Title: Business Activity Tax Simplification Act of 2018
Policy area: Taxation

Summary:
Business Activity Tax Simplification Act of 2018
This bill expands the federal prohibition against state taxation of interstate commerce to include taxation of out-of-state transactions involving all forms of property and services, including the furnishing or gathering of information and sales or transactions involving digital goods or services. (Under current law, the prohibition applies only to sales of tangible personal property.)
The bill also (1) prohibits state taxation of an out-of-state entity unless the entity has a physical presence in the taxing state, (2) sets forth criteria for determining physical presence in a state, and (3) specifies requirements for computing the tax liability of affiliated businesses operating in a state.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6978 Introduced in House (IH)]

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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 Representatives 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 relating to the power of the States to impose net income 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--
            (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 transactions, which are--
                    ``(A) in the case of tangible personal property, 
                filled by shipment or delivery from a point outside the 
                State; and
                    ``(B) in the case of all other forms of property, 
                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 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 digital 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 transactions in such State, 
        the furnishing of information to customers or affiliates in 
        such State, or the coverage 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 contractors whose activities 
        on behalf of such person in such State are limited to making 
        sales or fulfilling transactions, soliciting orders for sales 
        or transactions, the furnishing of information to customers or 
        affiliates, or the coverage of events or other gathering of 
        information; or
            ``(3) by reason of the furnishing of information to an 
        independent contractor by such person ancillary to the 
        solicitation of orders or transactions by the independent 
        contractor on behalf of such person.''; and
            (6) in subsection (d)(1)--
                    (A) by inserting ``or fulfilling transactions'' 
                after ``selling''; and
                    (B) by striking ``the sale of, tangible personal 
                property'' and inserting ``a sale or transaction, 
                furnishing information, or covering events, or 
                otherwise gathering information''.
    (b) Application of Prohibitions to Other Business Activity Taxes.--
Title I 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 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:
    ``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 Simplification 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 electronically, 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 complete 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 limited to audio 
        services, data processing, cloud computing, the provision of 
        remote access to or use of a digital good, and includes as an 
        incidental component charges for the electronic provision of 
        the digital 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 imposed.
    (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 include any of the following 
        during such person's taxable 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 (excluding an 
                employee) to establish or maintain the market in the 
                State if such agent does not perform business services 
                in the State for any other person during such taxable 
                year.
                    (C) The leasing or owning of tangible personal 
                property or of real property in the State.
            (2) De minimis physical presence.--For purposes of this 
        section, the term ``physical presence'' 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.--
            (1) Domestic business entities and individuals 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 imposed.
            (2) Taxation of partners and similar persons.--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 partnership, an S corporation (as defined in section 
        1361 of the Internal Revenue Code of 1986), a limited 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 section shall not be 
        construed--
                    (A) to modify, affect, or supersede the authority 
                of a State to enact a law and bring an 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 consolidated 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 formula, 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 results 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 to the provisions of this Act and subject to all 
other legal constraints on State taxation of interstate or foreign 
commerce.

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 purposes 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 
        authorizing 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 business 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 business 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.
            (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, whether 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 purposes of section 
        3(b)(1)(C), the leasing or owning of tangible personal property 
        does not include the leasing or licensing of computer software.
    (b) Effective Date.--This Act shall apply with respect to taxable 
periods beginning on or after January 1, 2019.
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