Public Law 86-272 protects business activities conducted within a state from state income taxation, which is referred to as protected in-state activity. This law ensures that certain limited activities, such as the solicitation of orders for sales of tangible personal property, do not create a tax nexus in the state where the activity occurs. In essence, it safeguards businesses from being taxed in states that have a small presence and are restricted to specific activities.
For example: Consider a company based in California that dispatches sales representatives to New York to solicit orders for its products. The activities of these representatives are limited to:
- Presenting catalogs of products.
- Receiving orders from customers.
- Those orders are being forwarded to the company's headquarters in California for approval and fulfillment.
This company cannot be taxed by New York under Public Law 86-272 because its in-state activity is limited to soliciting orders for tangible personal property. Establishing a warehouse or providing after-sales services in New York could result in the company losing this protection and being subject to New York's income tax.
Is missionary sales activities covered in P.L. 86-272??
Yes, It is. Indirect selling is the focus of missionary sales activities, which involve educating and influencing decision-makers or individuals who can promote a product, instead of directly selling the product to end-users. The objective is to cultivate relationships and provide comprehensive information about the product's advantages, enabling these influencers to promote the product within their social circles.
