Business Activity Tax Simplication Act of 2007

On June 28, 2007, I joined my colleague from New York, Senator Schumer, to introduce a bipartisan update of Public Law 86-272 called the Business Activity Tax Simplification Act of 2007, or BATSA (S. 1726).  Congress has a Constitutional responsibility to ensure that interstate commerce is not unduly burdened by state actions, including taxation of such commerce.  Over the years, Congress has enacted laws that limit states’ authority to impose taxes that would unnecessarily burden interstate commerce.  One such law is Public Law 86-272, enacted almost fifty years ago.  It appropriately reinforced Congress’s authority in matters of interstate business activity—relevant, of course, to how business was conducted in 1959.  Obviously, ways of conducting multi-state business have changed in five decades and, in the absence of any clarifying legislation, some state courts have interpreted tax treatment of business activity under an “economic presence” approach.  Interpreted thus, states have determined that it is legal to tax businesses that have no physical presence in that particular state, but do business in that state.  Obviously, this has catastrophic consequences for any business that wants to reach out to customers in other states; at the very least, it creates a climate of uncertainty that inhibits business expansion and innovation. 

From a legal standpoint, this approach does not reflect the intent or spirit of the Commerce Clause of the Constitution.  Businesses have to take into account the very real possibility that they will be taxed multiple times for the same business activity.  So-called “business activity taxes” are certainly appropriate when a business has a physical presence in a state; these taxes are inappropriate when imposed by a state where that business’s customer happens to reside, but in which the business has no physical presence. 

The Business Activity Tax Simplification Act of 2007 (BATSA) will help clarify the intent of Public Law 86-272 and re-establish the primacy of the Commerce Clause in multi-state business activity.  BATSA codifies the “physical presence” standard and eliminates confusion for state tax administrators and businesses alike.  It’s consistent with current law and the notion that a tax should not be imposed by a state unless that state provides benefits or protections to the taxpayer.  BATSA ensures that one standard of taxation applies for taxing multi-state companies, keeping the rivers of interstate commerce free from debris and flowing smoothly.   

Click here to read my floor statement on BATSA.

Click here for a copy of the legislation (PDF file, 39KB).

Back to Economy & Business Main Page