Protection from State Income Tax Nexus Under P.L. 86-272 Just Got More Difficult

September 24, 2021

I was just calling to update my insurance policy....

By: Jeff Glickman, SALT Partner

At a glance

  • The main takeaway: The Multistate Tax Commission recently approved revisions to its interpretation of Public Law 86-272, which has state income tax nexus implications for taxpayers.
  • Why it matters to you: This revision will likely cause more businesses to lose their immunity from state income tax nexus under P.L. 86-272.
  • Next steps: Aprio’s State and Local Tax (SALT) team can help determine whether your business is affected so you remain compliant with your state income tax obligations.

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The full story:

On August 4, 2021, the Multistate Tax Commission’s member states approved revisions to its “Statement of Information Concerning Practices of Multistate Tax Commission and Supporting State Under Public Law 86-272” (the Statement). Below, we have summarized these changes and the state income tax nexus implications for taxpayers.

Key changes to note

Public Law 86-272 is a federal law, enacted in 1959, that generally prohibits states from imposing a net income-based tax on a business if the business’s only activities in a state are limited to “solicitation of orders” for sales of tangible personal property, as long as the approval of orders occurs outside the state and the shipment or delivery originated outside the state. The law does not specifically identify what activities constitute protected solicitation, though the U.S. Supreme Court has held that such activities include more than just a verbal request for orders but other activities that are “entirely ancillary to requests for purchases.”[1] If a taxpayer engages in an activity deemed by the state to be unprotected and such activity is not de minimis, the taxpayer will be subject to the state’s income tax.

The Statement, originally adopted in 1986 and revised several times since (the last being in 2001), serves as a guide for the application of P.L. 86-272, specifically the types of activities that may or may not provide protection from state income tax nexus.[2] Most states, either formally or informally, adopt the Statement as their own guidance and interpretation of state income tax nexus.

The most significant revision to the Statement is in Section IV “Specific Listing of Unprotected and Protected Activities” where subsection C was added, titled “Activities Conducted via the Internet.” This new subsection addresses activities most likely to be conducted by companies that engage in selling tangible personal property over the internet.

As a general rule, the subsection provides 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. However, for purposes of this Statement, when a business presents static text or photos on its website, that presentation does not in itself constitute a business activity within those states where the business’s customers are located. 

The subsection offers several examples: for instance, if a customer clicks an icon on the business’s website that initiates an electronic chat where customers can receive post-sale assistance, such as how to use the product, that activity is deemed to occur in the customer’s state and is not protected. On the other hand, providing that post-sale assistance via static pictures or FAQs will not cause the business to lose its immunity from income tax nexus under P.L. 86-272.

Other unprotected activities conducted over the business’s website include:

  • Soliciting and receiving online applications for its branded credit card.
  • Inviting viewers to apply for non-sales positions by filling out and submitting an electronic application, including uploading a cover letter and resume.
  • Placing internet “cookies” on its customers’ computers for the purpose of gathering from or providing information to them that is not entirely ancillary to solicitation, such as developing new products or adjusting inventory amounts.[3] However, using cookies solely to gather information used for purposes entirely ancillary to solicitation — such as remembering items stored by customers in their cart or storing personal information so that customers don’t need to re-enter it when they check out — would be considered protected activities that would not subject the business to state income tax nexus in a customer’s state.
  • Contracting with customers to stream videos and music to electronic devices for a charge, because streaming does not constitute the sale of tangible personal property under P.L. 86-272.
  • Providing remote fixes or upgrades to products previously purchased by transmitting code or other electronic instructions to the products via the internet.

The bottom line

This revision will likely cause more businesses to lose their immunity from state income tax nexus under P.L. 86-272, and because the Statement constitutes interpretive guidance of an existing law, it is possible that states could view these revisions as applying retroactively.

Aprio’s SALT team can help your business address whether or not you have income tax nexus or are otherwise protected under P.L. 86-272, so that you remain compliant with your state income tax obligations and do not incur unexpected liabilities or penalties.

We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the September 2021 SALT newsletter.

[1] See Wisconsin Dep’t of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214 (1992).

[2] For more information about P.L. 86-272 and the Multistate Tax Commission’s Statement, see this webpage on the topic.


Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Jeff Glickman

Jeff Glickman is the partner-in-charge of Aprio, LLP’s State and Local Tax (SALT) practice. He has over 18 years of SALT consulting experience, advising domestic and international companies in all industries on minimizing their multistate liabilities and risks. He puts cash back into his clients’ businesses by identifying their eligibility for and assisting them in claiming various tax credits, including jobs/investment, retraining, and film/entertainment tax credits. Jeff also maintains a multistate administrative tax dispute and negotiations practice, including obtaining private letter rulings, preparing and negotiating voluntary disclosure agreements, pursuing refund claims, and assisting clients during audits.

(770) 353-4791