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TAX MATTERS

business activity, which would not be that this is a protected activity is similar and why it is sourced to the state, while
protected by P.L. 86-272. Example 10 to the MTC’s conclusion, the determi- the MTC is more ambiguous.
provides that video and music stream- nation that this activity would create It should be noted as well that
ing would also not be protected, as nexus in California but for the protec- California has had a factor-presence
these activities would be considered tions of P.L. 86-272 deviates from the economic nexus standard that models
sales other than sales of tangible Statement of Information. The Statement the MTC’s version since 2013, the
personal property. of Information does not explicitly outline key difference being that the annual
Online store: Example 11 con- its interpretation of internet activity in thresholds are increased annually based
cludes Subsection C by providing that this manner, instead generally relying on inflation (for 2021, the sales thresh-
operating a traditional online store, upon comments regarding Wayfair’s old is $637,252, with the property and
where customers log on to a business’s analysis of “virtual contacts” that the payroll thresholds each being $63,726
website and make direct purchases, MTC’s supporting states consider (see Cal. Rev. & Tax. Code §23101(b)
would still be protected as sales “relevant to the question of whether a (2)–(4) and Memorandum on Index-
solicitation under P.L. 86-272. seller is engaged in business activities in ing, Personal Income Tax Law, 2021)).
As discussed above, this revision states where its customers are located for Taxpayers should continue to consider
to the Statement of Information is not purposes of the statute.” these amounts in evaluating whether
binding on any states; however, they Subsection C further asserts: “To their activities constitute nexus for
can adopt all or some of its language. determine whether a person that sells California purposes, if they could exceed
tangible personal property via the the protections of P.L. 86-272. Also, for
STATE ADOPTION Internet is shielded from taxation by taxpayers operating outside the United
California: On Feb. 14, 2022, P.L. 86-272 requires the same general States, California is one of the states
California’s Franchise Tax Board (FTB) analysis as with respect to persons that that has explicitly provided that foreign
issued Technical Advice Memorandum sell tangible personal property by other commerce (e.g., sales from a non-U.S.
(TAM) No. 2022-01, which incorporates means.” jurisdiction to customers in California)
language similar to the MTC’s Statement While none of the conclusions is not considered “interstate commerce”
of Information Subsection C. California’s reached by California deviate from the for purposes of P.L. 86-272, and thus
TAM differs from the Statement of Statement of Information, differences in P.L. 86-272 would not apply, pursuant
Information in two key ways. First, an how California arrived at them could to FTB Multistate Audit Technique
additional example is provided where the impact scenarios that are less grounded Manual Chapter 1240.
FTB asserts that telecommuting from in the specific examples outlined. In New York: The New York Depart-
California creates nexus there, unless the particular, California seeks to further ment of Taxation and Finance updated
activities of the individual telecommut- define and clarify the business activity its draft corporate tax regulations for
ing would otherwise be protected under
P.L. 86-272.
Second, California separates the
examples from its conclusions, with Taxpayers who used a paid tax preparer, by income level
its conclusions providing additional
details and clarifications to the reasons For most recent federal income tax return.
such activity would be protected or
unprotected. While there is no change 59% 56%
53% 53%
in ultimate determination, some of the 50% 48% 50%
FTB’s conclusions are supported in a
manner that deviates from the MTC’s.
For example, for the equivalent of the
MTC’s Example 11 concerning an
online store, California states that the
“business activity is in California due
to the interaction between the website,
including the download of ‘cookies,’
and the customer’s computer or other
Total <$30K $30K<$50K $50K<$75K $75K<$100K $100K<$150K $150K+
electronic device located in California.”
Though the conclusion in the example Source: IRS Comprehensive Taxpayer Attitude Survey, January 2022.

32 | Journal of Accountancy October 2022