This bill modernizes federal restrictions on how states can tax interstate business activity by updating and expanding the protections established in the 1959 Public Law 86-272. The legislation establishes that states cannot impose net income taxes or other business activity taxes on out-of-state businesses unless those businesses have a physical presence in the state, with certain narrow exceptions for businesses incorporated in the state or individuals who are state residents. The bill defines physical presence to include having employees or exclusive agents in the state, or owning or leasing property there, but excludes temporary visits of fewer than 15 days and transient business activities. The legislation also extends these protections to digital goods and services and limits how states can tax affiliated business groups by requiring them to use standard apportionment formulas. The bill applies to tax periods beginning on or after January 1, 2026, and does not affect sales taxes or use taxes on transactions.
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