State Tax Snapshot: Does 86-272 Protection Apply to Foreign Commerce?

At least a dozen states extend the income tax protections afforded under federal Pub. L. No. 86-272 to interstate sales of tangible personal property to corporations organized under the laws of another country, according to the preliminary results of the Bloomberg BNA 2013 Survey of State Tax Departments. However, a few of the states that have responded so far have indicated that they do not extend the protection to such entities.      

Public L. No. 86-272 specifically applies, by its terms, to “interstate commerce” and does not directly apply to foreign commerce, according to the latest version of the Multistate Tax Commission’s Statement of Information Concerning Practices of the Multistate Tax Commission and Signatory States Under 86-272. 

But section VII.A. of the statement explains that the states have the option to “apply the same standards set forth in the Public Law and in this Statement to business activities in foreign commerce to ensure that foreign and interstate commerce are treated on the same basis.” A state that treats both U.S. and foreign entities the same can avoid “the necessity of expensive and difficult efforts in the identification and application of the varied jurisdictional laws and rules existing in foreign countries,” the statement explains.

Among the states that have adopted this approach are Arizona and Florida. Declining to adopt this approach is New Jersey, which indicated on its questionnaire that it does not extend the protections afforded under Pub. L. No. 86-272 to an entity organized in a foreign country.

The full results to this and other questions posed to the states will be included in the Bloomberg BNA 2013 Survey of State Tax Departments, which will be published on April 26, 2013.

By Steven Roll

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