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Could Physical Presence Make a Comeback for Sales and Use Tax?

If Congressman Jim Sensenbrenner (R-WI) and House Judiciary Chairman Bob Goolatte (R-VA) get their way, it will. On June 12, 2016, Sensenbrenner and Goolatte introduced the "No Regulation Without Representation Act of 2017" which would expand the "physical presence" requirement of a similar 2016 House Bill (H.R. 5893) to all taxes and to all regulations in general.

The new legislation would require a person to have physical presence in a state before the state can "tax or regulate [the] person's activity in interstate commerce," determined by applying any of the following criteria:

  • maintaining its commercial or legal domicile in the State;
  • owning, holding a leasehold interest in, or maintaining real property such as an office, retail store, warehouse, distribution center, manufacturing operation, or assembly facility in the State;
  • leasing or owning tangible personal property (other than computer software) of more than de minimis value in the State;
  • having one or more employees, agents or independent contractors present in the State who provide on-site design, installation, or repair services on behalf of the remote seller;
  • having one or more employees, exclusive agents or exclusive independent contractors present in the State who engage in activities that substantially assist the person to establish or maintain a market in the State; or
  • regularly employing in the State three or more employees for any purpose.

States would not be able to assess or collect sales, use, or similar taxes, nor could they require information reporting of persons or businesses that did not meet at least one of these criteria. De minimis activities such as presence in a state for fewer than 15 days in a taxable year, internet referral-based sales agreements, and ownership by an out-of-state individual of an interest in an LLC-type entity that has physical presence in the state would not be considered indicative of physical presence.

To read more from Rep. Sensenbrenner about this proposed legislation, click here.

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