Public Law 86-272: Does It Cover Partnerships?

Public Law 86-272, or the Interstate Income Tax Act, is a US federal statute that protects certain taxpayers from paying income tax. The law, which came into effect in 1959, prohibits states from imposing net income tax on out-of-state companies with limited in-state activities, specifically when those activities are restricted to the solicitation of orders for sales of tangible personal property. The law also covers the delivery of property if orders are sent out of state for approval and fulfilment. The law has not been updated since its inception, and with the rise of e-commerce, questions have been raised about its applicability to modern business models.

Does Public Law 86 272 apply to partnerships with in-state sales forces?

Public Law 86-272, or the Interstate Income Tax Act, prohibits a state from imposing its net income tax on a business if the business's only activity in the state is the solicitation of orders for sales of tangible personal property. The law also requires that orders are sent outside the state for approval or rejection and, if approved, are fulfilled from outside the state.

The Multistate Tax Commission (MTC) has provided guidance on the application of Public Law 86-272 to internet sales, which has been adopted by California and New York. The MTC's guidance states that a business is engaged in a "business activity" within a customer's state if it interacts with the customer through its website or app, and this extends beyond the pure solicitation of orders for sales of tangible personal property.

The MTC's guidance provides a list of activities that are considered protected or unprotected by Public Law 86-272. The following activities are considered unprotected and would therefore not be covered by Public Law 86-272:

• Providing post-sale assistance to customers through electronic chat or email.
• Soliciting and receiving online applications for branded credit cards.
• Inviting applications for non-sales positions through the company website.
• Placing internet cookies on customers' devices to gather search information for product development or management.
• Providing remote fixes or upgrades to previously purchased products by transmitting code or instructions over the internet.
• Offering and selling extended warranty plans on the company website to in-state customers.
• Contracting with a marketplace facilitator to sell the company's products on the facilitator's online marketplace.
• Contracting with in-state customers to stream videos and music to electronic devices for a charge.

The following activities are considered protected by Public Law 86-272:

• Providing post-sale assistance to customers by posting a list of static frequently asked questions on the company website.
• Placing internet cookies on customers' devices to gather information that is only used for purposes entirely ancillary to the solicitation of orders for tangible personal property.
• Offering only items of tangible personal property for sale on a website that enables customers to search for items, read product descriptions, select items for purchase, choose delivery options, and pay for the items.

In summary, Public Law 86-272 does apply to partnerships with in-state sales forces as long as the partnership's activities are limited to the solicitation of orders for sales of tangible personal property and the orders are sent outside the state for approval and fulfillment. However, if the partnership engages in any of the unprotected activities listed above, it may be subject to state income tax.

Does Public Law 86 272 apply to partnerships with in-state employees?

Public Law 86-272, finalised in 1959, is a federal statute that limits a state's power to impose a net income tax on revenue derived from interstate commerce. The law applies to companies whose activities in a given state are limited to soliciting orders for goods. In this case, the state cannot impose a net income tax or franchise tax on the company.

The law was drafted before the advent of e-commerce, and it has not been amended to reflect the current business landscape, where most organisations conduct business across state lines. The law's applicability to e-commerce transactions is currently under review by the Multistate Tax Commission (MTC), which has issued guidance on PL 86-272 for decades.

In terms of partnerships with in-state employees, PL 86-272's protection would depend on the nature of the partnership's activities within the state. If the partnership's activities are limited to soliciting orders for sales of tangible personal property, which are then approved and shipped from outside the state, then PL 86-272 would offer protection from state income tax.

However, if the in-state employees of the partnership engage in activities beyond solicitation, such as providing post-sale assistance, conducting repairs or upgrades, or selling extended warranty plans via the internet, then the partnership may exceed the protections offered by PL 86-272 and become subject to state income tax.

It is worth noting that the MTC's interpretations and guidance are not binding, and individual states may adopt their own interpretations of PL 86-272. Therefore, partnerships should carefully review their activities within each state and consult relevant state laws to determine their tax liabilities.

Does Public Law 86 272 apply to partnerships with in-state offices?

Public Law 86-272, also known as the Interstate Income Tax Act, prohibits states from imposing net income tax on out-of-state businesses with limited in-state activities. To be exempt from state net income tax, a business must meet six requirements:

• The state tax being applied is a net income tax
• The business being taxed is an out-of-state business
• The only activity of the business in the state is the solicitation of orders
• All orders are accepted by the business outside the state
• The product being sold is shipped from outside the state
• The product being sold is tangible personal property

The law was enacted in 1959 to protect out-of-state businesses from state income tax and to reduce uncertainty and promote uniformity in state taxation.

In terms of its application to partnerships with in-state offices, Public Law 86-272 does offer protection to partnerships that meet the six requirements outlined above. However, it is important to note that the presence of an in-state office may result in the partnership being considered doing business in that state, which could lead to other tax liabilities beyond net income tax.

