Public Law 86-272 with Brian Hamer (Part 2)

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 2)

Meredith Smith [00:00:02] Welcome to SALTovation, this 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. Here's part two of the conversation where we address what these revisions to the public law 86-272 has on states and taxpayers. Stacey, what are you seeing? Because some of those, you know, kind of the software code robot accounting, I think the cookie concept, you know, cooking access has been around, but then kind of almost making its way into the public law 86-272. What are you hearing a lot about and been thinking about because you can't you can rarely go to a website that says, Hey, we're going to put cookies on whatever device it is that you're shopping for or looking from. So what are you seeing, Brian, you said 11 pieces, states that were paying particular interest in, you know, some of our internet retailers.

Stacey Roberts [00:01:10] There's a couple that I think I've gotten more questions on or and Brian, you know, obviously this is all new and well, maybe a little bit about your opinion on how this is all going to, you know, perhaps even get put into law and some of these states. But I think vital questions that I've gotten are around chat boxes, for example. So think about, you know, if I have maybe even my infinity is not working or something, I can go on to the chat box and it could be a bot that's talking to me, right and trying to fix my problem. Or it could be somebody who's, you know, behind the scenes behind that chat box who's actually typing those cases. I think it starts with the bot and then you might get transferred to a real person. But so I guess in your mind, is that bright enough? I guess going back to your example of, oh, if you have a robot going into a jurisdiction and performing some kind of activity that would be considered business activity so that I can then to the checkbox bot.

Brian Hamer [00:02:16] Yeah. Well, I think there is a well, let's of course, always begin with question number one, and that is what is the nature of that interaction. So if the nature of the interaction is solicitation, then the discussion is over, right? But if that chat chat box or the system somehow is engaging in some activity that extends beyond solicitation and some of the scenarios in the revision talk about customer assistance. So that's, you know, a typical situation. So if the system is engaging in customer assistance, which is not solicitation, then that activity is likely to be not protected. Applying the framework that I quoted a moment ago and therefore the out of state business would not have immunity under the language of the statute. Let me also make a point in this regard, which I don't think I did earlier, and that is that that it's important to note that what the MTC has attempted to do here is not to engage in some making activity enterprise, but rather to attempt to apply this statute from 1959 to to these modern business activities. So the members of the workgroup saw the responsibility more as a matter of statutory interpretation. And it's a challenging matter, right? Because back in 1959, there was no internet or thought of an internet. But applying the principles that one finds from the plain language of the statute and also from the legislative history can be a guide to determine how to apply the statute to things like the example that you just described.

Stacey Roberts [00:04:23] You know, the follow on to that is how does the taxpayer know? Right? So if in my chat box I'm asking for, hey, I would like to add more service vs. Haig's facility. My tower is not working. How does he know what I'm doing? Is it because those are tracked? Is it kind of like a voluntary system where taxpayers might have to just say, Well, we allow both through these chat boxes, so we're just going to assume we're not immune. I guess that's where some of these other questions come from clients where it's, hey, I don't know, even know how to apply this or how to track this.

Brian Hamer [00:05:08] Good question. Challenging subject Neither the NTC nor Brian Hamre drafted publicly by 86 to 72.

Meredith Smith [00:05:18] And there's a disclaimer at the end of this. I think that we are not providing tax advice or something like that.

Brian Hamer [00:05:26] Right, right. But I would say a couple of things. First of all, I imagine that in your example, Xfinity or whomever it is. Fracking, the activity of those bats and sack, and I would guess that kind of in the situation that you're describing there, there is an expectation that out-of-state customers or I guess, depending on your perspective, the in-state customers are going to be utilizing this tool not just to order new service, but also to see customer assistance. And if we're talking about a large multi-state operation with lots of customers, perhaps there can be an expectation that customers are going to be using the tool if they're invited to do so to see customer assistance of one kind or another. And ultimately, it's going to be the responsibility of taxpayers to understand the kind of activity they're engaging in in the taxing state. And in some ways, and maybe it was simpler in the old days, but everything was simpler in the old days. Businesses might send a sales force into a taxing state with an expectation that the sales force would engage essentially in solicitation. But at times or over time, those sales people might also be tasked with additional responsibilities. And to the extent that from time to time, they did in fact engage in those additional activities, let's say, market research or any number of things. Those activities would defeat the protection of the statute. So it was incumbent upon the business to understand what the sales force was in fact doing in those remote locations.

