Consequences of the Multistate Tax Commission’s New Interpretation of P.L. 86-272

The following article, Consequences of the MTC’s new interpretation of P.L. 86-272, originally appeared in the May 2023 issue of The Tax Adviser.

Congress has largely refrained from enacting federal legislation that directly affects state tax policy. However, one such statute – known in the tax world as P.L. 86-272 – was enacted in 1959 and is still alive today. P.L. 86-272 prevents a state from imposing a net income tax on any person’s income derived within the state from interstate commerce in specific circumstances. P.L. 86-272 has never been amended despite profound changes in the U.S. and global economies since 1959, and taxpayers typically find themselves with more questions than answers when applying it to their particular facts and circumstances. 

The Multistate Tax Commission (MTC) has issued a series of model statements or interpretations for applying P.L. 86-272 that states can choose to adopt. For all practical purposes, the MTC’s most recent interpretation largely nullifies P.L. 86-272’s protections for businesses that engage in activities over the internet. Although the MTC’s revised interpretation will greatly restrict protections from state income taxes for these taxpayers, it could also present them with planning opportunities.

This article reviews the consequences of the MTC’s revised interpretation and the effect it might have on tax obligations. 

BDO’s Kent DeBruin and Scott Smith co-author the highlights of the new interpretation in their full article in The Tax Adviser.