Proposed Expansion of PL 86-272: What Businesses Need to Know

On April 27, 2025, as part of the federal budget reconciliation plan, the House of Representatives’ Judiciary Committee proposed expanding the protection of Public Law 86-272. The amendment seeks to further limit states’ authority to tax business enterprises by broadening the definition of protected activities. The revised language would include “any business activity that facilitates the solicitation of orders even if that activity may also serve some independently valuable business function apart from solicitation.’’ If passed, this provision could reshape how state income tax laws apply to businesses selling goods nationwide.

Understanding Public Law 86-272

Public Law 86-272, part of the Interstate Income Act of 1959, currently protects businesses from state income taxes if their sole in-state activity is soliciting orders for tangible personal property. States, individually and through the Multistate Tax Commission (MTC), have historically interpreted this protection narrowly, limiting it to activities exclusively focused on order solicitation. The proposed provision would shift this interpretation, granting protection to any business activity as long as one of its objectives is to solicit orders, regardless of other functions it may perform.

Implications for State Taxation

If enacted, this provision could preempt various nexus-related provisions in states like New Jersey and New York that follow guidance from the MTC. Under this guidance, certain online activities, such as using cookies to track user behavior or gather marketing data, are generally not protected by Public Law 86-272. The proposed expansion of Public Law 86-272 could greatly reduce states’ authority to tax out-of-state businesses, including those involved in e-commerce. If this change is approved, it would mark a notable shift in the state tax rules by protecting a wider range of business activities that contribute to generating sales.

Stay Informed and Prepared

As this federal provision progresses, businesses must stay informed about the potential changes and prepare for impacts on their operations. Weaver is here to help. Contact us today for guidance on how this proposal could affect your business and ways to optimize your tax strategy.

Authored by Savannah Brown and Sumit Mitra

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