Business Activity Tax Simplification Act of 2026

Key Points

• This bill updates the rules for when states can tax out-of-state businesses. It requires a company to have a physical presence in a state before that state can impose income taxes or other business activity taxes on the company. This protects businesses that sell to customers across state lines from being taxed in every state where they have a buyer.
• Physical presence means having employees in the state for at least 15 days a year, owning or leasing property there, or using an exclusive agent. Brief visits or limited activity do not count, giving businesses a clear threshold to understand their tax obligations.
• The bill specifically shields companies selling digital goods and services like software, streaming audio, cloud computing, and data processing. Even if millions of people in a state use these digital products, the state cannot tax the company's income unless the company also has a physical footprint there.
• Sales taxes and use taxes are not affected by this bill. It only applies to net income taxes and business activity taxes measured by economic results. States can still collect sales tax on purchases made within their borders.
• The bill modernizes a 1959 federal law (Public Law 86-272) that originally only protected sellers of tangible goods from state income taxes. Now, the protections extend to sellers of intangible goods, digital products, and services, reflecting how much the modern economy has changed.