New Guidance for Applying Public Law 86-272 to Business Activities Conducted on the Internet

Michael S. Schadewald, PhD, CPA

Athreshold issue for any corporation engaged in interstate commerce is determining the states in which it must file income tax returns and pay taxes. Public Law 86-272 provides corporations that sell tangible personal property with a limited safe harbor from the imposition of state income taxes. In 2021, the Multistate Tax Commission (MTC) adopted a statement regarding how to apply Public Law 86-272 to business activities conducted on the Internet. In 2022, California and New York issued regulatory guidance that closely parallels the statement issued by the MTC. Examples of Internet activities that are not protected by Public Law 86-272 under these pronouncements include a business using its website to provide post-sale assistance via electronic chat, sell extended warranty plans, accept job applications for non-sales positions, or gather customer search information that is used to adjust production schedules. These recent pronouncements by California and New York put a spotlight on the limits of the federal safe harbor.