Stacey Roberts [00:07:34] And I totally agree with you there because those are conversations that we always have with our clients because we'll hear from a client, Oh, so-and-so is in California and they are their salesperson. And then once you start peeling away the layer of the onion of what that person's doing. Come to find out what they're doing is not just solicitation. So I agree with you there. And we have lots of conversations around that. I wanted to also kind of go back to something you said about Wayfair, and I can tell you that so much more conversation about 36 to 72 has come up in the wake of Wayfair. And not just back to your comment about how they used some of the arguments from Wayfair in the preamble to this new statement or today a new statement, but expanded statement. Maybe I should say

Brian Hamer [00:08:32] we called revised or updated OK.

Stacey Roberts [00:08:36] You know, the interest in public lighting six to seventy two or the application of it, I think, has become more prevalent in the wake of Wayfair. Because if you think about it right, you've got all these taxpayers that are typically selling a tangible good that's subject to sales tax. And then the natural byproduct of that is, OK, well, what are you doing in the states that you're selling into from an income tax perspective? Are you potentially protected? And so that's where we've kind of seen more conversation around public bodies to 272 honestly, since Wayfair came about. I mean, obviously, we were applying those rules in the past, but I think it's just become a bigger topic of conversation since Wayfair has been passed. Mm hmm. And incidentally, now with these revised statements, I think what we're seeing, too, is some confusion on the recruiting side. So when I see recruiting the fact that if a taxpayer has a online application and somebody in state aid can go online applying for a job, and then that actually defeats probably 267 to now, that's where I'm also getting questions is, oh gosh, what is said person in state aid doesn't stay there. What if they go to state B? What does that mean for me? And I don't know if you have any comments on the employment piece or not or what your thoughts might be on that, but that's where we're also getting questions.

Brian Hamer [00:10:09] Yeah. Well, it's interesting to hear you say that and what I've heard from other practitioners, Mira, which which you're saying that, that perhaps that particular scenario in the revised statement is receiving more attention than any of the others and that that may have to do with, of course, many, many businesses now engaged in online recruitment and application of of of new employees through an online tool. So it's increasingly omnipresent. And also perhaps it's an activity that businesses have not considered in the past as potentially defeating their public lady 60 72 protection. So I can see how that is engendering a lot of discussion. And, you know, presumably there are going to be many questions kind of on the margin, I think as a as a general matter, if you accept the framework again that that I've described, you reached the conclusion that this kind of internet activity interaction would defeat the protections of the statute because what we're talking about is something that's certainly not solicitation. But I have no doubt that there will be situations on the margin that are going to raise questions, and both states and businesses and their representatives are going to have to think hard about how, again, this 60 year old statute relates to those situations.

Stacey Roberts [00:11:48] Yeah, because I think, you know, the way I look at the way I or what concerns me about it, right, is that and the questions I have about it really are. Was it really kind of intended to be that if I am applying for a job and I physically sit in Colorado, that the intention was, oh, that would mean that I would be physically sitting in Colorado the entire time. And that would, you know, because I applied for that job. I'm here in Colorado. That would then cause that immunity for public logistics to simply be defeated in Colorado. But then, you know, like I said, I think a lot of taxpayers are worried about while we've got, you know, we've got a little bit of a transient workforce, you know, some of that starting to open back up a little bit. Right. And what happens if I'm applying for a job in Colorado because physically I'm here, but I'm actually going to be moving to California to do that job. And so I think that those are some if we will have to see get flushed out as time goes on.

