A review of Multistate Tax Commission's statement on how P.L. 86-272 applies to internet sales.

AuthorCurrie, Karen
PositionInterstate Income Act of 1959

The Interstate Income Act of 1959, often referred to by its public law designation, P.L. 86-272, prohibits the imposition of state income tax on out-of-state sellers if their instate activities do not extend beyond soliciting orders of tangible personal property. Because the internet did not exist when this federal law was enacted more than a half century ago, questions have arisen about how its language should be interpreted in a world where out-of-state sellers can solicit orders of tangible personal property through cyberspace.

Seeking to clarify the matter, on Aug. 4, 2021, the Multistate Tax Commission (MTC) approved the fourth revision to its "Statement of Information Concerning Practices of the Multistate Tax Commission and Supporting States Under Public Law 86-272" (the Statement), which added a section on activities conducted over the internet. Generally, the newly revised Statement limits the types of online sales activities that P.L. 86-272 protects.

According to the MTC, the Statement is "intended to serve as general guidance to taxpayers and to provide notice as to how Supporting States will apply the statute." Although the revised Statement has been approved by the MTC, it is not automatically adopted by states. Rather, the Statement provides that Supporting States will need to expressly indicate support through statutory, regulatory, or administrative action for the Statement to be effective in that state.

Background

In February 1959, the U.S. Supreme Court held in Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450 (1959), that Minnesota could impose its corporate income tax on an Iowa corporation that leased a sales office in Minnesota and had employees in Minnesota whose activities were limited to soliciting orders that were accepted at, and filled from, the home office in Iowa. In order to legislatively overturn this holding and with the active support of the business community, Congress enacted P.L. 86-272 later that year in September 1959.

P.L. 86-272 (codified at 15 U.S.C. [section]381) prohibits a state, and any of its political subdivisions, from imposing a net income tax on an out-of-state seller if the seller's "only business activities" within the state consist of "the solicitation of orders by such person, or his representative ... for sales of tangible personal property ... which ... are sent outside the State for approval or rejection and, if approved, are filled by shipment or delivery from a point outside the State." Thus, even if constitutional nexus exists that would allow taxing an out-of-state business, P.L. 86-272 effectively preempts state income taxation on an outof-state business whose activities in the state are limited to soliciting sales of tangible personal property as described in the federal law.

In 1986, the MTC adopted the "Statement of Information Concerning Practices of Multistate Tax Commission and Signatory States Under Public Law 86-272," which sets forth the MTC signatory states' interpretation of those in-state activities that are conducted by or on behalf of a corporation and fall within or outside the protection of P.L. 86-272. In 1992, the U.S. Supreme Court addressed the scope of the activities protected under P.L. 86-272 in Wisconsin Department of Revenue v...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT