Bill Introduced in Congress to Affirm Physical Presence Rule

Yesterday, a bipartisan-sponsored Business Activity Tax Simplification Act of 2008 (BATSA) was introduced in Congress. The bill would clarify that state taxation of business income requires a physical presence within the taxing state.

In recent years, many states have sought to tax businesses with no physical property or employees in the state. Because of this businesses increasingly face a complex, unpredictable, and unfriendly business environment, with the costs of litigation and accounting passed on to consumers. Congress has the power, under the Interstate Commerce Clause, to affirm the physical presence rule last upheld by the Supreme Court in the Quill case.

States are already forbidden to tax personal property unless it is within the state, under Public Law 86-272. A statutory affirmation of the physical presence rule would simply extend this concept to intangible property and services.

The initial sponsors of the bill are Congressmen Artur Davis (D-AL), Steve Chabot (R-OH), Herseth Sandlin (D-SD), Tom Feeney (R-FL), Sheila Jackson-Lee (D-TX), Elton Gallegly (R-CA), Hank Johnson (D-GA), Mike Pence (R-IN), Zoe Lofgren (D-CA), Bobby Scott (D-VA), and Robert Wexler (D-FL).

We extensively discussed the importance of the physical presence rule in this paper, this letter, and this brief.