Brian Hamer [00:12:50] So, let me react to that. First of all, with respect to the person now in Colorado and then moving to California. So what's what's relevant? Is the particular business activity associated with this online hiring process? And so what's relevant is where the potential employee is the job applicant at the time of that interaction. So there is that. And beyond that, the world has changed and it hasn't changed. So this statute is all about. And we talked a little bit about this at the beginning, but about protecting businesses that engage entirely in solicitation or and activities ancillary to solicitation. And we have to think of the statute now and 2021 kind of in that way. So clearly, this is an activity that's not solicitation. And beyond that, I think it's worth noting you mentioned it kind of the issue of in the sense physical presence. Maybe I don't know if this was exactly your point. But back in 1959, Congress actually considered a number of different bills to preempt state taxing authority. And the other bills all provided that a business must have physical presence in the taxing state for the state to impose tax and those alternative pieces of legislation. Those alternative bills were all rejected by the Congress, and instead they enacted the bill that became public law 86 272, which has no explicit physical presence requirement. And I think this is something that we lose sight of. I think there is perhaps traditionally been this notion that there is a physical presence requirement in the statute, but it just doesn't exist. And as I say specifically, Congress rejected that approach.

Stacey Roberts [00:15:11] And that's a good reminder, I think, for the audience, because I think we do get some questions even prior to this. What is solicitation right? And this and in our today's economy right? It's not as if there's necessarily boots on the ground all over the place or a door like there were when. OK, 86 of 72, it was first passed, and so we do get questions about what type of quote unquote advertising counts. Is it something that we would have to physically send to a taxpayer in a way, you know, akin to a catalog or some kind of flier? Or is that social media, etc.? And so we do have some questions that come up around that as well. So that's a good reminder for the audience to say, OK, well, you don't have to have boots on the ground in order to be solicited in the jurisdiction.

Brian Hamer [00:16:08] Right? Being soliciting or engaging in some other activity? Right.

Meredith Smith [00:16:13] Well, and I want to because in theory, you know, with kind of this modernizing public like 86 to 72, this is a good thing for states because, you know, it's kind of expanding word, specifically calling out activities that may have been protected, but that aren't protected anymore. Specifically, what do the states do from here? What do you have to do to kind of adopt this modernized language and the revisions and whatnot? Like how can they glom onto kind of benefit from this? Because in theory, you know, a company who had a bot or, you know, had a chat box or whatever it was, you know, it wasn't specifically identified as a non-protected activity. Right now, it is. They should really be filing an income tax return in Arizona, for example. Arizona is going to benefit from that. So what does Arizona need to do in order to benefit from this?

Brian Hamer [00:17:12] So first, let me say I believe this or not that the the motivation for the statement of information in the recent revisions of the statement is really to benefit taxpayers that the thought was that it's important for taxpayers to understand where states are coming from because it's all about notice. Taxpayers should not be taken by surprise and that was certainly at the top of the mind of the members of the workgroup that worked and the revisions. So it's to specifically address your question. Meredith, I would say that the ball is in the state's courts, right? The MTC does not have lawmaking authority. And states really have a few different options. They could just disregard the work that has been done by their colleagues in the workgroup. I hope that's not going to happen because if nothing else, it will break my heart. After all, the effort that has been put into this effort, I mean,

Meredith Smith [00:18:24] it wouldn't be the first time a practitioner did something with the best interests at heart goes ignored so you can add it to the list if it happens,

Brian Hamer [00:18:35] really. Second states can just allow the audit process to run its course, have issues arise, and then perhaps apply the principles that we've discussed. Discussing to audited taxpayers or third states can be proactive and in some public fashion, formal or informal through adopting a regulation or just providing some kind of guidance expressed that they are going to accept some or all of the components of the statements, which has been the case with respect to pass iterations of the statement. We at the MTC hope that states will adopt the latter proposal. Let's be as transparent as possible because that's generally the best way of doing business and treating taxpayers. But it also will likely avoid litigation. I think we probably can all agree on that. If a business receives a large assessment based on the principles contained in the statements, they're likely to fight back and there's going to be litigation or there may well be litigation. And although we feel strongly that the statement is unsound has a sound legal basis, you know, litigation is always painful and you never know for certain how it's going to turn out, whereas I'm of the mind and I'd like to hear your opinions. But if states do announce their intention, it's more likely given I think it is seriously legal. Basis for the interpretations that we've talked about, that most taxpayers are going to get with the program and start filing returns. And on the basis described in in the statement,

