Page 657 - TaxAdviser_2022

STATE & LOCAL TAXES

approaches. For example, the broad protected by P.L. 86-272. For a discus-
statement that the New York Depart- The debate over sion of this case, see Yesnowitz, Jones,
ment of Taxation and Finance added and Shaikh, “The Catch-22 of Public
to its draft regulation may result in the scope and Law 86-272,” 96 Tax Notes State 845
taxpayers that transact business over application of (May 18, 2020).
the internet receiving less protection
in New York compared to other states. P.L. 86-272 with Continuing controversy likely
respect to whether
New York tax administrators could The ability of a state to issue administra-
interpret the “interacting with custom- its protection applies tive guidance or regulations to shape
ers or potential customers through (or change) how a federal law should be
to a taxpayer’s
the corporation’s website or computer applied is debatable. The possibility of
application” language to deny P.L. internet transactions legal challenges to the guidance issued by
86-272 protection to internet activi- states may further complicate determina-
ties that may be protected under the in a particular state tions of whether an internet transaction
MTC’s statement. As a result, the same will continue. subjects a business to a state’s income
transaction that may be protected in tax or is protected by P.L. 86-272. In
one state may not be protected in an- fact, the American Catalog Mailers
other state. Association filed litigation in August
There may be unintended conse- in California Superior Court to chal-
quences concerning the application one taxpayer, P.L. 86-272 protection lenge the state’s P.L. 86-272 guidance.
and effect of P.L. 86-272 protection. In will be determined on an entity-by- Undoubtedly, the debate over the scope
some situations, companies may benefit entity basis. and application of P.L. 86-272 with
from losing P.L. 86-272 protection be- New Jersey’s policy change will respect to whether its protection applies
cause it prevents their sales from being allow certain combined group members to a taxpayer’s internet transactions in a
thrown back by states that still have to change their status from being a particular state will continue. ■
sales throwback rules. Thus, an erosion taxable member of the combined group
of P.L. 86-272 protection may be posi- to being a nontaxable member, thus al-
tive for some taxpayers. lowing the combined group to exclude
any New Jersey–source receipts arising
New Jersey’s entity-by-entity from the nontaxable members from
change the allocation factor. Those entities
The New Jersey Division of Taxation’s claiming protection under P.L. 86-272
significant change earlier this year in may experience a significant change in
how it applies P.L. 86-272 protection their New Jersey allocation factors and
also may have some unexpected results. should therefore determine whether
In April 2022, the division announced filing amended returns would be ben-
a change in its policy for members of eficial for tax years ending on or after
a combined group claiming protection July 31, 2019. Contributors
from New Jersey corporation business Chuck Jones, CPA, J.D., is a director in
tax under P.L. 86-272. Since New Court cases
Grant Thornton LLP’s State and Local
Jersey’s adoption of mandatory uni- Taxpayers also should consider that
Tax practice in Chicago. Moshe Bell-
tary combined reporting for privilege it has been many years since a federal
Jacobs, J.D., is senior manager of State
periods ending on and after July 31, court has considered the application
and Local Tax, Washington National
2019, the division established a policy of P.L. 86-272. However, limited state
Tax, at RSM US LLP in the Washington,
that the protections of P.L. 86-272 did court decisions have addressed which
D.C., area and is the chair of the
not apply to other combined group activities receive P.L. 86-272 protection.
AICPA State and Local Tax Technical
members if activities of any member In Blue Buffalo Co. v. Comptroller of the
Resource Panel. For more information
exceeded the protections of the fed- Treasury, 221 A.3d 1130 (Md. Ct. Spec.
about this column, contact
eral law. Under the recently revised App. 2019), the Maryland Court of
thetaxadviser@aicpa.org.
policy, although a combined group is Special Appeals thoroughly considered
considered a taxpayer and is taxed as whether various types of activities are
48 December 2022 The Tax Adviser