Multistate Tax Commission Proposes New Guidance on P.L. 86-272 for Internet Activities

by Alex Thacher, Stephanie Shorkley
December 18, 2020


The Multistate Tax Commission (MTC) proposed new guidance related to Public Law 86-272 protections and internet activities. The committee proposed three protected and eight unprotected internet activities that will affect how states will assert income tax nexus. If adopted by the MTC and states, certain business activities that interact with a customer through a website or app may defeat P.L 86-272 protection.

In Detail

P.L. 86-272, 15 U.S.C §§381-384, which Congress adopted in 1959, prohibits a state from imposing a net income tax on income derived within the state from interstate commerce if the only business activities within the state conducted by or on behalf of the person consist of the solicitation of orders for sales of tangible personal property, and if accepted, are filled by shipment or delivery from a point outside the state.

The MTC Uniformity Committee met in April to discuss its proposed guidance on P.L. 86-272. Their goal of bringing the statute into the digital era and addressing commerce changes in a modern economy resulted in three protected and eight unprotected internet activities, which the proposed guidance outlines as follows:

Protected Activities

  • Assisting customers post-sale through static FAQs with answers on the business’s website.
  • Placing Internet "cookies" onto electronic devices that gather information ancillary to solicitation of orders for tangible personal property.
  • Offering for sale only items of tangible personal property on the business’s website. The website must be limited to enabling customers to search for items, read product descriptions, select items for purchase, choose delivery options, and pay for items without engaging in any of the unprotected activities below.

Unprotected Activities

  • Assisting customers post-sale through electronic chat or email.
  • Soliciting and receiving online applications for branded credit cards.
  • Accepting applications through the website for non-sales positions.
  • Placing Internet "cookies" onto the computers that gather customer search information to adjust production schedules and inventory amounts, develop new products, or identify new items to offer for sale.
  • Fixing or upgrading previously purchased products through online instructions.
  • Selling extended warranty plans through the website.
  • Streaming music or video services for a charge.
  • Maintaining inventory of a business’s products at fulfillment centers where customers are located, in the case of a marketplace facilitator.


Many businesses who sell tangible personal property have been relying on the protection of P.L. 86-272 to determine their state tax income tax nexus footprint. This footprint determines where they should be filing state tax returns and if they should be throwing back sales. It also helps companies identify any items of potential tax exposure and how that impacts financial statements and provisions.

If the proposed revisions are adopted, businesses must consider the implications for their interstate commerce activity and how that will impact them. For companies with web activities, the revisions could significantly impact state tax filing footprints as well as dramatically change throw-back sale calculations.

These proposed changes have broad economic nexus implications, and companies who have typically been throwing back sales to their home state and assuming P.L. 86-272 protection in other states may not have that protection or be required to throw back any longer. Companies should be re-evaluating their P.L. 86-272 positions, as there may be detrimental consequences or potential refund opportunities.

That being said, some argue that such revisions would go against the law's congressional intent and would surely be challenged in court.

We will keep you posted. For questions on how your business may be exposed to income tax liability by the proposed guidance, contact our experts.

December 18, 2020

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Alex Thacher - Partner, Tax - San Jose, CA | Armanino
Stephanie Shorkley - Tax, San Ramon | Armanino
Senior Manager
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