery or transfer of such software or other 
good; and 
‘‘(2) the term ‘digital service’ means any service 
that is provided electronically, including but not lim-
ited to audio services, data processing, cloud com-
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puting, the provision of remote access to or use of 
a digital good, and includes as an incidental compo-
nent charges for the electronic provision of the dig-
ital service to the customer.’’. 
SEC. 3. MINIMUM JURISDICTIONAL STANDARD FOR STATE 
AND LOCAL NET INCOME TAXES AND OTHER 
BUSINESS ACTIVITY TAXES. 
(a) IN GENERAL.—No taxing authority of a State 
shall have power to impose, assess, or collect a net income 
tax or other business activity tax on any person relating 
to such person’s activities in interstate commerce unless 
such person has a physical presence in the State during 
the taxable period with respect to which the tax is im-
posed. 
(b) REQUIREMENTS FOR PHYSICAL PRESENCE.— 
(1) IN GENERAL.—For purposes of subsection 
(a), a person has a physical presence in a State only 
if such person’s business activities in the State in-
clude any of the following during such person’s tax-
able year: 
(A) Being an individual physically in the 
State, or assigning one or more employees to be 
in the State. 
(B) Using the services of an agent (exclud-
ing an employee) to establish or maintain the 
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market in the State if such agent does not per-
form business services in the State for any 
other person during such taxable year. 
(C) The leasing or owning of tangible per-
sonal property or of real property in the State. 
(2) DE
MINIMIS
PHYSICAL
PRESENCE.—For 
purposes of this section, the term ‘‘physical pres-
ence’’ shall not include— 
(A) presence in a State for less than 15 
days in a taxable year (or a greater number of 
days if provided by State law); or 
(B) presence in a State to conduct limited 
or transient business activity. 
(c) TAXABLE PERIODS NOT CONSISTING
OF
A 
YEAR.—If the taxable period for which the tax is imposed 
is not a year, then any requirements expressed in days 
for establishing physical presence under this Act shall be 
adjusted pro rata accordingly. 
(d) MINIMUM JURISDICTIONAL STANDARD.—This 
section provides for minimum jurisdictional standards and 
shall not be construed to modify, affect, or supersede the 
authority of a State or any other provision of Federal law 
allowing persons to conduct greater activities without the 
imposition of tax jurisdiction. 
(e) EXCEPTIONS.— 
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(1) DOMESTIC BUSINESS ENTITIES AND INDI-
VIDUALS
DOMICILED
IN, OR
RESIDENTS
OF, THE 
STATE.—Subsection (a) does not apply with respect 
to— 
(A) a person (other than an individual) 
that is incorporated or formed under the laws 
of the State (or domiciled in the State) in which 
the tax is imposed; or 
(B) an individual who is domiciled in, or a 
resident of, the State in which the tax is im-
posed. 
(2) TAXATION OF PARTNERS AND SIMILAR PER-
SONS.—This section shall not be construed to modify 
or affect any State business activity tax liability of 
an owner or beneficiary of an entity that is a part-
nership, an S corporation (as defined in section 
1361 of the Internal Revenue Code of 1986), a lim-
ited liability company (classified as a partnership for 
Federal income tax purposes), a trust, an estate, or 
any other similar entity if the entity has a physical 
presence in the State in which the tax is imposed. 
(3) PRESERVATION OF AUTHORITY.—This sec-
tion shall not be construed— 
(A) to modify, affect, or supersede the au-
thority of a State to enact a law and bring an 
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enforcement action under such law or existing 
law against a person or entity, including related 
person or entity, that is engaged in an illegal 
activity, a sham transaction, or an actual abuse 
in its business activities in order to ensure a 
proper reflection of its tax liabilities; or 
(B) to supersede the authority of a State 
to require combined reporting. 
SEC. 4. GROUP RETURNS. 
If, in computing the net income tax or other business 
activity tax liability of a person for a taxable year, the 
net income or other economic results of affiliated persons 
is taken into account, the portion of such combined or con-
solidated net income or other economic results that may 
be subject to tax by the State shall be computed using 
the methodology that is generally applicable to businesses 
conducting similar business activities and, if that generally 
applicable methodology employs an apportionment for-
mula, the denominator or denominators of that formula 
shall include the aggregate factors of all persons whose 
net income or other economic results are included in such 
combined or consolidated net income or other economic re-
sults and the numerator or numerators shall include the 
factors attributable to the State of only those persons that 
are themselves subject to taxation by the State pursuant 
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to the provisions of this Act and subject to all other legal 
constraints on State taxation of interstate or foreign com-
merce. 
SEC. 5. DEFINITIONS AND EFFECTIVE DATE. 
(a) DEFINITIONS.—For purposes of this Act: 
(1) NET INCOME TAX.—The term ‘‘net income 
tax’’ has the meaning given that term for the pur-
poses of the Act entitled ‘‘An Act relating to the 
power of the States to impose net income taxes on 
income derived from interstate commerce, and au-
thorizing studies by congressional committees of 
matters pertaining thereto’’, approved September 
14, 1959 (15 U.S.C. 381 et seq.). 
(2) OTHER BUSINESS ACTIVITY TAX.— 
(A) IN GENERAL.—The term ‘‘other busi-
ness activity tax’’ means any tax in the nature 
of a net income tax or tax measured by the 
amount of, or economic results of, business or 
related activity conducted in the State. 
(B) EXCLUSION.—The term ‘‘other busi-
ness activity tax’’ does not include a sales tax, 
a use tax, or a similar transaction tax, imposed 
on the sale or acquisition of goods or services, 
whether or not denominated a tax imposed on 
the privilege of doing business. 
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(3) PERSON.—The term ‘‘person’’ has the 
meaning given such term by section 1 of title 1 of 
the United States Code. Each corporation that is a 
member of a group of affiliated corporations, wheth-
er unitary or not, is itself a separate ‘‘person’’. 
(4) STATE.—The term ‘‘State’’ means any of 
the several States, the District of Columbia, or any 
territory or possession of the United States, or any 
political subdivision of any of the foregoing. 
(5) TANGIBLE PERSONAL PROPERTY.—For pur-
poses of section 3(b)(1)(C), the leasing or owning of 
tangible personal property does not include the leas-
ing or licensing of computer software. 
(b) EFFECTIVE DATE.—This Act shall apply with re-
spect to taxable periods beginning on or after January 1, 
2019. 
Æ 
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