{"id":2160,"date":"2022-01-25T14:31:45","date_gmt":"2022-01-25T14:31:45","guid":{"rendered":"https:\/\/gtmtax.com\/insight\/the-internet-state-nexus-and-sales-tax-the-impact-of-p-l-86-272\/"},"modified":"2025-07-23T20:03:24","modified_gmt":"2025-07-23T20:03:24","slug":"the-internet-state-nexus-and-sales-tax-the-impact-of-p-l-86-272","status":"publish","type":"insight","link":"https:\/\/gtmtax.com\/insight\/the-internet-state-nexus-and-sales-tax-the-impact-of-p-l-86-272\/","title":{"rendered":"The Internet, State Nexus, and Sales Tax: The Impact of P.L. 86-272"},"content":{"rendered":"
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The evolution of technology has significantly changed, and continues to change, the way business is conducted around the globe. State tax laws had continually lagged behind until the U.S. Supreme Court\u2019s decision in South Dakota v. Wayfair (Wayfair)<\/a>\u00a0 upended the long-standing physical presence standard requirement with regards to an entity having sales tax nexus. In response to the Wayfair decision, states got to work and quickly passed economic nexus thresholds for sales tax purposes.<\/p>\n

For net income tax purposes, economic nexus had long been asserted by states since Geoffrey, Inc. v. S.C. Tax Comm\u2019n when intangible holding companies were deemed to be doing business in the state without having a physical presence.\u00a0 However, many taxpayers remain protected by Public Law 86-272\u00a0 (P.L. 86-272) which prohibits states from imposing a net income tax on taxpayers when their in-state business activities are strictly limited to the solicitation of sales of tangible personal property and orders are approved as well as shipped from outside the state.<\/p>\n

Prior Treatment of P.L. 86-272<\/h2>\n

P.L. 86-272 was enacted in 1959, a time when shopping via mail order catalogs was popular for many American consumers. Today, online shopping is the norm, connecting sellers and buyers from across the country and around the world almost instantaneously. If the sales thresholds are met, businesses may be required to register and charge sales tax on taxable sales. The question is whether P.L. 86-272 can protect online businesses from income taxes without a physical presence in that particular state.<\/p>\n

The Multistate Tax Commission (MTC)<\/a> is an intergovernmental state tax agency whose goal is to facilitate the equitable and efficient administration of state tax laws and policies that apply to multistate and multinational enterprises. The MTC\u2019s original \u201cStatement of Information Concerning Practices of the MTC and Supporting States under Public Law 86-272\u201d was issued on July 11, 1986 , before the internet was opened to the public. Many states have adopted, in whole or in part, the MTC\u2019s guidance on activities protected and not protected by P.L. 86-272.<\/p>\n

Current Treatment of P.L. 86-272<\/h2>\n

On August 4, 2021, the MTC<\/a> updated its guidance on P.L. 86-272 to account for the changes in how business is conducted, specifically related to internet retailers. The latest update to the statement provides examples of activities that the MTC considers to be protected under P.L. 86-272, specifically where a company sells tangible personal property directly through its website or app offering and the sale is approved and shipped from outside the customer\u2019s state with no other connection to the customer\u2019s state.<\/p>\n

Examples of business activities protected under P.L. 86-272 per the statement include:<\/p>\n