Broken Silence: Congressional Inaction, Judicial Reaction, and the Need for a Federally Mandated Physical Presence Standard for State Business Activity Taxes

Marjorie Gell, Thomas M. Cooley Law School

Abstract

This article concerns the need for Congress to resolve a serious and longstanding question of what jurisdictional standard a state should apply in order to impose a business activity tax on an out-of-state entity with no in-state physical presence. This is a question of enormous practical importance on which the states are squarely in conflict, and one that the U.S. Supreme Court has consistently refused to address.

Currently there are two bills pending in Congress that would create a physical presence standard for all state business activity taxes. This article argues that (1) Congress needs act on these bills and put this issue to rest; and (2) it needs to act by enacting a clear physical presence standard.