Public Law 86-272 with Brian Hamer (Part 1)

Hosts & Guests

Meredith Smith, Senior Tax Manager, SALT

Stacey Roberts, SALT Director

Brian Hamer, Counsel, Multistate Tax Commission


Public Law 86-272 with Brian Hamer (Part 1)

Meredith Smith [00:00:02] Welcome to SALTovation. The SALTovation show is a podcast series featuring the leading voices in SALT, where we talk about the issues and strategies to help you make sense of state and local tax. Along with special guest host in SALTovation, Stacey Roberts, today is your conversation with Brian Hamer about the revisions to the statement of information concerning practices of public media 86-272. Brian serves as counsel at the Multistate Tax Commission and together we explore these changes and what it means to businesses and states in the future of public ladies. This is a follow up discussion we previously had with Helen Hecht regarding the MTC that you can find on the SALTovation website. Here's part one of our discussion focusing more on the history of public media 86-272. Well, Brian, thank you so much for joining us today. It's nice to have you on and to kind of continue this conversation about the ongoing saga of public life about 86-272.

Brain Hamer [00:01:01] It's a pleasure to be here. I just love talking about public law. 86-272, who doesn't?

Meredith Smith [00:01:08] And we are joined today by Stacy Roberts. She will be filling in for Judy today in this riveting 86-272 conversation. So, Brian, I guess if you could just start us off with what was adopted and kind of why got the existing structure?

Brian Hamer [00:01:29] I wouldn't use the word cut, but I'm happy to address your question most broadly. The multistate tax commission, of which I am a member of the legal team, updated its statement of information on this statute to address modern business activities. And I think it's helpful to understand what the commission is doing to discuss a little background, and I'm sure that many of our viewers are familiar with the public 86-272, they proudly do what we do with the commission every morning, and that is to pull out a copy of the statute and read it aloud. But it's worth remembering that the statute was passed back in 1959 and that it limits the authority of states to impose income taxes and out-of-state businesses. As we all know, and I think we all know also that it was a reaction to the Supreme Court's decision in northwestern Portland Cement, and so we don't necessarily have to get deep into the details about that case or some other actions that the Supreme Court took that very year. But I think we also understand that Congress reacted quickly to those Supreme Court actions in the wake of intense lobbying by the business community, by their representatives. And the result was the statute. And I think it's fair to say that the language of the statute is a little odd. What it does is to provide immunity to out-of-state businesses that engage in in-state business activities limited solely to the solicitation of orders for tangible personal property. And perhaps because the statute was considered and enacted so quickly. I think it's fair to say that there are some flaws in the statute. And let me give you some examples of what I have in mind. First, the statute doesn't define a variety of key terms. Kind of essential to the statutory scheme is this notion of solicitation, but solicitation is not defined, right? And as a result, not surprisingly, there has been a lot of litigation on that subject, including litigation that went up to the U.S. Supreme Court in the Wisconsin D.R. vs. wriggly case. The statute also doesn't define tangible personal property, which may be worse in much of an issue back in 1959. But I think we all understand that it's become more of an issue as time has gone on. I like to relate that when I was a member of the Illinois Department of Revenue, we were all shocked when the Supreme Court issued a ruling that electricity was tangible personal property like, who knew, right? And this statute also doesn't define this notion of business activities within the state, which is very relevant to the subject today. In addition to that, the statute didn't assign responsibility to any administrative body to provide guidance to taxpayers or to state tax departments for that matter, where such an agency could kind of flesh out the meaning of these terms or generally. To provide additional guidance to taxpayers, it's almost like Congress enacting the Internal Revenue Code and then not providing regulatory authority to the Internal Revenue Service or state legislatures not providing such authority to state departments of revenue. So, that's been a challenge, and that's also contributed to litigation, I think, over the years. And then finally, this federal preemption of state taxes authority, like other federal preemption, is kind of written in stone, right? And so Congress enacted the legislation in 1959 as they pointed out that it was 60 years ago. And actually, at the time, members of Congress talked about the need to examine the whole subject of state taxation more closely and likely to come back and revise publicly. 86-272, but they never did. It was simply a statute that was written in stone. And meanwhile, over the course of these past 60 years, the business world has changed. A great deal right in the way business is conducted has changed in very significant ways, but the statute has never changed. So it's in the wake of these issues that back in 1986, the Multistate Tax Commission stepped up and developed and issued the first iteration of this statement of information. And what the statement of information does is to provide notice to taxpayers about how states that were signatory parties of the statement would interpret the statute going forward and most relevant. What the statement does is to identify those activities that are protected by the statute and those activities that are unprotected by the statute. Now, I know I'm going on for some time, but you know, when it comes to the statement of information, it's hard to shut up. But I'll just conclude by saying that the statute was then revised on a few different occasions, but most recently in 2001, which incredibly was 20 years ago, right? And the business world has continued to change since then. So in the fall of 2018, the uniformity committee of the NTC decided that it was time to take another look at the statute and to consider an update of possible revisions. And that's what's happened. So a work group was created. It consisted of representatives from 12 different states. They met on 23 occasions over 13 months. The meetings were all open to the public, so there was involvement by folks from other state revenue departments in AG offices, as well as taxpayer representatives, you know, from the private sector. And this workgroup developed a series of proposed revisions, which was then subject to a public hearing and eventually just this past August adopted by the commission itself. So we now have a revised statement of information in this arcane area, but this whole process has been the subject of much attention. It's really kind of a fascinating thing, and I guess I'll maybe ask both of you the question why is there such interest? But there certainly has been. There have been many panels that have been organized over the course of the past couple of years now, discussing the subject of how to apply this statement to modern business activities and the approach that the commission has taken. And there's been many articles written on this subject. So it's an interesting question and I haven't even gotten to the substance yet, but we'll do that. Uh-Huh. I'll keep on talking unless you want to say something.

