The Interstate Income Act of 1959 (P.L. 86-272) protects an out-of-state business or representative from a state’s net income tax if the only activity in the state is soliciting orders for sales of tangible personal property and if the orders are reviewed and approved out of state and the property is delivered from outside the state.
On February 14, 2022, California became the first state to update its interpretation of P.L. 86-272, adopting the view of the Multistate Tax Commission (MTC) that an out-of-state person or business could lose protection under PL 86-272 due to internet-based activities with in-state customers. The MTC’s guidance contends that a customer using a business’s website in the customer’s home state is an activity of the business in the customer’s state.
On Friday, April 29, the New York Department of Taxation and Finance proposed guidance on P.L. 86-272 that would make it the second state to conform to the MTC interpretation. Like the MTC and California, New York proposes that any activities, including those conducted over the internet, would not be shielded by P.L. 86-272 unless they consist only of solicitation of orders for tangible personal property, or are insignificant. However, also like the MTC and California, posting text or images on a website alone would not trigger taxation.
Opponents of the New York proposal contend that it is inconsistent with the intent of P.L. 86-272. They suggest it incorrect to interpret P.L. 86-272 as supporting taxation of a corporation merely due to residents of a state engaging with a company’s website.
If you have questions on the New York’s legislation or other SALT matters, please contact HBK’s SALT Advisory Group at hbksalt@hbkcpa.com.
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