30th Anniversary of Quill Decision

On May 26, 1992, the U.S. Supreme Court issued its opinion in Quill Corp. v. North Dakota (504 US 298). This was a significant nexus ruling modifying the earlier National Bellas Hess decision (386 US 753 (1967)). In Quill, the Court ruled that physical presence was not required for due process nexus but still required for commerce clause purposes.

That meant that Congress could modify the ruling since it controls the commerce clause, but not the due process clause. But that was difficult to do so states started finding ways to find physical presence. For example, we saw New York enact the so-called "Amazon" law where the state found a connection between certain affiliates in the state helping to sell a company's products and receiving a commission.

Finally, another case got to the Court - Wayfair, and the Court concluded "that the physical presence rule of Quill is unsound and incorrect." I think that makes sense as it did lead to odd results. For example, a company would have sales tax obligations for having an employee in a state even for a few days. But another company with more sales in the state has no sales tax obligations in the state becuase it was able to avoid physical presence in the state. In fact, Wayfair is a multi-billion dollar company that avoided physical presence in South Dakota. Yet, the company with hundreds of engineers could easily create a software program to collect sales tax from all customers and properly remit it to the appropraite states.

In Wayfair, the Court found that South Dakota's new nexus rule where a vendor has sales tax obligations if it delivered over $100,000 of goods or services into the state during the year or had 200 or more transactions of in-state deliveries.

Quill is still cited in some cases. It has a role in nexus history which is something I'm working on writing an article about - for the 30th anniversary.

Let me know if you have any observations to share. Thanks.

60th Anniversary of P.L. 86-272

State Tax Notes, 9/5/19

Today, September 14, 2019 marks the 60th anniversary of the enactment of P.L. 86-272 dealing with nexus for net income tax purposes for a limited category of sellers (those selling tangible personal property). This legislation was intended to be temporary while Congress studied numerous state/multistate tax issues that went beyond the initial reach of P.L. 86-272. Despite lots of study and a 1,000+ detailed report with recommendations issued in the early 1960's, no change was ever made.

Meanwhile, issues continue to grow including exactly how to interpret P.L. 86-272 in the modern era with new ways of doing business.

I've got an article in State Tax Notes about this law and its issues and recent developments.  I was hoping not to have to consider even writing this article after I wrote an article in 2009 on the 50th anniversary.  There are proposals for change in each session of Congress and lots of commentary and analysis on nexus, including the U.S. Supreme Court's decision in Wayfair in 2018. But, still no update.

I hope you'll take a look at the article and post your comments on what you think should be the next step in providing useful and appropriate nexus rules for taxpayers and states.  See "Public Law 86-272 Reaches Its 60-Year Anniversary," State Tax Notes, 9/5/19. I've also updated the website I created for the 50th anniversary - here.

What do you think?

Two States Using Wayfair Economic Nexus Standard More Broadly

As we know, the June 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., et al, allows for an economic nexus threshold for all types of taxes. Many states already had an economic nexus threshold for income taxes. Many states have adopted the South Dakota threshold for nexus. This standard generally starts use tax obligations when a vendor has over $100,000 of sales in the prior calendar year or the current year to date or 200 or more transactions.

Now, one state - Hawaii, has adopted that same threshold for its state income tax effective for tax years beginning after 12/31/19.  [SB 495 (Act 221, 7/2/19)] Hawaii's sales tax nexus threshold based on the South Dakota law upheld by the Court started 7/1/18.

Also, the Texas Comptroller has proposed the same via a proposed regulatory change for its franchise tax. The Texas sales tax Wayfair threshold though is over $500,000 of sales and it doesn't matter how many transactions there are (there is only a dollar sales threshold).

Remember that a state cannot override P.L. 86-272 which still applies to limit nexus if a taxpayer has no physical presence other than sales personnel who solicit orders that are approved and shipped from out-of-state. This is relevant for Hawaii's state income tax, but doesn't apply to the Texas franchise tax because it is not a net income tax.

Making the thresholds the same should be a lot simpler for small businesses. I don't agree with the South Dakota threshold's 200 or more transactions because for many small businesses though because that can be a small dollar amount, such as if selling items that cost less than $10 each. I think that is not sufficient nexus for commerce clause purposes.  I think states should do like California and Texas did and drop the transaction threshold and only use a dollar of sales gross receipts that is at least $100,000 and perhaps higher in large states (after all, buyers not charged sales tax still have to pay use tax on their own, and the higher threshold keeps the burden on the state tax agency more manageable and more likely that most remote vendors will be found and have to collect.

