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.