Additionally, Public Law 86-272 does not apply to the solicitation of services or other types of taxes, such as sales, net worth, and gross receipt taxes. Therefore, partnerships that offer services in addition to selling tangible personal property may not be fully protected by Public Law 86-272.

Furthermore, the definition of "solicitation" has been a subject of debate, with the U.S. Supreme Court interpreting it broadly to include activities ancillary to requests for purchases. This interpretation has implications for partnerships with in-state offices, as it expands the scope of activities that could be considered taxable by the state.

In recent years, there has been a trend among states to broaden their tax base by implementing factor presence economic nexus standards, which can further complicate the tax landscape for partnerships with in-state offices.

In conclusion, while Public Law 86-272 can provide some protection to partnerships with in-state offices, the specific circumstances and state tax laws will determine the ultimate tax liabilities. Partnerships should carefully consider their activities and consult with tax professionals to ensure compliance with state tax requirements.

Does Public Law 86 272 apply to partnerships selling digital products?

Public Law 86-272, or the Interstate Income Tax Act, was enacted in 1959 to prevent states from imposing net income tax on revenue derived from interstate commerce. The law states that a state cannot impose income tax on an out-of-state company if its activities in that state are limited to soliciting orders for sales of tangible personal property and delivering the property if the orders are sent out of state for approval and fulfilment. This law has not been amended since its conception and does not take into account the rise of e-commerce and digital products.

The Multistate Tax Commission (MTC) has reconsidered its interpretation of Public Law 86-272 in light of the rise of e-commerce and service-based economies. The MTC's model statement, which has been updated to reflect this new perspective, now includes a view through the lens of an e-commerce economy. This raises questions about whether the law will be rendered obsolete for practical purposes. The MTC now considers most interactions with customers over the internet as activities beyond the solicitation of orders for sales of tangible personal property. For example, the MTC's updates indicate that the following activities are not protected by PL 86-272:

• Placing cookies on in-state customers' computers (except for certain purposes entirely ancillary to the solicitation of orders for tangible personal property)
• Providing post-sale assistance to in-state customers via chat or email
• Remotely fixing or upgrading products previously purchased by in-state customers by transmitting code or other electronic instructions via the internet
• Selling extended warranty plans via the business' website to in-state customers

These updates to the MTC's model statement are influential and will impact how states apply the law's protections to activities involving the internet. However, it is important to note that states will still need to formally adopt the revised statement.

In terms of partnerships, Public Law 86-272 does not specifically mention partnerships, but it does refer to "any person" engaging in interstate commerce. This could be interpreted to include partnerships, as partnerships are often treated as pass-through entities for tax purposes, and the income generated by the partnership is taxed at the partner level.

Regarding digital products, Public Law 86-272 specifically mentions "tangible personal property" and does not include digital products in its definition. Therefore, it is unlikely that Public Law 86-272 would apply to partnerships selling digital products. However, it is important to note that the definition of "tangible personal property" may be interpreted differently by different states and courts, and there may be other tax laws or regulations that could apply in this scenario.

In conclusion, while Public Law 86-272 does not specifically address partnerships or digital products, the law's interpretation and applicability may vary depending on the specific circumstances and the state in question. Partnerships selling digital products should consult with tax professionals to understand their specific tax obligations and liabilities.

Does Public Law 86 272 apply to partnerships selling services?

Public Law 86-272, or the Interstate Income Tax Act, was enacted in 1959 to prevent states from imposing net income tax on revenue derived from interstate commerce. The law protects out-of-state companies from state income tax if their activities within the state are limited to soliciting orders for sales of tangible personal property. The law also requires that the orders be sent outside the state for approval and fulfillment.

The Multistate Tax Commission (MTC) has issued guidance on PL 86-272 and its applicability to e-commerce transactions. The MTC's model statement, which has been updated to reflect the modern service and e-commerce-dominated economy, indicates that certain activities by out-of-state businesses are not protected by PL 86-272. These activities include placing cookies on in-state customers' computers, providing post-sale assistance via chat or email, remotely fixing or upgrading products, and selling extended warranty plans via the business' website.

In the case of partnerships selling services, PL 86-272 may apply if the partnership is an out-of-state company that solely solicits orders for services that are then approved and fulfilled from outside the state. However, it is important to note that the MTC's interpretation of PL 86-272 is constantly evolving, and the law itself has not been amended to reflect the advent of e-commerce.

Additionally, the definition of "solicitation" has been the subject of significant attention from the U.S. Supreme Court, while the term "delivery" has been left to the states to define. This lack of a uniform definition of "delivery" has left many out-of-state corporations vulnerable to state discretion.

In summary, while PL 86-272 may apply to partnerships selling services, the specific activities conducted by the partnership and the state's interpretation of the law will determine the applicability of the law in each case.

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