Not all states define sales the same for these purposes so there is still complexity for multistate sellers. But for a remote seller to know that once they have use tax collection obligations in a state they also have income tax obligations (assuming they are not protected by PL 86-272), should provide greater certainty to businesses and state tax agencies and simplify recordkeeping.

What do you think?

Trailing Nexus - Extra Complexity

As if it isn't already difficult enough for a business to know if it has income or sales tax nexus in a state, it might have "trailing nexus."  Of course, if the business has a physical presence, it likely has nexus. It is challenging when a state uses economic nexus or for sales tax, the business has some type of relationship with someone in a state. When a state specifies that a company has nexus for an extra six months (or other time period), that does provide certainty, but is it constitutional? And most states don't talk about it so you really don't know when nexus ends.

I think states can do better although perhaps Congress needs to step in on this one for uniformity.

Here is a post originally posted on SalesTaxSupport (which shut down in 2018).

When a business has temporary or short-term presence in a state, how long does the sales tax nexus last? Assuming the presence was long enough to even create sales tax nexus in the state, how long does it last? Is it only during the time period when there was physical presence? The answer is elusive in many states.

The State of Washington recently issued a reminder on trailing nexus. In Special Notice dated Feb. 2, 2016, with respect to the retail sales tax (per WAC 458-20-193):

"nexus continues for the remainder of that calendar year when one of the following nexus standards is met and the following calendar year. This applies to all taxes reported on the excise tax return, including retail sales tax. The additional calendar year is also known as “trailing nexus.” (RCW 82.04.22)" ..."nexus is based on the business having a physical presence in Washington (RCW 82.04.067(6))."

Per the statute: "(104) Trailing nexus. RCW 82.04.220 provides that for B&O tax purposes a person who stops the business activity that created nexus in Washington continues to have nexus for the remainder of that calendar year, plus one additional calendar year (also known as "trailing nexus"). The department applies the same trailing nexus period for retail sales tax and other taxes reported on the excise tax return."

What is the rationale for extending nexus to the end of the next calendar year? Whatever the business was doing in the state that created nexus, has a lingering effect. For example, a business had sales staff at a trade show and they demonstrated their product and made sales and then left. Some people who saw the demo though decide to buy a few months later. Arguably that sale relates to the company's physical presence in the state. To make is easier for taxpayers and the state, an arbitrary date can be used as the cut-off for nexus. While it might seem more fair for that arbitrary date to be a specified number of months or weeks after the physical presence ends, that raises the complication of determining when the physical presence ended, which might not always be easy. But you can see that if a business ends its physical presence early in the year, it has more days of sales tax nexus than one that ends it on December 30.

In contrast, a California annotation from the Board of Equalization suggests that trailing nexus lasts to the end of the subsequent quarter after physical presence ends (220.0275). But this annotation is not a statute and it ends with this statement showing the uncertainty of truly knowing when nexus ends: "Depending on the facts and circumstances specific to each retailer, the period of trailing nexus may be shorter or longer than the general "quarter-plus-a-quarter" approach."

Is trailing nexus in line with the Quill physical presence nexus rule? It doesn't seem so. A state with a trailing nexus sales tax rule is requiring collection of sales tax by a vendor who has become an out-of-state vendor. But then again, the US Supreme Court did not address whether later sales might be attributed to the earlier physical presence. It is unlikely the Court would have found no nexus for a vendor who enters a state, does extensive solicitation, but tells all potential customers to log onto its website after date X and place orders, knowing that the vendor will have left the state before date X.

I think this is something that Congress should clarify and standardize under its commerce clause jurisdiction. Arguably, it can be made part of the Marketplace Fairness legislation. Of course, with that legislation, the issue is less important as more vendors would have sales tax collection obligations even without a physical presence. But the legislation, such as S. 698 (114th Cong), still includes a definition of remote sales and a trailing nexus sale would not be a remote sale, thus necessitating a definition of trailing nexus.

What do you think?

One logical way to get vendors to collect use tax

For decades, states have sought ways to get remote (non-present) vendors to collect sales/use tax when they sell to customers in the state. States have been pushing Congress to provide assistance and many have enacted laws to broaden their nexus reach (see a nice list from Sylvia Dion here; my list needs updating but links are useful).

