Specialty Tax Spotlight – Public Law 86-272

Specialty Tax Spotlight

In this Weaver: Beyond the Numbers, Specialty Tax Spotlight, episode, Sean Muller, Savannah Brown and Blake Fuqua explore the evolving relevance of Public Law 86-272, a federal law that once provided significant protection for businesses against state income taxes. With changes in how businesses operate, particularly in the digital age, the panel discusses how the protection offered by 86-272 has diminished and how businesses may unknowingly be at risk of breaking its limitations.

Key Points:

• With misconceptions that exist around Public Law 86-272 protection, it’s important to remember this law only addresses state income taxes and does not provide protection from other state taxes such as sales tax, franchise taxes and gross receipt taxes.
• Public Law 86-272’s relevance comes under scrutiny given today’s digital business environment, especially with the proliferation of e-commerce.
• The law’s interpretation also varies across the states, making it a precarious shield for interstate businesses.

The panel provides a comprehensive overview of Public Law 86-272, explaining how it originally intended to shield businesses engaged solely in the solicitation of tangible personal property from state income tax. However, Brown and Fuqua highlight how modern business practices — such as selling through websites or third-party facilitators like Amazon — can complicate this protection. Additionally, services like online support or warranties may unknowingly disqualify companies from 86-272 protection.

The discussion clarifies that companies should no longer assume they can rely solely on the law as a safeguard and must closely review its potential nexus creating activities. “Public Law 86-272 is no longer the broad shield it once was,” Brown said. “With modern business practices, most companies should assume they have some form of tax nexus.”

This episode is vital for businesses navigating state tax obligations, especially those selling across state lines. The conversation underscores the importance of understanding how modern activities like e-commerce and third-party facilitators can erode protections once offered by 86-272.

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