In the last two years since the Multistate Tax Commission (MTC) adopted the fourth revision to its Public Law 86-272 Statement, there has been limited state adoption of the new revision. The adoption, nevertheless, has been consequential and is setting the stage for whether there will be mass adoption of the revision in the future. Given the evolving nature of this issue, and the potential for retroactive effects, it is necessary for SALT advisors to be mindful of P.L. 86-272 when addressing companies’ state tax nexus and filing obligations. As such, this article will address these adoptions and the resulting legal actions and effects on companies.

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P.L. 86-272 (codified as 15 USC sections 381-384) was initially adopted by Congress in 1959 to protect interstate commerce from net income tax obligations in a customer’s state. P.L. 86-272 only applies to the sale of tangible personal property in interstate commerce when the sole business activity in a state is the solicitation of orders for sales of tangible personal property and any additional activities within the state are ancillary to solicitation activities. The law does not apply to, or protect businesses from, franchise or gross receipts tax, as these taxes are not based on income. Many states, as a separate part of the MTC, provide a list of protected and unprotected activities that have been helpful to businesses in determining whether protection can be taken under P.L. 86-272.

In August 2021, the MTC’s revised statement proposed to update guidance on protected and unprotected activities by adding language on digital and remote activities (commonly referred to as “modern business activities”) and whether they are protected by P.L. 86-272. As such, the revised statement treats a business’s remote activity conducted interstate via the Internet or some other digital means as if that activity were conducted in its customer’s state. The general interpretation of this guidance is that P.L. 86-272 does not shield a business from income tax unless the conducted digital or remote activity would itself be protected. While the extent of the revised statement is significant, a select few provisions are particularly noteworthy and impactful.

  • ▪ Protected activities include:
    • Any post-sale assistance to in-state customers made by posting a list of static FAQs with answers on the business’s website
    • The 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 is a protected activity.


  • ▪ Unprotected activities include:
    • Post-sale assistance provided to customers via either electronic chat or e-mail that is initiated by customers clicking on an icon on the business’s website
    • The invitation and provision of electronic applications, as well as the option to attach cover letters and resumes to website users for non-sales positions
    • Any post-sale activities, such as remotely fixing or upgrading products “by transmitting code or other electronic instructions” via the Internet.


State Adoption

In the two years since its adoption, four states have taken steps to adopt the revised MTC statement, using varying methods.

California was the first state to incorporate the revised statement, doing so administratively by issuing Technical Advice Memorandum 2022-01 on February 14, 2022 (and subsequently incorporating the guidance into Publication 1050). The guidance incorporates the language used by the MTC nearly verbatim, including citations to the Wayfair decision to support the underlying legal theory. By adopting the revised statement via a technical advice memorandum, the California Franchise Tax Board (FTB) can rely on it without taking steps to formally adopt it via regulation or statute. The guidance is notable in that it does not address the issue of retroactivity, leaving open the concern that the state could choose to apply the guidance to tax periods preceding its issuance.

New York followed suit a few months later, issuing an amended version of its draft corporate tax regulations that incorporate the revised statement. By adopting through the administrative rulemaking process, New York explicitly states the revised statement is not precedential while in draft status and is not intended to be relied on. The rulemaking process also allows for public comment, which is a process not afforded under the California adoption. Although likely not staving off future legal challenges, New York’s method seems to be an effort to ensure the sustainability of the rule as compared to California’s approach, which will inevitably be challenged in court.

In August 2022, Oregon held a Rules Advisory Committee (RAC) meeting to advise on the adoption of the revised statement by administrative rule. Based on the comments received during the RAC meeting, Oregon surprisingly stepped back from its plans to adopt the revised statement. Whether it will be reconsidered in the future is unknown at this point and likely dependent on whether other states can sustain legal challenges to its adoption.

Most recently, in April 2023, Minnesota circulated for comment a draft revenue notice that would adopt the revised statement. Similar to California, the Minnesota notice is silent as to whether it would be retroactive or prospective. Minnesota’s revenue notices provide supplemental information about how the state interprets or administers Minnesota tax laws or rules, similar to California’s technical advice memorandums. As such, Minnesota’s proposal lacks the legal formality of a statute or regulation. Minnesota has yet to release an updated draft notice or finalized notice.

Legal Challenge

California’s guidance was subsequently challenged in August 2022 when the American Catalog Mailers Association (ACMA) filed suit in California Superior Court. ACMA’s complaint alleges that California’s guidance is invalid because it is in contravention of P.L. 86-272 and the U.S. Constitution; was not adopted in accordance with the California Administrative Procedure Act; and is retroactively invalid because it violates taxpayers’ rights to due process. The lawsuit is currently in the discovery phase, with trial currently scheduled to begin in late October 2023.

Effect of the Rules Adoption

Litigation related to the adoption of the revised statement is not unexpected, given the potential effect of widespread adoption. The revised statement has the effect of significantly narrowing and limiting the protections of P.L. 86-272 by recharacterizing digital activity as business activity within the state. Application of the revised statement as written would likely subject to taxation any business that previously relied on the protections of P.L. 86-272 in operating a modern website—the practical effect of which would require these businesses to choose between being subject to state income tax or drastically curtailing their online presence and digital activity.

Given these implications and the uncertainty of retroactive application, litigation of this issue prior to broad state adoption should be welcomed. Moreover, it seems entirely plausible that most states considering adoption are waiting on the resolution of the California litigation before taking public actions to adopt the revised standards. Restraint in these circumstances seems reasonable and to the benefit of both states and taxpayers. That being said, success by ACMA in its lawsuit against the FTB is not guaranteed. Needless to say, tax professionals should prepare themselves for that possibility and familiarize themselves with the revised statement and understand the impacts it could have.

Corey L. Rosenthal, JD, is a principal at CohnReznick LLP, New York, N.Y.
Arvinder Kaur, CPA, is a senior manager at CohnReznick.
Jamie Kelly, JD, is a manager, state and local tax services at CohnReznick.