I've been researching, writing and testifying on this topic for many years. One of my suggestions has been to only let the state and its agencies purchase from vendors that are registered with the state to collect sales tax. That is, if a vendor wants to have the state or any of its agencies be a customer, it must register to collect sales/use tax.

Before California enacted its "Amazon law" in 2011, I always thought it was odd that my employer (the State of California) did not mind that I purchased books, such as for speaker gifts or students, from Amazon.  Of course, I paid the use tax since it was on my credit card and then I got reimbursed (perhaps the State paid the tax as well).  (And, I've been paying my use tax obligations since long before there was even a line on the state income tax form.)

I see that Missouri has a law that any vendor that wants to do business with the state must register to collect use tax even if it has no physical presence in the state.  Here is an excerpt from its website:

"Vendors Contracting with the State of Missouri Must Collect and Remit Sales/Use Tax
      Any vendor and its affiliates selling tangible personal property to Missouri customers should collect and pay sales or use tax in order to be eligible to receive Missouri state contracts, regardless of whether that vendor or affiliate has nexus with Missouri."

Why don't more states do this? It only seems fair and logical - if a vendor wants to do business with the state, one of the requirements should be registering for sales tax. Why should the state do business with a company that doesn't collect sales tax for the state? 

What do you think?

Additional links:

• Sales and use tax nexus
• Testimony and other information on California tax collection

Nexus Oddities of the Marketplace Fairness Proposal

On May 6, 2013, the Senate passed S. 743, the Marketplace Fairness Act (69-27). That is the farthest this bill has gotten in the past almost 20 years. President Obama has indicated he supports it, but it's not clear if the House will act upon it or pass it.

Basically, this bill provides a mechanism where states can become authorized to collect sales tax from remote (non-present) vendors.

A "remote sale" is one where the vendor "would not legally be required to pay, collect, or remit State or local sales and use taxes unless provided by this Act." A small seller exception applies for vendors with remote sales of $1 million or less in the prior calendar year.

S. 743 does not eliminate the longstanding, difficult issues of determining whether a vendor has sales tax nexus in a state. For example, if an employee is in the state for two days to help a customer, is nexus created? If yes, the vendor has sales tax collection obligations even without S. 743. If nexus is not created, sales into that state are used to determine if the vendor meets the small seller exception. Errors in knowing if a vendor has nexus may become more significant with S. 743. 

Example: In 2013, I-Vendor, located in State X, has $2 million of sales to customers in State X. I-Vendor also has $900,000 of sales to customers in six states in which it does not have nexus. Under S. 743, I-Vendor is a small seller that only needs to collect sales tax in State X.  

In 2014, I-Vendor obtains new customers in State Y with total sales of $200,000. Other sales remain the same as for 2013. I-Vendor is not sure if it has nexus in Y. If it does have nexus in Y, it must collect from customers in X and Y and remains a small seller. If it does not have nexus in Y, I-Vendor is no longer a small seller and now must collect sales tax in all authorized states, starting in 2015. If all of the states in which I-Vendor has sales are authorized to collect under S. 743, I-Vendor has filing obligations in 7 more states starting in 2015.

An oddity of the above is that any of the six states would benefit if I-Vendor does NOT have nexus in State Y.  That is, that those sales are remote ones that push I-Vendor out of the "small seller" exception.Might any of those states pursue I-Vendor arguing it has no nexus in State Y?

Also note that "small seller" could actually be a very large vendor with nexus in one state and aggregate sales in states where it does not have sales tax nexus remaining under $1 million.  Meanwhile, a smaller vendor operating out of one state with sales in other states in excess of $1 million, has to collect in all of these states even though its aggregate sales are less than that of the large vendor who might actually have more resources to handle multistate sales tax compliance.  Perhaps there should be another measure of small that looks not only at remote sales, but also total aggregate sales.

Nexus questionnaires would still be needed and likely used by the states. When a vendor says it has total remote sales of $1 million or less, any of these states would benefit from a finding that the vendor actually has a physical presence in the state because then it has to collect.

What do you think? 

For more on S. 743 and other similar proposals, see this part of my Affiliate Nexus website. 

  

Tax policies for multijurisdictional income

On March 1, the SJSU MST Program, Santa Clara Valley TEI chapter and the Tax Policy Committee of the California Bar Taxation Section held their 3rd annual Tax Policy Conference. The theme - Tax Policies for Multijurisdictional Income.  This is a hot topic at both the international and national levels. Presenter materials are available here - but they can't replace the excellent presentations and ideas that were presented and discussed.

