How the Wayfair Ruling Impacts State Income Tax

calendar iconJanuary 21, 2020

By: Dorita Calderon

The Wayfair ruling increases sales tax obligations for most taxpayers by legalizing economic nexus requirements. How does this Supreme Court decision impact state income tax responsibilities of taxpayers? One answer may lie in the interpretation and enforcement of Public Law 86-272.

Public Law 86-272 is a federal law that prohibits a state from imposing income tax on income derived within the state, if the only activities in the state by the seller are soliciting sales of tangible personal property from outside the state, and this property is shipped from outside the state.

In November 2018, the Uniformity Committee with the Multistate Tax Commission (“MTC”) formed a work group to reassess the MTC’s “Statement of Information Concerning Practices of Multistate Tax Commission and Signatory States under Public Law 86-272.” The committee is discussing what type of state activity would make a sale over the internet and fall outside the protection of P.L. 86-272.

Which activities, especially those taking place through the internet, are beyond solicitation? A consensus in this group has already agreed that if a person interacts with a remote seller’s website and/or internet cookies are downloaded, this online interaction may be considered a non-protected activity under P.L. 86-272.

Another activity that is being reviewed by the group as possibly not being protected by this federal law is if a remote seller offers a chat session on the website with an out-of-state customer after a purchase.

As states continue to look for ways to collect tax dollars from remote sellers, expect the MTC and other state tax authorities to put Public Law 86-272 under the microscope and narrow the interpretation of the law’s protections.

Cherry Bekaert’s state income tax experts can review how Public Law 86-272 may impact your tax obligations. Contact us to get your questions answered.