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Public Law 86-272 Revisions and What They Mean for Your Business

Public Law 86-272 Revisions

In 1959, the Interstate Income Act included a provision titled Public Law 86-272 (P.L. 86-272) which prohibited states from imposing income tax on out-of-state sellers if their in-state activities did not extend beyond the solicitation of orders of tangible personal property.

For the last 63 years, out-of-state sellers of tangible personal property have enjoyed the protection offered by P.L. 86-272. However, the landscape of interstate commerce has drastically changed over the years and when P.L. 86-272 was placed in service, the internet didn’t even exist. Since then, questions have been raised as to if out-of-state sellers in-state activities extend beyond the scope of P.L. 86-272 because of their cyberspace activities.

In August of 2021, the Multistate Tax Commission (MTC) approved revisions to P.L. 86-272 that indicated that certain internet activities extend beyond the solicitation of orders for tangible personal property and prevent out-of-state taxpayers from being exempt from corporate income tax.

Based on the MTC’s revisions to P.L. 86-272, internet sellers are acting beyond the scope of P.L. 86-272 when the business interacts with a customer via the business’s website or app. Features such as a chat function that provides post sales assistance, soliciting and receiving branded credit cards, posting of non-sales positions, placing on instate customers’ computers or other electronic devices cookies that gather customer search information, options to upgrade, warranty plans, etc. are all web-based functions that the MTC standards consider to be beyond the scope of activities protected under P.L. 86-272.

A handful of states have enacted, or are in the process of enacting, the MTC revisions to P.L. 86-272. California, Colorado, and Pennsylvania have indicated that they take the position as indicated by the MTC. New York State has drafted a rule that indicates that certain internet activities will not qualify for the federal protection under P.L. 86-272.

Stay tuned for updates on this hot topic as we will be keeping a close eye as states continue to revise their rules and limit the opportunities for out-of-state sellers to take the P.L. 86-272 position.

If you need further guidance or have any questions on this topic, we’re here to help. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.