A few observations from the day's presentations:

• Despite occasional calls for formula apportionment at the international level, it likely would not work. It would be more difficult to get all countries to agree on this approach than it has been for the U.S. states. The diversity of economies and needs of developed versus even emerging countries are too great to think that a consensus approach can be reached. Transfer pricing will likely remain the standard, although countries may tighten the rules.
• There will be challenges in creating a territorial system in the U.S. In addition to politics of reaching a consensus, there is the issue of revenue neutrality and whether it is wise to employ a system different from other industrialized countries that tend to use a dividend exemption approach.
• Focus of governments will continue to be on taxing intangibles.
• The Mayo decision of the US Supreme Court likely gives the IRS greater authority on how it writes transfer pricing rules.
• The OECD BEPS (Base Erosion and Profit Shifting) report issued earlier this year should be reviewed.
• Many factors play a role in how multistate income is apportioned among states - nexus, sourcing, throwback, apportionment factors, and reporting system (combined/unitary or separate).
• Given the numerous complexities in apportioning multistate income in some economically or accounting-wise justifiable manner and the relatively low amount of tax it generates, perhaps states should just repeal their corporate income taxes. 

And economist Jon Haveman helped provide a broader picture of the economy in which tax reform would take place, should any significant changes actually occur. He noted that sequestration will hurt the economy for some time and that failure to adequately invest in infrastructure will hurt our economy for years.  That is all important to consider because reasons why Congress is exploring a more to a territorial tax system and a lower corporate tax rate is to improve competitiveness of US firms and to help the economy. But overlooking other big influences on the economy might limit the possible gains from reform.

What do you think?

Information on other conferences of the SJSU MST Program - http://www.tax-institute.com.

A bit of nexus history - 1967 versus 1991 versus 2012 technology

In preparing for a presentation on the Quill case (which is today (!) at 3 pm Eastern), I had the opportunity and need to reread the lower court decisions. For a quick review, here are the citations and progression that led to the 1992 US Supreme Court decision which we hear so much about (and which has its 20th anniversary this year).

N.D. v. Quill Corp., Dkt. 41677, 5/15/90	Per Bellas Hess, Quill not required to collect Title passes in Illinois (despite 90 day guarantee) “should have been presenting facts … showing that North Dakota spends funds for the protection and benefit of” Quill
N.D v. Quill Corp., 470 NW2d 203 (ND SCt 1991)	Quill must collect World has changed since Bellas Hess
Quill Corp. v. North Dakota, 504 US 298 (1992)	Quill not required to collect Bellas Hess modified Due Process – met due to purposeful direction Commerce Clause – need physical presence (although Congress can provide otherwise) Differences exist between DP and CC

 
The North Dakota Supreme Court said that technology and communications had advanced so much from the 1967 Bellas Hess ruling to 1991, that Bellas Hess should be changed (other reasons were also provided for why ND thought Bellas Hess should be overruled). The court stated: 

“The burgeoning technological advances of the 1970's and 1980's have created revolutionary communications abilities and marketing methods which were undreamed of in 1967.”  Also, "technological advances have made physical presence within the jurisdiction meaningless in modern commerce." And, the "almost universal usage of automated accounting systems, and corresponding advancements in computer technology, have greatly alleviated the administrative burdens created by such a collection duty." Also, North Dakota offered vendor compensation. 

The court noted the lesser burdens placed on sellers by a use tax thus justifying a lesser nexus standard. Interestingly enough, this argument has been reversed today to justify economic nexus for income tax purposes rather than using the physical presence sales tax standard. For example, in A&F Trademark, Inc. v. Tolson, 605 SE2d 187 (NC Ct. App, 12/07/04), it was noted that under a sales tax, a taxpayer becomes state’s tax collector.  “[A] state income tax is usually paid only once a year, to one taxing jurisdiction and at one rate, [but] a sales and use tax can be due periodically to more than one taxing jurisdiction within a state and at varying rates.” Id., at 13." (additional reasons for a different nexus standard for sales and income taxes were also provided in the A&F case).

I was surprised to read that 1991 language again. Even 21 years later, while the technology exists to allow for any vendor to collect sales tax in all state and local jurisdictions, it is expensive and still needs human assistance. And the variations among jurisdictions and constant change pose challenges.

What do you think?  Has technology advanced enough since 1967 or even 1991 to remove the physical presence nexus standard for sales tax? Is technology even the appropriate vantage point for answering this question (let's not forget about the Due Process and Commerce Clauses)?

