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Public Law 86-272 and Its Effect on Income Tax

  • By Travis Austin
    • Apr 05, 2023
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public law 86- 272

Public Law 86-272 was originally enacted by Congress in 1959.  The main purpose of this legislation is to prevent states from imposing a net income tax on any income derived out of interstate commerce when the only business activity a company has within a state is the solicitation of orders of tangible personal property. In other words, Public Law 86-272 serves to protect businesses from establishing nexus for state income tax when their only business activity in a state is to solicit for the sale of physical goods.  While extremely straight-forward when the law was first enacted in 1959 (and later amended in 1976), the lawmakers who originally composed this piece of legislation could never have conceptualized the advent of the digital age and an economy driven by the internet.  As a result of these drastic changes, state income tax legislation enacted over seventy years ago must be examined.

Multistate Tax Commission

Public Law 86-272 deals with the concept of solicitation of orders, but what exactly does that mean? When originally implemented, solicitation was limited to telemarketing, catalogues, and door-to-door sales representatives. Modern e-commerce changes this scope, and modern interpretation is needed.  In August of 2021, the Multistate Tax Commission issued an updated rendition of the definition. Multistate Tax Commission defines solicitation in two ways. Solicitation is defined as any conduct that invites an order. Solicitation is also considered activities that don’t invite an order but are ancillary to order requests.

Following this updated definition provided by the Multistate Tax Commission, California’s Franchise Tax Board issued their Technical Advice Memorandum 2022-01 to add a level of clarification to the new definition.  With this memorandum, the California Franchise Tax Board sets forth a series of twelve real world scenarios with explanations regarding whether the protections of Public Law 86-272 are applicable on a case-by-case basis.  The impact of this guidance goes beyond the confines of the State of California.  Technical Advice Memorandum 2022-01 sets forth the first modern interpretation of Public Law 86-272.  The precedent it sets encourages other states to follow suit with similar interpretations.

Where does this leave the present interpretation of Public Law 86-272?

The answer to that is vague, as in the world of State and Local Tax, it varies by state. Many states’ interpretation of the protections under Public Law 86-272 is evident in their stances on trade show attendance and participation. Connecticut, has an exemption for retailers at trade shows that considers them not “in business” within the state. As long as the company’s only activities are limited to trade show advertising and order taking for out of state acceptance and completion. With this understanding, Connecticut follows the classic interpretation on Public Law 86-272 to the letter.  Before starting activities, it is imperative to research the interpretation in a state since not all states share this interpretation. In time Public Law 86-272 should become more uniformly adapted to the modern economy as it is applied in additional states.


Pub. L. 86–272, title I, § 101, Sept. 14, 1959, 73 Stat. 555.

Statement of Information Concerning Practices of Multistate Tax Commission and Signatory States Under Public Law 86-272, Multistate Tax Commission, rev. Jul. 27, 2001

Technical Advice Memorandum 2022-01, California Franchise Tax Board, Feb. 14, 2022

Conn. Gen. Stat.  §12-407(a)(15)(D)


travis austin
Travis Austin

State & Local Tax Consultant

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