Updated Interpretations of Public Law 86-272 May Impact Your Business’ 2023 State and Local Tax Obligations

Over the past few years, there have been numerous developments in state and local tax regulations. The interpretation of Public Law 86-272 by states and local authorities is no exception to this trend.

What is Public Law 86-272?

Public Law (PL) 86-272, also known as the Interstate Income Act of 1959, generally bars states and their political subdivisions from imposing income taxes on businesses operating within their borders if those businesses’ activities are limited to soliciting orders for tangible personal property that are approved and shipped from outside the state. However, it’s important to note that while PL 86-272 doesn’t erase the concept of nexus with a state, it does restrict a state’s ability to levy income taxes under certain conditions.

The Multistate Tax Commission (MTC), an intergovernmental agency dedicated to ensuring fairness, compliance, and consistent tax policy among states and localities, periodically updates its interpretation of PL 86-272 and other multistate tax issues. In its revision in August 2021, the MTC issued a model statement regarding e-commerce and online interactions with in-state customers, concluding that most internet-based interactions exceed mere solicitation and fall outside the protection of PL 86-272. While California, New Jersey, and New York have adopted the MTC’s guidance, California’s adoption via a Technical Advice Memorandum was ruled invalid.

PL 86-272’s Impacts to 2023 Business Tax Filings

Changes in the application of PL 86-272 aren’t limited to states; local jurisdictions are also adjusting their approaches. Starting January 1, 2023, the City of Portland, Multnomah County, and the Metro taxing authorities aligned many of their tax laws with Oregon’s. With that alignment, Portland, Multnomah County, and the Metro taxing authorities transitioned from an intrastate to an interstate basis for applying PL 86-272. This shift means businesses based within these jurisdictions no longer need activity outside their boundaries to apportion income. However, there’s a flip side to this adjustment.

Under the revised framework, businesses lacking a physical presence within these jurisdictions may now have filing obligations there. With the nexus standard now consistent between these local tax jurisdictions and the State of Oregon, businesses may have nexus in Portland, Multnomah County, and Metro district due to temporary physical or economic activities. With PL 86-272 applied on an interstate basis locally, businesses merely soliciting sales or delivering goods via common carriers within these jurisdictions may now face filing obligations and potential tax liabilities.

Your Perkins Team is Here to Help

Navigating these changes isn’t simple, but at Perkins, we’re committed to staying abreast of the evolving tax landscape to assist you in making informed decisions for your business. For further information or assistance in managing these transitions, please contact SALT Director Sonjia Barker or your Perkins advisor.


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