Trademarks and income tax nexus

A recent West Virginia Supreme Court case involving ConAgra Brands points out that economic nexus is not as broad as some states have argued. The case distinguishes the facts from Geoffrey (South Carolina, 1993) and the more recent KFC (Iowa, 2011). The court also notes that nexus did not exist under Due Process clause which is a reminder that Due Process is important - not all fact patterns should go directly to the commerce clause and Complete Auto Transit for nexus analysis.

I have a short article on this case in the AICPA Tax Insider today - "Trademarks alone are not enough for income tax nexus."

What do you think?

Congress' Multitude of Multistate Bills

There are ten bills in the 111th Congress that involve multistate tax issues. Several have been introduced in prior Congresses. I've got a short article summarizing these bills that deal with tax administration, nexus, prohibitions on state and local taxation, and mobile employees (see 7/29/10 AICPA Corporate Tax Insider - here).

Software and Income Tax Nexus

Companies that transfer software to customers that are not in the same state and the software company face issues as to whether income tax is owed in the state where customers are located. Nexus guidance of PL 86-272 only applies if the transaction involved the "sale" of "tangible personal property." Software transactions generally challenge both of these terms. That is,

• Software is typically "licensed" rather than "sold." However, for prewritten/canned software, the result looks a lot like when one buys a book. Tax rules have typically viewed this as equivalent of a "sale" (such as Income Tax Reg. Section 1.186-18).
• Software is really intangible. Considering physics, it has no mass. However, cases and state laws have sometimes either just labeled prewritten software as tangible (typically so they can apply sales tax to it) or may find it to be tangible because it is on tangible media or needs to be on tangible media (such as a hard drive) to function. However, for federal depreciation rules, software is intangible (see for example, Internal Revenue Code Section 197).

So, it would seem that PL 86-272 can never apply to software. However, that was not the result found in a recent NJ Tax Court decision involving two different software vendors who transferred canned software on tangible media (AccuZIP and Quark).

I've got a short article from the AICPA Corporate Taxation Insider (11/12/09) that summarizes the case and explains some of the income nexus issues - see Software and Nexus.

States Reaching to Find Sales Tax Nexus

In April, New York changed its sales tax law to try to make a few large vendors subject to sales tax collection - most notably, Amazon.com. The new law creates a rebuttable presumption that a vendor is soliciting business and thus required to collect tax if, per an agreement, they compensate New York residents for directly or indirectly referring potential customers. Referrals may be made through a website or other means. The presumption only applies to sellers with over $10,000 of sales to New York customers made via the referrals in the prior four quarters. Sellers may rebut the presumption by showing that the residents did not solicit sales in New York for them. (Bill Summary, p. 10)

Amazon's "Associates Program" causes it to have many associates who may be New York residents. Amazon filed a lawsuit as soon as the law went into effect challenging the new law as unconstitutional. It also started collecting the tax!

Another company that fell under the law change is Overstock.com. Their remedy was to cancel its agreements with its New York affiliates who were helping Overstock.com advertise.

Arguably, the associates who have a link to Amazon or Overstock on their website are third party advertisers, not sales agents or representatives of these companies.

For more information on this law change and vendor reaction, see this short article - Grabbing Remote Vendors.

In a hard to find NY Senate bill - S 8638, senators voted on June 24 to repeal the provision. Here is information from the NY Legislative website:

"STATUS: S8638 RULES No Same as Tax LawTITLE....Repeals provisions of law relating to an evidentiary presumption to facilitate the administration of the sales and use tax
06/19/08
REFERRED TO RULES
06/24/08
ORDERED TO THIRD READING CAL.2231
06/24/08
PASSED SENATE
06/24/08
DELIVERED TO ASSEMBLY
06/24/08
referred to ways and means
BILL TEXT: STATE OF NEW YORK ________________________________________________________________________
8638
IN SENATE
June 19, 2008 ___________
Introduced by COMMITTEE ON RULES -- read twice and ordered printed, and when printed to be committed to the Committee on Rules
AN ACT to repeal subparagraph (vi) of paragraph 8 of subdivision (b) of section 1101 of the tax law relating to an evidentiary presumption to facilitate the administration of the sales and use tax where a person making sales of taxable property or services in the state uses resients in the state to solicit sales
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
1 Section 1. Subparagraph (vi) of paragraph 8 of subdivision (b) of 2 section 1101 of the tax law is REPEALED. 3 § 2. This act shall take effect immediately."

