The Multistate Tax Commission (MTC) recently adopted a revised “statement of information” on the application of Public Law 86-272, which bars states and localities from imposing net income taxes where in-state business activities are limited to solicitation of sales of tangible personal property and ancillary activities. The revised statement takes the position that taxpayers generally engage in unprotected in-state business activities “when a business interacts with a customer via the business’s website or app.”
States are free to adopt the revised statement in any way they choose, regardless of their MTC membership status. The introduction to the revised statement anticipates that states may adopt all or portions of the MTC’s policy “by legislation, regulation or other administrative action.”
For consideration: It appears likely that the revised policy will be adopted in whole or in part by certain states seeking to challenge taxpayers’ assertions of P.L. 86-272 protection. Businesses should consider their positions under P.L. 86-272 and the potential impact of the MTC’s revised statement for purposes of analyzing whether they may be deemed subject to tax and in applying the apportionment “throwback” and “Joyce”/“Finnigan” rules. If states are successful in adopting and defending the approach taken in the revised statement, this along with the increasing adoption of mandatory unitary combined reporting and “Finnigan” apportionment could effectively narrow the applicability of P.L. 86-272 protections to a limited number of taxpayers.
