More states are attacking Public Law 86-272, which serves as protection for businesses from a state’s income tax.  Based on Public Law 86-272, states are limited in imposing their income tax on businesses that solely solicit sales of tangible personal property within their state.  That protection has been under attack recently by various states.  The economic nexus standards brought about by the Wayfair Supreme Court case for sales and use tax purposes are starting to creep into the discussions for state income tax. 

In addition to some states looking at economics to impose their income tax on businesses, the Multistate Tax Commission (“MTC”) is updating their protected and unprotected solicitation activities for Public Law 86-272 purposes and are now highlighting certain interactions that a business may have with their customers through their website.

 Hawaii Disregards Public Law 86-272

Hawaii is taking the position that meeting their economic nexus threshold for sales tax purposes is sufficient for the state to impose nexus for income tax purposes, basically disregarding Public Law 86-272. 

California Adopts New Changes

 California was quick to adopt these new changes brought forth by the MTC and businesses must now be aware of their business interactions through their website when determining income tax nexus. 

New York Proposes Draft Rule

New York is considering a draft rule that would also impose the new MTC guidelines and would greatly reduce the previous protections under Public Law 86-272 that were afforded to out-of-state businesses.  New York is seeking comments on this draft due by the end of June.  California and New York are not the only states that have gone or are considering going this route.  Colorado, Illinois, Oregon and Utah have all had similar discussions of implementing the MTC updates.

Maine Adopts Factor Presence Nexus Standard

Maine passed a law requiring a study to be performed to analyze the impact of mandatory worldwide combined filing with water’s edge election.  Maine also now incorporates a bright-line standard with regards to corporate net income tax nexus that provides for nexus being deemed met when a business has $250,000 of property or payroll in the state or $500,000 of sales within the state, notwithstanding a claim under Public Law 86-272 that protects a nosiness that merely solicits the sale of tangible personal property within a state.

If you have any questions contact Jason Skrinak, CPA.