There appears to be no other action on this proposal. The April law change was estimated to generate $47 million in 2008/2009 and $73 million in 2009/2010 (see links in above article - Grabbing Remote Vendors). That's a lot of money. If this estimate is anywhere close to being accurate, it means that lots of New Yorkers are not self-remitting use tax on purchases they make from the vendors who are subject to the law change. (All states have similar problems - most people don't know what a use tax is or don't keep sufficient records to measure it every year or ignore it.)

All of this illustrates the challenges sales and use taxes face in e-commerce where it is very easy to have a physical location in just one state, but customers in all states. Such a vendor is only legally obligated to collect sales tax from customers in the state where the vendor resides (where they have a physical presence). Customers in other states must self-report their use tax on the purchases.

So, some states modify their sales tax laws to grab remote vendors by trying to connect them to some physical location in the state (such as Amazon's New York Associates). But, there are constitutional restraints that limit this. Given current case law, New York will likely have difficulties defending its law change.

States should do a better job educating their citizens about use tax and the benefits to the state (and its citizens) of collecting it. New York law allows individuals to use a table to estimate the use tax owed so they don't need to keep records. Given the revenue estimates attached to the April 2008 law change, compliance must be low. New York should take out some on-line ads to help buyers understand the use tax and how to pay it. In the long run, that would be better than enacting laws of questionable constitutionality that will be challenged in court.

Another option for states is to not allow the state or its agencies to purchase from sellers who do not collect sales tax. Unless a state has perfect recordkeeping (or doesn't require its agencies to pay sales tax), when purchases are made from remote vendors, it is possible that the use tax payment gets overlooked. Also, some schools and home-and-school clubs have Amazon links on their websites. Perhaps those sites should at least be told to include a note about the need to pay use tax (which in most states helps fund schools!).

What do you think states should do to get more of their residents to pay use tax?

Our Flat World (except for domestic interstate commerce)

Ease of cross-border business activity has led to what Thomas Friedman describes as a flat world. However, our quagmire of state nexus rules leaves domestic commerce in a non-flat world.

States tend to take broad approaches in finding multistate sellers subject to income or gross receipts tax in the state. The 1959 federal law known as PL 86-272 provides guidance for sellers and states regarding when a state can impose income tax obligations on a seller of tangible personal property. A lot more businesses today, relative to 1959, sell something other than tangible personal property and so have no federal statute to rely on to know when they may owe income tax in a state.

Some states take the approach that an economic connection is enough - that a physical presence in the state is not needed before a seller is subject to state income tax. And, rules can vary from state to state leading to the possibility of double taxation of some income.

The 1959 law needs to be updated. It was intended to be temporary (!), but was never updated. Congress has looked at a few possibilities over the past several years, but nothing has come close to enactment.

For more on this issue that presents a challenge to interstate commerce, see my short article - Not Flat: State Income Tax Nexus.

Public Law 86-272 - Upcoming 50th Anniversary of Stopgap Legislation

In reaction to a US Supreme Court decision - Northwestern Cement v. Minn., 358 US 450 (1959), which many members of Congress thought would lead states to tax businesses beyond what they should under the commerce clause, Congress enacted Public Law 86-272 on September 14, 1959. Despite the lack of an expiration date in this legislation, it was described as a temporary measure while Congress further studied state taxation (a study established by PL 86-272). The report was completed in the mid-1960s (referred to as the Willis Commission report after the Congressman who chaired the subcommittee). However, PL 86-272 was not revised.

PL 86-272 explains when a state may impose income taxes on multistate businesses selling tangible personal property. Businesses selling services or intangibles, get no protection (or guidance) from the federal law. With more businesses selling services and intangibles today than in 1959, PL 86-272 is in need of updating. There have been various congressional proposals in the past few years, but no changes have been enacted and there are differences of opinion between state governments and businesses on what the reforms should be. Also, recent court decisions have held that "economic presence" is sufficient for a state to be able to impose income tax obligations on a business (businesses believe that "physical presence" should be the standard). The US Supreme Court has declined to hear any of these cases. Meanwhile, the 50th anniversary of this stopgap legislation is approaching.

For background on PL 86-272 and the case that led to its enactment, click here.

For links and related information on PL 86-272 and the current controversies in attempts to modernize this nexus rule - see this website.

Do you think temporary law PL 86-272 will be updated before its 50th anniversary on 9/14/09? If no, why not? If yes, what will the new version look like?