State tax surprises could await unwary online vendors

Jeffrey Brown • February 07, 2022

In 2021, the Multistate Tax Commission (MTC) updated its Statement of Information Concerning Practices of the Multistate Tax Commission and Supporting States Under P.L. 86-272 with guidance addressing online activities.

For more than 50 years, P.L. 86-272 has limited a state’s ability to impose income tax on an out-of-state vendor that does nothing more than solicit orders for sales of tangible personal property in the state. Nearly any instate activity beyond solicitation exceeds P.L. 86-272’s protections. Orders for goods sold must be approved and fulfilled from inventory maintained outside the taxing state. Services, including installation and repairs, are also not protected.

Global electronic commerce challenges the applicability of P.L. 86-272The revised statement provides examples of online activities protected by and in excess of P.L. 86-272. Protected online activities include:

  • Posting a static list of frequently asked questions (FAQs) on a website to provide post sales information.
  • Placing cookies on customer’s electronic devices to gather information used only for purposes entirely ancillary to soliciting orders for sales of tangible personal property (e.g., tracking items added to an online shopping cart, storing customer’s personal information, and reminding customers of items considered on prior website visits).
  • Allowing customers to search for items, read product descriptions, make purchases, and choose delivery options.

Unprotected activities, both before and after solicitation include:

  • Providing post-sale assistance via an electronic chat or e-mail initiated by customer click.
  • Soliciting and receiving online applications for a vendor’s branded credit card.
  • Inviting viewers to apply for non-sales positions through an online job application.
  • Placing cookies on a customer’s electronic device to gather information to help adjust production schedules and inventory levels, and to identify and develop new products to offer for sale.
  • Providing remote repairs or upgrades for previously sold products through electronically transmitted codes or instructions.
  • Offering and selling extended warranty plans.
  • Selling products on an online marketplace where the marketplace facilitator maintains vendor’s inventory for sale at fulfillment centers located in customer’s states.
  • Selling online video and music streaming (i.e., not tangible personal property).

Not all states belong to the MTC or follow MTC policies. Further, P.L. 86-272 regulates interstate commerce. Most, but not all states, apply it to commerce between Canada and the states.

Fuller Landau LLP can advise on the tax complexities associated with the US marketplace. Reach out to our US and Cross-Border Tax group to see how we can help your company.

About the author

Jeffery Brown is a Partner and Practice Lead in our US and Cross-Border Tax group. He can be reached at or 416-465-6515.


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