Business Activity Tax Simplification Act of 2026
- Bill Number
- H.R. 9244
- Origin Chamber
- House
- Congress
- 119th Congress, Session 2
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2026-06-10: Referred to the House Committee on the Judiciary.
- Last Updated
- 2026-07-07T16:55:13Z
AI-Generated Summary
Business Activity Tax Simplification Act of 2026 (H.R. 9244)
Purpose This legislation updates federal limits on state taxation of interstate commerce. It modernizes rules from 1959 to address digital goods, services, and remote business activities while establishing clearer thresholds for when states may impose net income taxes or similar business activity taxes.
Key Provisions
- Modernization of Public Law 86-272: Expands protections against state net income taxes to include solicitation and fulfillment of sales or transactions involving non-tangible property, digital goods, and digital services. It also covers activities such as providing information to customers or affiliates and certain purchasing-related activities if final decisions occur outside the state.
- Application to Other Business Activity Taxes: Extends the same limits to taxes based on business activity or economic results, effective for periods beginning on or after January 1, 2019.
- Physical Presence Requirement: Prohibits states from imposing net income or business activity taxes on persons in interstate commerce unless the person has a physical presence in the state. Physical presence exists only through an individual or employees in the state, use of an agent to maintain a market, or ownership/leasing of tangible property (with de minimis exceptions for stays under 15 days or limited/transient activity).
- Group Returns and Combined Reporting: Requires use of generally applicable apportionment methods when calculating tax liability for affiliated entities, including all relevant factors in denominators but limiting numerators to entities subject to tax under the Act.
- Exceptions: Does not apply to persons incorporated or domiciled in the taxing state, or to certain enforcement actions against illegal activities or sham transactions.
Significant Changes to Existing Law
- Updates the 1959 Act (15 U.S.C. 381 et seq.) by broadening protected activities beyond tangible personal property sales to include digital transactions and information gathering.
- Introduces a uniform physical presence standard as a minimum jurisdictional threshold, replacing prior reliance on solicitation-only rules.
- Defines "digital good" and "digital service" for the first time in this context and applies limits to a wider range of business activity taxes.
- Adds rules for independent contractors and combined reporting to prevent states from circumventing limits through affiliate structures.
Potential Impacts
- On Government Agencies: Restricts state and local tax authorities' ability to tax out-of-state businesses, potentially reducing revenue from remote or digital commerce while requiring adjustments to enforcement and apportionment practices.
- On Citizens and Businesses: Provides greater certainty for multistate and digital businesses by limiting exposure to multiple state taxes based solely on limited contacts.
- On International Relations: No direct provisions address foreign entities, though the physical presence standard could indirectly affect how U.S. states interact with cross-border commerce.
Main Stakeholders Affected
- State governments and tax collection agencies.
- Businesses engaged in interstate or digital commerce, including those selling software, cloud services, or remote transactions.
- Affiliated corporate groups subject to combined reporting rules.
- Congress, as the legislation asserts federal authority over state taxation of interstate commerce.
Notable Legal, Constitutional, or Political Implications
- Reinforces federal preemption under the Commerce Clause by setting minimum jurisdictional standards that states cannot exceed without physical presence.
- Addresses modern economic realities by extending 1959 protections to digital activities, potentially reducing litigation over nexus standards.
- Preserves state authority for domestic entities and anti-abuse measures, maintaining a balance between federal limits and state enforcement powers.
- Effective for taxable periods beginning on or after January 1, 2026.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Recent Actions
- 2026-06-10: Referred to the House Committee on the Judiciary.
- 2026-06-10: Introduced in House
- 2026-06-10: Introduced in House
Bill Versions
- Business Activity Tax Simplification Act of 2026 — issued 2026-06-10 — PDF (11 pages)