§381 — Title 15 Commerce and Trade | U.S. Code

Summary

States may not impose a net income tax on money earned from interstate commerce for any taxable year ending after September 14, 1959, when the only things a person or their agents do in that State are: ask for orders for physical goods that are sent out of the State for approval and, if approved, are shipped or delivered from outside the State; or ask for orders in the name of a potential customer when that customer’s orders are handled in the same way. This rule does not stop a State from taxing a corporation formed under that State’s laws or a person who is a resident or domiciled there. Sales or order-taking done only by independent contractors do not count as doing business in the State. An independent contractor means a commission agent, broker, or similar seller who works for more than one principal and openly holds themselves out as such; such people are not treated as the person’s “representatives.”

Title 15, §381

Commerce and Trade — Source: USLM XML via OLRC

(a)No State, or political subdivision thereof, shall have power to impose, for any taxable year ending after September 14, 1959, a net income tax on the income derived within such State by any person from interstate commerce if the only business activities within such State by or on behalf of such person during such taxable year are either, or both, of the following:

(1)the solicitation of orders by such person, or his representative, in such State for sales of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State; and

(2)the solicitation of orders by such person, or his representative, in such State in the name of or for the benefit of a prospective customer of such person, if orders by such customer to such person to enable such customer to fill orders resulting from such solicitation are orders described in paragraph (1).

(b)The provisions of subsection (a) shall not apply to the imposition of a net income tax by any State, or political subdivision thereof, with respect to—

(1)any corporation which is incorporated under the laws of such State; or

(2)any individual who, under the laws of such State, is domiciled in, or a resident of, such State.

(c)For purposes of subsection (a), a person shall not be considered to have engaged in business activities within a State during any taxable year merely by reason of sales in such State, or the solicitation of orders for sales in such State, of tangible personal property on behalf of such person by one or more independent contractors, or by reason of the maintenance, of an office in such State by one or more independent contractors whose activities on behalf of such person in such State consist solely of making sales, or soliciting orders for sales, or tangible personal property.

(d)For purposes of this section—

(1)the term “independent contractor” means a commission agent, broker, or other independent contractor who is engaged in selling, or soliciting orders for the sale of, tangible personal property for more than one principal and who holds himself out as such in the regular course of his business activities; and

(2)the term “representative” does not include an independent contractor.

Notes & Related Subsidiaries

Statutory Notes and Related Subsidiaries

Study and Report by Congressional Committees of State Taxation From Interstate CommerceTitle II of Pub. L. 86–272, as amended by Pub. L. 87–17, Apr. 7, 1961, 75 Stat. 41; Pub. L. 87–435, Apr. 21, 1962, 76 Stat. 55; Pub. L. 88–42,

June 21, 1963, 77 Stat. 67; Pub. L. 88–286, Mar. 18, 1964, 78 Stat. 166, and repealed by Pub. L. 94–455, title XXI, § 2121(a), Oct. 4, 1976, 90 Stat. 1914, provided for a study by the Committee on the Judiciary of the House of Representatives and the Committee on Finance of the United States Senate, acting separately or jointly, or any duly authorized subcommittee thereof, of all matters pertaining to the taxation of interstate commerce by the States, territories, and possessions of the United States, the District of Columbia, and the Commonwealth of Puerto Rico, or any political or taxing subdivision of the foregoing, and for a report together with their proposals for legislation on or before

June 30, 1965.

§381 Imposition of net income tax

Summary

Title 15, §381

Notes & Related Subsidiaries

Statutory Notes and Related Subsidiaries

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