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TAX MATTERS

in which the Supreme Court held exceeding any of the following thresh-
that Minnesota could impose a tax olds in that state for the tax year:
on an Iowa-based business whose ■ $50,000 of property;
sole physical activity in Minnesota ■ $50,000 of payroll;
consisted of salespeople soliciting ■ $500,000 of sales; or
orders from customers in the state. ■ 25% of total property, total payroll, or
Since then, sellers of tangible personal total sales.
property have often been able to limit Factor-presence nexus standards
their taxable presence for income tax the same as or similar to Addendum
purposes to states with operations II have subsequently been adopted by
and nonsales employees, even as 12 states as of this writing, including
their sales footprints have expanded. some with significant populations
The Supreme Court helped to more (these include California, Mas-
explicitly define “solicitation of orders” sachusetts, New York, Pennsylvania,
in Wisconsin Department of Revenue v. and Texas), and this list of states
Developments in state William Wrigley, Jr. Co., 505 U.S. 214 has slowly expanded during the past
income tax nexus for (1992), but, since 1959, the law itself decade. Though this has significantly

remote sellers has not been modified. expanded the number of businesses
now considered subject to tax in
ENTER THE MULTISTATE TAX these states, P.L. 86-272, as a federal
COMMISSION
By Hal W. Brown, CPA, and Sara law, supersedes state factor-presence
Arvold, CPA The Multistate Tax Commission nexus standards. Accordingly, while
(MTC), which works to promote having over $500,000 of sales in a
While many recent changes in state consistent tax policy and administra- state may result in an entity’s being
nexus rules are associated with sales tion among states, first issued its required to file a tax return in that
and use tax, a movement to reframe Statement of Information Concerning state and potentially be subject to
the Interstate Income Act of 1959, Practices of Multistate Tax Commission a franchise tax or minimum fee, an
P.L. 86-272, which limits the reach of and Signatory States Under Public income tax cannot be imposed if the
state income taxes on remote sell- Law 86-272 in 1986 and released business’s activities in the state still
ers, could have a significant impact three revisions between 1993 and fall within the protections of P.L.
on state income tax nexus in today’s 2001. The Statement of Informa- 86-272.
world, where the internet has changed tion seeks to clarify P.L. 86-272,
the nature of practically every business. providing further detail, context, and WAYFAIR EMBOLDENS STATES
Even how “cookies,” the ubiquitous examples of activities performed in On June 21, 2018, the U.S. Supreme
and automatically generated com- a state that would and would not be Court in South Dakota v. Wayfair, Inc.,
puter user tags, are used could play a considered protected for purposes 138 S. Ct. 2080 (2018), upheld South
determinative role. of establishing nexus. Many states Dakota’s previously enacted requirement
P.L. 86-272, codified as 15 U.S.C. have incorporated all or part of this that each entity register and collect and
IMAGES BY ILLUSTRATOR DE LA MONDE/GETTY IMAGES persons to a net income tax. It applies language often affects state auditors’ than 200 separate transactions in the
remit sales tax as applicable to the extent
Sections 381–384, is one of the few
language into their statutes and/or
limits on states’ ability to subject
regulations. In others, the MTC’s
it has over $100,000 in sales or more
nexus decisions.
when a person’s activity in a state is
state during the year. The decision over-
turned Quill Corp. v. North Dakota, 112
limited to the solicitation of sales of
FACTOR-PRESENCE NEXUS
S. Ct. 1904 (1992), which had affirmed
tangible personal property and any
STANDARD
resulting orders are approved and
that a physical presence was needed to
meet the substantial nexus requirement
shipped from outside the state. P.L.
Addendum II of the Statement of
86-272 was enacted largely in response
under the Commerce Clause of the
Information, released in 2002, outlines
to Northwestern States Portland Cement
which nexus would be established by
resulted in sweeping changes to state
Co. v. Minnesota, 358 U.S. 450 (1959),
October 2022
30 | Journal of Accountancy a factor-presence nexus standard under U.S. Constitution. The Wayfair decision