Is "mere delivery" a protected activity?

• Author: Peric, Gary
• Position: Net income tax derived by any person from interstate commerce

The Interstate Commerce Tax Act (EL. 86-272) provides that the shipment and delivery of tangible personal property (TPP) from a point outside a state to a customer located in that state are protected activities and do not trigger a state corporate net income tax return filing requirement. The relevant portion of EL. 86-272 states, in part:

No State ... shall have power to impose ... a net income tax on the income derived within such State by any person from interstate commerce if the only business activities within such State by or on behalf of such person during such taxable year are either, or both, of the following:

(1) the solicitation of orders by such person, or his representative, in such State for sales of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State....

Unfortunately, P.L. 86-272 does not provide guidance as to whether delivery by a company in its own vehicles will comprise a protected activity under Federal law. Further, there is a general lack of other Federal guidance on whether this activity is protected. While Federal authority on the issue may be lacking, Arizona, Florida, Illinois, Massachusetts, Nebraska, New York, New Jersey, South Carolina, Texas and Virginia have all provided explicit authority on whether P.L. 86-272 protection extends to delivery in company-owned vehicles. All of these states, with the exception of Florida and Illinois, view this type of delivery as a protected activity that does not trigger a net income tax return filing requirement. Further, the level of the authority enumerating these positions varies dramatically from state to state. Massachusetts's highest authority, the state supreme court, held that this type of delivery is protected, while the Florida Department of Revenue (DOR) has stated its position in a less authoritative technical assistance advisory.

The States' Positions

The following is an overview of the above-mentioned States' current positions.

Arizona: Delivery by private vehicle or by any other method or carrier is an explicitly protected activity under P.L. 86-272; see AZ Corporate Tax Ruling 99-5 (5/25/99).

Florida: Delivery of TPP in company-owned vehicles is an unprotected activity; see FL Technical Assistance Advisement No. 95(C)1-004 (3/17/95).

Illinois: Delivery of TPP in company-owned vehicles requires the filing of an income tax return; see...