Stacey Roberts [00:20:49] and I agree with you there, if the states do, you know, promulgate their rules or, you know, incorporate the revised statement into their law and policy, I think you bring up a good point, though, and that we have 50 states, right? And they all have their own rules and administration and everything. And so you bring up a good point where if a taxpayer were to get audited in a state where to put these rules or, you know, apply these rules in the entity's mind, this is an interpretation. And so I think it's a good reminder for taxpayers to say, you know, it's very possible since this is an interpretation of rules that have always been there, that it's possible that a state could audit and bring it up. And I envision that that will happen. There will be some aggressive states out there. I think that will do that.

Meredith Smith [00:21:44] And I think there are going to be some taxpayers that have been claiming. If we do that, we are going to fight it, that it is going to be a material. You know, the amount of tax that they're willing to fight is kind of similar to, you know, what Wayfair was willing to do and take kind of that sales tax threshold to court that I'm sure there'll be someone out there that will litigate it to kind of get clarity. And I think, you know, Brian, to your point, is, you know, you had said that this is really a benefit for taxpayers, you know, to provide some clarity. Right. Because I mean, our experience generally tends to be like we'll just want to do the right thing. Taxpayers want to do the right thing. They just need to know what the right thing is. And so the greater amount of and you know, Wayfair from a sales tax perspective, was almost a blessing because it gave us like, this is what you were supposed to do. You sell this amount. You need to get a license. You need to do this. So it's like, OK, well, that's the rules. It's kind of a cost of doing business. And so, you know, there is some benefit to that. But after, you know, the trickle down of that is like states really benefited from all of these increased sales tax licenses. States will increase from the more modern language because I can think specifically from our, you know, we have a large client who sells almost exclusively through the internet. But we do claim eighty six to 72. But some of these new interpretations will kind of switch from a protected state to a non protected state. You know, going forward. And so it is nice to kind of have that clarity and to kind of like, put it out there. But at the same time, you know, we're going to have to have some conversations and taxpayers are going to say things like this is ridiculous. The fact that like I took a job applicant from someone in North Dakota, I now have to file an income tax return. I didn't even hire that person, but the ability to apply for a job, you know, when I sell bookmarks, I, you know, I now have to give you a slice of my profits. So, you know, we will have to have those conversations. And at the end of the day, though, it is up to the taxpayer to say file or not file. And we'll just, you know, take our chances or not or whatever that's going to look like.

Brian Hamer [00:24:12] Absolutely. I'll add to the conversation that I think many tax administrators and I'll speak for myself, for sure. We're concerned about the implications of the complexity of the tax system, particularly on small and medium sized businesses. And certainly in 1959, advocates of the statute spoke specifically about tax burdens. And those businesses. And so to the extent that states are concerned and they should be. The question then is, well, what can be done about the situation? And it's become clear to us at the MTC that the public. Eighty six to 72 is just not the answer. And the best example of that, perhaps in this goes to one of the scenarios actually in the revised statement, and that is the use of marketplaces. So, there are many small businesses that just sell on the internet and their marketplace facilitator, as we all know, is likely storing their inventory near customers and taxing states. And so it seems pretty clear in those situations. Eighty six to 72 provides no protection. And there are other situations like the bookmark seller, perhaps in North Dakota as well, where a relatively small seller may find itself in a new situation. So if 86 to 72 is not the answer, what is the answer? And the answer, frankly, is that states need to enact a system of thresholds kind of analogous to the Wayfair South Dakota thresholds, a factor presence nexus scheme, which is actually something that the FTC proposed and developed a model some years ago. But that's the solution, at least with respect to businesses that have relatively few contacts with the tech taxing state, or it makes few sales to a taxing state or, you know, going to Congress and getting the statute changed. Yeah, well,

Meredith Smith [00:26:37] that's what's added to the list of what we need, right? Right.

