Page 653 - TaxAdviser_2022

STATE & LOCAL TAXES
Editor:
Moshe Bell-Jacobs, J.D.
Author:
Chuck Jones, CPA, J.D.
The Multistate
Tax Commission’s
recent revision of
its interpretation
of P.L. 86-272 and
corresponding state
positions require
remote sellers to
reexamine their
income tax nexus.
44 December 2022
States’ reactions to MTC’s
application of P.L. 86-272 to
internet sales
Following the August 2021 release by administrative guidance to assist with
the Multistate Tax Commission (MTC) applying the statute. Due to the lack of
of a revised Statement of Information ad- federal guidance, states and taxpayers
dressing the application of the Interstate historically have considered the MTC’s
Income Act of 1959, better known as guidance, issued in the Statement of
P.L. 86-272, to the modern economy Information, in determining whether a
and internet transactions, many busi- business activity is protected under P.L.
nesses, including internet sellers, have 86-272.
been closely tracking whether states Since the MTC’s issuance of its
would adopt the MTC’s approach. revised statement, California and New
P.L. 86-272, codified as 15 U.S.C. York both have provided their own guid-
Sections 381–384, is a federal law that ance regarding P.L. 86-272 protection
prohibits a state from imposing a net as it applies to internet transactions.
income tax on the income of a business This column reviews the MTC’s revised
statement and then addresses the ap-
derived from within a state through
interstate commerce if its only business proaches taken by California and New
activities within the state consist of the York. Also, this column briefly discusses
solicitation of orders for sales of tangible
developments in New Jersey and Oregon
personal property. This protection only concerning P.L. 86-272 protection, with
applies to orders that are sent outside the further general considerations concern-
state for acceptance or rejection. If the
ing P.L. 86-272 and its application to
orders are accepted, they must be filled business conducted over the internet.
by shipment or delivery from outside MTC’s revised statement
the state. P.L. 86-272 protection does Given the brevity and age of P.L.
not apply to the solicitation of orders for
sales of services or intangible property. 86-272, its application to many types of
Since P.L. 86-272 was enacted, business transactions is often difficult to
businesses have evolved from primarily divine. In an effort to explain and clarify
engaging in sales of tangible personal the protection provided by P.L. 86-272,
property via in-person activity to engag- the MTC first issued a Statement of
ing in substantial amounts of electronic Information in 1986 concerning practices
commerce through remote means. How- of the MTC and supporting states under
ever, Congress has never amended or P.L. 86-272. The statement’s introduc-
updated P.L. 86-272 to address how it tion explains that a “supporting state” PHOTO BY NIROSHAN86/ISTOCK
should be applied to modern business is a state “that adopts or otherwise ex-
transactions. Furthermore, the federal pressly indicates support for this State-
government has never provided any ment by legislation, regulation or other
The Tax Adviser