Although the Supreme Court’s decision in South Dakota v. Wayfair [585 US _ (2018); 138 S. Ct. 2080 (2018)] significantly increased the state and local tax burden of many businesses, a proposal made by the Uniformity Committee of the Multistate Tax Commission (MTC) to define “business activity” for purposes of the protection offered by Public Law (PL) 86-272 will increase that burden even more. As PL 86-272 was adopted in 1959, it could not take into account the development of technology that would make it possible for any business to reach into homes using “online solicitations.” Therefore, the MTC determined that it was necessary to address online solicitation as it relates to PL 86-272. Accordingly, this article will concentrate on the proposals related to online solicitation. CPAs need to be aware of these proposed changes and their implications when assessing client nexus and filing issues.

According to the hearing officer at the public hearing for the fourth revision of the Statement of Information containing the proposal, “because Public Law does not define ‘business activity,’ the statute is subject to different construction or interpretation.” Therefore, the MTC has been concentrating on defining “business activity” for purposes of PL 86-272 with respect to online activities. In this context, the proposal includes a clarification of the nature of property protected, a list of protected and unprotected activities, and a definition of de minimis activities. If the MTC adopts this revision, 22 states intend to fully comply with the MTC’s rulings, which would adopt this revision immediately.


PL 86-272 (15 USC sections 381–384) was initially adopted by Congress in 1959 to protect interstate commerce from net income tax obligations in the customer’s state. The law does not apply to or protect businesses from franchise or gross receipts tax, as these taxes are not based on income. PL 86-272 only applies to the sale of tangible personal property in interstate commerce when the sole business activity in the customer’s state is the solicitation of orders for sales of tangible personal property and activities ancillary thereto. The decisions (approval or rejection) of these orders must be made, and orders must be fulfilled, by shipment or delivery from a point outside the state in question. In this context, the sale of tangible personal property does not include the leasing, renting, licensing, or other disposition of tangible personal property.

Regarding solicitation, speech, or conduct that explicitly or implicitly invites an order, as well as activities that neither explicitly nor implicitly invite an order but are entirely ancillary to requests for an order, are included in solicitation. Activities considered to be ancillary are those activities that serve no independent business function apart from their connection to the solicitation of orders. Activities that a seller would engage in apart from soliciting orders, including the promotion of sales, are not protected activities, because promotion explicitly invites an order. In addition, activities that, when taken together, establish only a trivial connection with the taxing state are considered to be de minimis and will not cause a business to lose the protection of PL 86-272. An activity conducted within a taxing state on a regular or systematic basis or pursuant to a company policy, written or unwritten, will not normally be considered de minimis. Indeed, most jurisdictions have published guidance (either via regulations or administrative pronouncements) that provides laundry lists of “protected” and “nonprotected” activities under PL 86-272.

To determine whether a business that sells tangible personal property via the Internet is shielded by PL 86-272 requires the same general analysis as with respect to persons that sell tangible personal property by other means. As a general rule, 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. Static text and photos on a business’s website do not, by themselves, generally constitute a business activity within a state where the business’s customers are located.

Proposed Definitions

Pursuant to the MTC proposal, the following online activities are protected activities with respect to PL 86-272:

  • Post-sale assistance provided to customers through posting static FAQ with answers on the business’s website.
  • Placement of Internet cookies on a customer’s computer or other electronic device to gather information for purposes entirely ancillary to the solicitation of tangible personal property; including no activities other than to remember items places in customer’s shopping cart, to store personal information inputted by the customer to avoid re-entry, and to remind customers which products they have considered during previous sessions, where no other cookies are delivered by the business to its customers and the cookies perform no other function.
  • Sale of only tangible personal property on the business’s website by enabling customers “to search for items, read product descriptions, select items for purchase, choose among delivery options, and pay for the items.” If no unprotected activity is performed, the business is soliciting tangible personal property sales.

The following are examples of unprotected activities set forth in the MTC proposal, in which it is deemed that the online activity does not constitute, and is not entirely ancillary to, the in-state solicitation of orders for sales of tangible personal property:

  • Post-sale assistance provided to customers via either electronic chat or email that is initiated by customers clicking on an icon on the business’s website.
  • Solicitation and receipt of online applications for branded credit cards, via the business’s website, which generate interest income and fees.
  • Invitation and provision of electronic applications, as well as the option to attach cover letters and resumes to web-site users for non-sales positions.
  • Internet cookies placed onto computers or other electronic devices to gather data that will be utilized “to adjust production schedules and inventory amounts, develop new products, or identify new items to offer for sale.”
  • Any post-sale activities, such as remotely fixing or upgrading products “by transmitting code or other electronic instructions” via the Internet.
  • Proposing and selling an extended warranty plan.
  • Contracts with marketplace facilitators, where the facilitator maintains inventory that includes some of the business’s products at “fulfillment centers” where customers are located.
  • Contracts with customers to stream videos and music for a charge.

The landmark decision in Wayfair is causing states to carefully evaluate adopting economic factor-based presence nexus provisions.

PL 86-272 also provides specific guidelines for businesses to keep their protection when they use independent contractors. Independent contractors who are not sales representatives do not affect the protection afforded by the law by maintaining the business’s products for display and solicitation purposes only. If the independent contractor executes any unprotected activities on behalf of the business, however, the business will not be protected by PL 86-272.

Although the MTC’s actions cannot be enforced unless the states adopt these regulations, many states have been moving away from physical presence requirements for nexus. Also, as stated above, there are 22 states that intend to comply with or adopt most of the MTC regulations. Indeed, the landmark decision in Wayfair is causing states to carefully evaluate adopting economic factor-based presence nexus provisions. Although the Wayfair decision does not overrule PL 86-272, it appears that its protections might be limited if the MTC proposals are passed. Therefore, businesses and their tax advisors are highly advised to monitor the developments of the MTC proposal so that they can properly assess nexus and related risk issues in multistate commerce.

Corey Rosenthal, JD, is a principal at CohnReznick LLP, New York, N.Y.
Arvinder Kaur, CPA, is a state and local tax manager at CohnReznick.
Dilnora Isaeva, CPA, is a state and local tax senior associate at CohnReznick.