Stacey Roberts [00:26:41] So they'll come a time when public literacy 272 or just disappear. I mean, obviously it's still there. But do you think I'll just disappear dear to your point about having a back door presence next? I mean, because, right? Now we have the Brussels nexus and tarnish states. We still have to layer in public in a 60-70 state, right? Sure. And what we have to source income there. Maybe we have Nexus, but we, you know, we don't have to source income there. So do we. Do you think that there might be a time when public logistics will just go away?

Brian Hamer [00:27:13] Well, I don't. Given the way that Congress operates, I mean, as a tactical move in our lives. Right. And it will continue to play a role to the extent that out-of-state businesses only engage in solicitation of orders of tangible personal property. Those businesses will be protected. But we all realize that, you know, the business world is more complicated now. Many businesses don't sell only tangible personal property. And given the nature of the competitive world, ever more businesses are engaged in a whole variety of in-state activities. So I think it's fair to say, and both of you would have perhaps a better sense of this than I, but the impact of the statute has been withering. So over the course of time and tomorrow, to this point, I've heard many stories where taxpayer representatives have examined potential liability and have discovered it, sometimes not even known to the in-house tax people of a business that their business has engaged in a variety of activities that are not protected. It's just kind of the way of the world. So it's kind of a long winded answer to your question. But I think it's fair to say that as time goes on, the statute is going to have less and less real world impact in the business world. But it's not going away

Meredith Smith [00:28:54] these numbers and say, at least not for now.

Brian Hamer [00:28:56] Right? Right.

Meredith Smith [00:28:58] Well, Brian, we really appreciate you being here. We really appreciate your insights. This is Stacy, and I could probably pick your brain for hours. I don't know that anyone else wants to listen to us taking a call any time. Well, I was thinking about it. It was like, All right, we're a group of Illinois natives, so we are going to bring out Michael's, a neighbor. Yeah, Michael is in Indiana so we can chat about the homeland and eighty six to seventy two. So again, thank you for being here. We really enjoyed this conversation. Thank you for being our guest host today. This is SALvation. Until next time, 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 questions are internet retailers asking about the new revisions? How does a taxpayer know what to apply?
  • What do states have to do to adopt the modernized revisions?
  • Does Brian think there will come a time when Public Law 86-272 will disappear?

What You Will Discover:

  • [00:24] How the updates applies to internet retailers
  • [04:24] How a taxpayer know what to apply
  • [08:05] Why the interest and application of Public Law 86-272 is more prevalent
  • [16:13] What the states do from here
  • [26:36] If there will come a time when Public Law 86-272 will go away


  • “It’s important to note that what the MTC has attempted to do here is not to engage in some policy making activity enterprise, but rather to attempt to apply the statute from 1959 to these modern business activities.” – Brian Hamer [03:32]
  • “I think this is something that we lose sight of. I think there’s perhaps traditionally been this notion that there is a physical presence requirement in the statute, but it just doesn’t exist, and as I say specifically, Congress rejected that approach.” – Brian Hamer [14:53]
  • “Believe this or not that the motivation for the Statement of Information and the recent revisions of the statement is really to benefit taxpayers. That the thought was that it was important for taxpayers to understand where states are coming from, because it’s all about notice here. Taxpayers should not be taken by surprise.” – Brian Hamer [17:13]
  • “If 86-272 is not the answer, what is the answer? And the answer frankly is that states need to enact a system of thresholds.” – Brian Hamer [25:52]

Relevant Links:

The Multistate Tax Commission:

Multistate Tax Commission with Helen Hecht:

Brian Hamber on LinkedIn: