The Interplay of PL 86-272 and Economic Nexus

Navigating Conflicting State Nexus Regulations, Reconciling the Two for Taxpayer Benefit

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, June 8, 2023

Recorded event now available

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Course Materials

This course will explain nexus as outlined in PL 86-272, the sometimes conflicting nexus regulations established by individual states, and how to reconcile the two for the benefit of the taxpayer.

Description

PL 86-272 is still alive and well; for sellers of tangible personal property post-Wayfair, more so than ever. But the Multistate Tax Commission (MTC) and the state of California have adopted controversial expanded interpretations to capture more internet-based activities.

Most states have or are in the process of adopting bright-line tests for sales tax nexus. The effects of Wayfair are seeping into the determination of state income tax nexus as well. In response, businesses are increasingly relying on the protection of PL 86-272 to circumvent the broadening reach of economic nexus and avoid out of state taxation.

PL 86-272 prohibits a state from taxing an out of state company's net income if its only activity is the solicitation of orders for the sale of tangible personal property within the state. Wayfair clearly states that physical presence is not necessary to establish nexus; having "substantial economic nexus" is sufficient. Additionally, SCOTUS did not hear challenges from companies required to remit tax in states that had implemented non-physical presence nexus standards before Wayfair.

Many states are taxing entities based on gross receipts or similar thresholds. Oregon joined as many as eight other states in taxing gross receipts with its Commercial Activity Tax effective in 2020. Reassessing tax liability impacts more than tax liability: Companies must update financial statement provisions, including current and deferred taxes, uncertain tax benefits, and related disclosures. SALT advisers and companies must reevaluate prior nexus determinations for both sales and state income tax liability.

Listen as our panel of experts explains which companies come under the umbrella of PL 86-272, which states are narrowly interpreting PL 86-272, and how to assess potential liability in states in this continually changing post-Wayfair environment.

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Outline

  1. Nexus before Wayfair
  2. Falling under PL 86-272
  3. States' responses
  4. Reevaluating nexus for state sales and income tax
  5. Financial statement adjustments

Benefits

The panel will review these and other critical issues:

  • When can a business rely on PL 86-272?
  • What conflicts exist between PL 86-272 and economic nexus?
  • How are states interpreting PL 86-272 in light of Wayfair?
  • What steps should be taken when determining state nexus considering Wayfair and PL 86-272?

Faculty

Roberts, Stacey
Stacey L. Roberts, CPA
State and Local Tax Director
TaxOps

Ms. Roberts has been making SALT less taxing for thousands of businesses over the last 25 years. As a director of the...  |  Read More

Vorndran, Judith
Judith B. Vorndran, JD, CPA, MSBA
Partner
TaxOps

Ms. Vorndran helps clients and tax professionals navigate the morass of state and local tax issues with the goal of...  |  Read More

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