The question of whether to “accept” or “decline” historically has been in reference to something simple such as a wedding invitation or a payment at the grocery store. Nowadays, it seems that we’re greeted with this question in the form of a pop-up box as soon as any webpage loads. Most people undoubtedly click “accept” and move on without truly understanding what it is they’re accepting. In the fine print of these messages are references to cookies, which are a tool used by websites to collect information about pages viewed and activity on the sites. Cookies can save user IDs, organize online purchases in a cart, and track and save your preferences in case you visit the website again.
How do internet cookies affect state and local taxes? The Multistate Tax Commission (MTC) recently released revised guidance related to Public Law 86-272 and the protection companies selling tangible personal property have historically received from state income tax. The most recent revision addresses how the MTC views business activity conducted through a website as it relates to protected and unprotected activities. Website features such as post sale online chats, chats with customer service representatives, or the ability to apply for a non-sales position in which the candidate can complete an online application and upload a resume and cover letter are considered activities that are not completely ancillary to the solicitation of sales of tangible personal property and would not be considered protected activities under the revisions. Additionally, the revisions specifically address the difference between unprotected and protected internet cookies.
Here are the MTC’s examples of unprotected and protected cookies:
- Unprotected cookies: “The business places Internet ‘cookies’ onto the computers or other electronic devices of in-state customers. These cookies gather customer search information that will be used to adjust production schedules and inventory amounts, develop new products, or identify new items to offer for sale. This in-state business activity defeats the business’s P.L. 86-272 immunity because it does not constitute, and is not entirely ancillary to, the in-state solicitation of orders for sales of tangible personal property.”
- Protected cookies: “The business places Internet ‘cookies’ onto the computers or other devices of in-state customers. These cookies gather customer information that is only used for purposes entirely ancillary to the solicitation of orders for tangible personal property, such as: to remember items that customers have placed in their shopping cart during a current web session, to store personal information customers have provided to avoid the need for the customers to re-input the information when they return to the seller’s website, and to remind customers what products they have considered during previous sessions. The cookies perform no other function, and these are the only types of cookies delivered by the business to its customers’ computers or other devices. This in-state business activity does not defeat the business’s P.L. 86-272 immunity because it is entirely ancillary to the in-state solicitation of orders for sales of tangible personal property.”
While the MTC’s guidance is not law, numerous states rely heavily on it to form their positions as it relates to nexus. With potentially significant decreases in tax revenue due to the COVID-19 pandemic, states will be looking to make up for lost revenue and changes to PL 86-272 protected activities will be an easy target. Those companies that have historically relied on PL 86-272 protection should
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