At its 2021 annual business meeting, the Multistate Tax Commission’s (MTC) member states voted to adopt guidance addressing corporate income tax implications of online business transactions. This guidance, in the form of a revised statement related to the application of the Interstate Income Act (Public Law (P.L.) 86-272), expands the MTC’s definition of “business activity” to include certain online interactions.
The Interstate Income Act is a federal law that prohibits states from imposing a net income tax on interstate commerce when a business’s sole connection with the state is soliciting orders for sales of tangible personal property that is delivered from a point outside the state. The revisions reflect the commission’s stance that the way in which interstate business is conducted has changed significantly since the enactment of P.L. 86-272 in 1959 and the Supreme Court’s interpretation of the law in the Wisconsin v. Wrigley 1992 decision, which broadened the scope of what constituted solicitation. The MTC points to the U.S. Supreme Court’s decision in South Dakota v. Wayfair as evidence of this evolution, notwithstanding that Wayfair pertained to sales tax and P.L. 86-272 was not in question.
The MTC positions the revised statement as a shield for online businesses, though the revised statement seeks to broaden the number of activities that can nullify a business’s protection under P.L. 86-272. The revised statement posits that “[a]s a general rule, when a business interacts with a customer via the business’s website or app, the business engages in business activity within the customer’s state.” It then provides examples of typical online activities and concludes with whether the activities defeat the protection afforded under P.L. 86-272.
