Business Activities Tax Simplification Act

Summary

Direct state and local taxes on business, also known as “business activity taxes,” such as income, franchise, net worth, business license, business and occupation, single business, capital stock, and like taxes, impose great burdens on businesses engaged in interstate commerce. To ensure a healthy national economy, states need to simplify business activities taxes to ensure that only businesses with physical presence in a state will be required to remit these taxes.

Model Legislation

{Title, enacting clause, etc.}

Section 1. {Short Title} This Act may be cited as the “Business Activity Tax Simplification Act.”

Section 2. {Application of Public Law 86-272}

(A) SOLICITATIONS WITH RESPECT TO SALES OF OTHER THAN TANGIBLE PERSONAL PROPERTY; TAXES AFFECTED – 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.) applies to [State’s] jurisdiction to impose any business activity tax, as defined in section 4 of this Act, with respect to all sales and not solely to sales “of tangible personal property”.

Section 3. {Jurisdictional Standard for Business Activity Taxes}

(A) IN GENERAL- Except as otherwise provided by this Act, no person shall be subject to a business activity tax imposed by {insert State} unless such person has a physical presence in {insert State} during the taxable period with respect to which the tax is imposed.

(B) REQUIREMENTS FOR PHYSICAL PRESENCE- Except as otherwise provided by this Act, for the purposes of subsection (a), a person has a physical presence in {insert State} only if such person’s business activities within {insert State} include any of the following during the person’s taxable year:

(1) Being an individual physically within {insert State}, or assigning one or more employees to be in {insert State}, on more than 21 days. However, the following shall be disregarded in determining whether such 21-day limit has been exceeded:

(a) Activities in connection with a possible purchase of goods or services for the business.

(b) Gathering news and covering events for print, broadcast, or other distribution through the media.

(c) Meeting government officials for purposes other than selling goods or services.

(d) Participation in educational or training conferences, seminars or other similar functions.

(e) Participating in charitable activities.

(2) Using the services of another person, except an employee, in {insert State}, on more than 21 days to establish or maintain the market in {insert State}, unless that other person performs similar functions on behalf of at least one additional business entity during the taxable year.

(3) The leasing or owning of tangible personal property or real property in {insert State} on more than 21 days. However, the following shall be disregarded in determining whether such 21-day limit has been exceeded:

(a) Tangible property located in {insert State} for purposes of being assembled, manufactured, processed, or tested by another person for the benefit of the owner or lessee, or used to furnish a service to the owner or lessee by another person.

(b) Marketing or promotional materials distributed in {insert State} using mail or a common carrier, or as inserts in or components of publications.

(c) Any property to the extent used ancillary to an activity excluded from the computation of the 21-day period under paragraph (1) or (2).

(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) EXCEPTIONS-

(1) DOMESTIC BUSINESS ENTITIES AND INDIVIDUALS DOMICILED IN {insert 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 {insert State} or commercially domiciled in {insert State}; or

(b) an individual who is domiciled in {insert State}.

[OPTIONAL]

(2) EXCEPTION RELATING TO CERTAIN PERFORMANCES AND SPORTING EVENTS- With respect to the taxation of one of the following, subsection (b) shall be read by substituting “one day” for “more than 21 days”:

(a) A live performance in {insert State}, before a live audience of more than 100 individuals.

(b) A live sporting event in {insert State} before more than 100 spectators present at the event.

[OPTIONAL]

(3) CERTAIN ACTIVITIES- With respect to the following, subsection (b) shall be read by substituting “one day” for “more than 21 days”:

(a) The sale within {insert State} of tangible personal property, where delivery of the property originates and is completed within {insert State}.

(b) The performance of services to real property within {insert State}.

[OPTIONAL]

(4) TAXATION OF PARTNERS AND SIMILAR PERSONS- If {insert State} is not prohibited by this section from taxing an entity that is a partnership, a Subchapter S corporation, a limited liability company, a trust, or an estate, or another similar entity, {insert State} is also not prohibited by this section from taxing the owners or beneficiaries of the entity. [Applicable only if State law imposes the tax not on the entity itself but on the entity’s owners or beneficiaries, whether or not they are in the State, with respect to their ownership interest in the entity.]

Section 4. {Definitions} The following definitions apply in this Act:

(A) BUSINESS ACTIVITY TAX-

(1) The term “business activity tax” means–

(a) a tax imposed on, or measured by, net income;

(b) a tax imposed on or measured by gross receipts, gross income, or gross profits;

(c) a business license tax;

(d) a business and occupation tax;

(e) a franchise tax;

(f) a single business tax or a capital stock tax; or

(g) any other tax imposed {insert State} on a business for the right to do business in {insert State} or measured by the amount of, or economic results of, business or related activity conducted in {insert State}.

(B) The term “business activity tax” does not include a transaction tax.

[Alternative] (A) The term “business activity tax” means—

(a) [Include all taxes that fall under the above categories]

(B) PERSON-

(1) The term “person” includes—

(a) an individual;

(b) an estate;

(c) a trust;

(d) a corporation;

(e) a partnership;

(f) a limited liability company; and

(g) any other entity otherwise subject to tax in {insert State}.

Section 5. {General Matters}

(A) RULE OF CONSTRUCTION- The limitation on the power of {insert State} imposed by section 3 does not affect any other limitation on that power imposed by other law.

(B) EFFECTIVE DATE- This Act applies with respect to taxable periods beginning on and after the first day of the first year that begins after the date of enactment of this Act.

Section 6. {Severability clause.}

Section 7. {Repealer clause.}

Approved by the ALEC Board of Directors January, 2004.
Reapproved by the ALEC Board of Directors on January 29, 2013