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Update: The Rise and Fall of Public Law 86-272

Tax Development Oct 26, 2022

Update: The Rise and Fall of Public Law 86-272

If you have been following the demise of Public Law 86-272 (“P.L. 86-272”) since the release of the Multistate Tax Commission’s (MTC’s) updated Statement of Information in August 2021, you will be interested in the following developments.


To refresh your memory, the MTC issued its fourth revision of the Statement of Information Concerning Practices of Multistate Tax Commission and Supporting States Under P.L. 86-272 (“Statement”). This latest revision, issued 20 years after the last revision, intended to incorporate some changes in current business activities, in the wake of the Wayfair1 decision. By broadening the definition of “business activity,” the Statement provides 11 scenarios to describe when a business does or does not defeat the protection provided by P.L. 86-272 when it interacts with customers through its website. The most significant revision appears in a new section entitled “Activities Conducted via the Internet,” which separately details protected and unprotected activities relating to internet activities. This new section focuses on whether an out-of-state business using the internet to conduct in-state business activities is engaged in protected activities under P.L. 86-272. The general rule of the Statement is that “when a business interacts with a customer via the business’s website or app, the business engages in a business activity within the customer’s state.”

Shortly thereafter, California issued Technical Advice Memorandum (TAM) 2022-01, providing direction on P.L. 86-272 protected activities addressed in the MTC revised guidance. The TAM basically adopts the MTC elements relating to internet activities that could exceed protection previously provided by P.L. 86-272. Not to be left behind, New York became the second state to formally address P.L. 86-272 implementation by proposing regulations that generally adopt the MTC Statement guidelines. Then came Oregon, which explored adopting the entire MTC Statement and applying it to all open periods. 

New Developments 

In August, the American Catalog Mailers Association (ACMA) filed a complaint2 in Superior Court of California seeking to have the published guidance on protected internet activities declared invalid. This is the first legal challenge to a state implementation of the MTC Statement guidelines. The ACMA claimed that the TAM wrongfully and substantially expanded the reach of income taxes on out-of-state merchants with no physical presence in the state. These new guidelines would effectively remove the long-term protection of P.L. 86-272 for many ACMA members by contradicting established law. Compliance could prove challenging for the estimated 2.5 million online merchants operating in the country, primarily as small businesses.

Shortly after the ACMA case was filed, Oregon decided to take a step back from implementing the proposed changes included in the MTC guidelines. When the Statement was first issued, the DOR explored adopting the entire Statement and applying it to all periods open for examination. After business taxpayers objected to the changes, the DOR is reconsidering the approach, willing to include stakeholders’ input in its determination. The intent to listen to input from those impacted by the proposed changes is a refreshing approach to tax policy.

In light of these developments, we will be closely monitoring legislative activity and lawsuit opposition in the nexus arena as the future of P.L. 86-272 evolves. 

1 South Dakota v. Wayfair, Inc. 138 S. Ct. 2080, 2095 (2018).

2 American Catalog Mailers Association v. Franchise Tax Board, Superior Court of California, San Francisco County.


Mark L. Nachbar

Mary Bernard

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