Meredith Smith [00:09:38] Well, no, I would say go ahead and note, but kind of jump in to want to kind of some of those big pieces, those big changes or revisions rather into the statement of information. And then, you know, Stacy and I can kind of talk through some of those things that we as practitioners are seeing and how, you know, it's going to impact our clients and what it looks like from just as a person who has to take federal taxable income and put pen to paper and advise our clients on what that means to what potential income tax they could be paying in a jurisdiction.

Brian Hamer [00:10:17] Well, I would say that the most consequential revision rule relates to how the statute applies to business activities conducted via the internet. And of course, there was a great deal of discussion by the members of the workgroup and debate and analysis, and they eventually developed a framework which was inserted into the statement. And I actually have in front of me. I carry it with me wherever I go. The actual revised statement of information. And I think it's actually helpful to read a couple of sentences from the statement that really encapsulates what the members of the workgroup decided to do. I think it's important to note that the workgroup addressed this question about how the statute applies to business activities conducted via the internet by seeing it as a kind of a two step, two part subject. And the first part, which is not surprising, is to consider whether inactivity is or is not solicitation or ancillary to solicitation. And the workgroup didn't spend a lot of time on this subject because of all the litigation that has transpired and the statement itself. The prior iterations of the statement have addressed this issue. So, so the focus really was when in the activity conducted via the internet, it takes place within the taxing state and and and the conclusion was as follows As a general rule, when a business interacts with a customer via the business's website or app, the business engages in business activity within the customer's state. However, for purposes of this statement, when a business presents static text or photo. On its website. Their presentation does not in and of itself constitute a business activity within those states where the business customers are located, and those simple words have triggered, as I say, lots of conversations, lots of tax feelings. That's right.

Meredith Smith [00:12:43] Who knew, who knew us tax people had so many feels

Brian Hamer [00:12:48] right? And the other thing that the statement does with respect to this general subject is that it has 11 scenarios. 11 scenarios were added of various forms of internet activities to kind of flesh out and apply this general framework to two situations in order to help readers and the taxpayers understand the implications of the frameworks that I just discussed. And we can get into some of those scenarios that would be useful. I'll say just one other thing for the moment about the framework, and that is just to talk a bit about how the workgroup got to it. And I would say the following that the members of the workgroup were not required to explain their thinking, but there were a couple of themes that definitely came out over the course of the discussions, the kind of considerations that motivated the ultimate decision. The first consideration was the fact that when a customer connects with a website, the website transmits and inserts into the customer's computer software or code that helps facilitate the interaction. And the members in the workroom saw that the actions of their code constituted a form of business activity within the taxing state. And many of the members of the workgroup kind of analogized that to a rollback. So as an out-of-state business, send a robot into a taxing state to engage in certain non solicitation activities. I think most people would conclude that that RSA business was in fact engaging in activities within that state through the robot, and that code or software performs something of the same role. And then second, there's the Wayfair decision, which had come out and just earlier in 2018 before the project got going. And of course, Wayfair had nothing to do with the public. 86-272. But what is relevant is that the court made a number of observations about how the internet operates and the relationship between sellers of tangible personal property and states where consumers are located. And those observations are very relevant to the analysis of public law 86-272. And in fact, one one of the key observations of the court was picked up by the members of the workgroup and inserted into the preamble of the revisions to the statement of information. And that language is as follows: An internet seller may be present in the state in a meaningful way without their presence being physical in the traditional sense of the term. And so I think generally the thinking was that if the seller is present in the taxing state, then similarly it is engaged in business activities via the internet in the Texas state.

Meredith Smith [00:16:54] Oh, we can always break it into two. It's really interesting to hear, you know, that back piece.

Meredith Smith [00:17:03] This podcast is for educational purposes only and is not intended, nor should it be relied upon as legal, tax, accounting or investment advice. You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.

Questions asked and answered in this Episode:

  • What was updated in the statute to address modern business activities?
  • Why is there such interest in this process?
  • What are some of the big revisions to the Statement of Information?

What You Will Discover:

  • [01:21] What was updated in the statute
  • [03:30] Some flaws in the statute
  • [06:36] The Statement of Information
  • [09:39] Some of the the big revisions
  • [12:50] The thinking behind the 11 scenarios


  • “But this whole process has been the subject of much attention. It’s really kind of a fascinating thing.” – Brian Hamer [08:54]
  • “I would say that the most consequential revision relates to how the statute applies to business activities conducted via the internet.” – Brian Hamer [10:18]
  • “The members of the work group were not required to explain their thinking, but there were a couple of themes that definitely came out over the course of the discussion, the kind of considerations that motivated the ultimate decision.” – Brian Hamer [13:43]

Relevant Links:

The Multistate Tax Commission:

Multistate Tax Commission with Helen Hecht:

Brian Hamber on LinkedIn: