2024-2025 Form

What is the Public Law 86 272 Applies

Public Law 86-272 is a federal statute that provides guidelines regarding the taxation of income earned by businesses operating in multiple states. It primarily protects businesses from state income tax liability if their activities within a state are limited to solicitation of orders for tangible personal property. This law aims to create a fair tax environment for businesses and prevent states from imposing taxes on companies that do not have a substantial physical presence in their jurisdiction.

How to use the Public Law 86 272 Applies

To utilize the protections offered by Public Law 86-272, businesses must ensure that their activities in a state are strictly limited to soliciting orders for tangible personal property. This includes understanding the types of activities that qualify as solicitation and ensuring that no other business operations, such as maintaining a warehouse or providing services, take place within that state. Businesses should document their activities to demonstrate compliance with the law if questioned by state tax authorities.

Key elements of the Public Law 86 272 Applies

Several key elements define the scope of Public Law 86-272:

• Solicitation of Orders: The law applies only when a business is engaged in soliciting orders for tangible personal property.
• Physical Presence: A business must not have a physical presence, such as an office or employees, in the state where it is soliciting orders.
• Exclusion of Services: Any service-related activities performed in the state can disqualify a business from the law's protections.
• State Compliance: Businesses should be aware of specific state laws and interpretations of Public Law 86-272, as they can vary.

Eligibility Criteria

To qualify for the protections under Public Law 86-272, a business must meet specific eligibility criteria:

• The business must be engaged in the solicitation of orders for tangible personal property.
• There must be no physical presence in the state where orders are solicited.
• Activities must not include any significant business operations that would establish nexus in the state.

IRS Guidelines

The IRS provides guidelines for understanding and applying Public Law 86-272. Businesses are encouraged to review these guidelines to ensure compliance and to understand how their activities may be interpreted under the law. The IRS emphasizes the importance of maintaining clear records of business activities and the nature of transactions conducted in various states.

Examples of using the Public Law 86 272 Applies

Examples of businesses that might benefit from Public Law 86-272 include:

• A manufacturer that sells products through an online platform, only soliciting orders from customers in various states without having a physical presence.
• A sales representative who travels to different states to meet with clients but does not maintain an office or inventory in those states.
• A company that uses independent contractors to solicit orders but does not employ individuals directly within the states.