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Activity Tax Simplification Act or
propose similar federal legislation
After numerous meetings, drafts, and public intended to modernize P.L. 86-272?
hearings, the MTC adopted the fourth revision ■ Does P.L. 86-272 apply to alternative
to the Statement on Aug. 4, 2021. business taxes such as the Ohio
commercial activity tax, the Oregon
corporate activity tax, the Texas
revised franchise (margin) tax, or
to solicitation; and (3) are not 86-272’s protections by engaging the Washington state business and
de minimis (i.e., activities that, when in other unprotected activity; and occupation tax?
taken together, establish only a trivial ● Eliminating Section E, “Ap- ■ Will states that adopt the revised
connection with the taxing state); plication of the Joyce Rule,” under Statement also adopt the MTC’s
■ Amending Article IV, “Specific which only the in-state activities factor presence nexus standard?
Listing of Unprotected and Protected conducted by or on behalf of a
Activities,” by adding to the list of company are considered in deter- Implications
unprotected activities those per- mining whether the company’s In states that adopt the MTC’s revised
formed by a regularly telecommuting in-state activities exceed the Statement, out-of-state businesses that
employee, unless the activities are protection of P.L. 86-272. conduct activities over the internet, and
soliciting orders for sales of tangible The Statement also includes a new whose activities were previously pro-
personal property or are entirely Addendum II, the MTC’s factor pres- tected under P.L. 86-272, should con-
ancillary to soliciting sales of such ence nexus standard for business activity sider evaluating their in-state activities
tangible personal property; taxes, which was approved by the MTC and determine whether such activities
■ Amending Article V, “Independent on Oct. 17, 2002 (as noted above, the continue to fall within that protection.
Contractors,” to provide that P.L. Statement was last revised in 2001). In particular, businesses may consider
86-272 does not protect the activities Under the MTC’s model factor presence whether business activity transacted
of an independent contractor, who, nexus standard, an out-of-state taxpayer over the internet constitutes in-state
on behalf of a seller, performs unpro- doing business in a state will have sub- business activity in the state within the
tected activities such as performing stantial nexus with the state and be sub- meaning of the Statement. Given the
warranty work or accepting returns or ject to the state’s franchise and income new examples outlined by the MTC,
products; and tax if the taxpayer exceeds any of the particular attention should be paid to
■ Amending Article VII, “Miscel- following thresholds in the state during cookie content and accepting online
laneous Practices,” as follows: the tax period: (1) $50,000 or 25% of the applications (e.g., for nonsales jobs, for
● Revising Section A, “Application total property; (2) $50,000 or 25% of the branded credit cards) in the customers’
of Statement to Foreign Com- total payroll; or (3) $500,000 or 25% of states. In almost all states, the appli-
merce,” to streamline the language the total sales. cable statute of limitation has not yet
and clarify that states electing begun to run where income tax returns
to apply P.L. 86-272 to foreign Considerations were not filed, if it is subsequently
commerce must consistently Assuming states adopt this guidance, determined such a filing responsibil-
apply P.L. 86-272 in determining taxpayers will need to consider the fol- ity exists.
whether a foreign seller’s activities lowing questions: From Karen Currie, J.D., Dallas;
are protected or if sales into a ■ How will states interpret the revised Kara White, CPA, Dallas; and Rebecca
foreign jurisdiction will be thrown Statement in light of existing state Bertothy, J.D., Washington, D.C. ■
back to the state; laws and prior court precedent
● Revising Section C, “Registration (i.e., Wrigley)?
or Qualification to Do Business,” ■ Is a state’s adoption of the revised
to streamline the language and Statement constitutional and Editor
include protecting a trade secret otherwise lawfully binding?
or corporate name as an example ■ Will Congress update or repeal P.L. Susan Minasian Grais, CPA, J.D., LL.M.,
of when a business seeking to use 86-272? is a managing director at Ernst & Young
or protect any additional benefit ■ Could the Statement motivate LLP in Washington, D.C.
under state law will forfeit P.L. Congress to reintroduce the Business

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