A bill has been introduced in the U.S. Senate that would require businesses to have a physical presence in a state in order to be subject to income and "other business activity taxes." This proposed legislation is offered in direct response to the recent U.S. Supreme Court refusal to consider two cases wherein states assessed income and franchise taxes on companies with no physical presence in the state.

The Supreme Court's inaction in the matters of Lanco, Inc. v. Director U.S. and FIA Card Services N.A. f/k/a MBNA America Bank, N.A. v. Commissioner, U.S. has raised the issue of whether a business activity constituting a "significant economic presence" in a state is sufficient grounds for assessing taxes on a company with no physical presence in the state.

The Senate bill, known as the Business Activity Tax Simplification Act of 2007 (BATSA) would solidify an earlier Supreme Court ruling (Quill v. North Dakota), a benchmark ruling that has been the cornerstone of nexus decisions for more than a decade, by requiring physical presence for the application of all business activity taxes.

BATSA has been introduced by Senators Mike Crapo (R-ID) and Charles E. Schumer (D-NY). "Businesses should not be punished with double taxation simply because their products reach beyond state borders," stated Schumer in a press release. "At a minimum, this is a huge administrative burden. In the worst case scenario, these differing state tax treatments will drive businesses to states with more favorable laws. Either way, the effect on commerce is debilitating."

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Supreme Court inaction could change nexus rules