PL 86-272 protections explained by Franchise Tax Board

On Feb. 14, 2022, the Franchise Tax Board (FTB) issued Technical Advisement Memorandum (TAM) 2022-01, outlining activities that exceed the federal protections provided by Public Law 86-272 and, therefore, creating an income tax return filing requirement for out-of-state businesses that otherwise would not have to file a California income tax return.

For the most part the TAM incorporates all the Multistate Tax Commission (MTC) positions adopted in its Aug. 4, 2021, revised “Statement of Information Concerning Practices of Multistate Tax Commission and Supporting States under Public Law 86-272” (MTC Statement). The amended statement focused primarily on which internet activities would, or would not, be afforded PL 86-272 protections.

In addition, the TAM clarifies telecommuting of non-sales functions employees exceed the protections under PL 86-272 and therefore create a California income tax return filing requirement.

With respect to internet activities, the TAM provides that the following activities in California exceed protections afforded under PL 86-272 and therefore create a California income tax filing requirement:

  • Post-sales assistance through online chat and email via business’s website
  • Solicitation and submission of online applications via the business’s website of branded credit cards that generate interest and fee income
  • The ability to upload and/or complete resumes on a website for non-sales positions
  • Websites that download internet cookies and similar items for the purpose of gathering customer information used to adjust inventory, and other business activities such as production and development of new products
  • Remotely repairing and transmitting a computer code to fix or upgrade previously purchases products
  • Selling extended warranties via a business website
  • Maintaining inventory in California at a marketplace facilitator’s fulfillment center or warehouse

The TAM also provides three activities that do not exceed the limitations of PL 86-272 and, therefore, on its own does not create a California income tax return filing requirement:

  • Post-sales assistance by posting answers to an FAQ on the internet.
  • Downloading internet cookies only for purposes of soliciting sales of tangible goods. Acceptable internet cookies are used to:
    • Remember items that customers have placed in their shopping cart
    • Store personal customer information so the customer does not need to re-input
    • Remind customer of previously view items
  • A website that only sells tangible personal property and the website capabilities are limited to posting product descriptions, selecting items for purchase, delivery options, and payment.

What does CohnReznick think?

The TAM could create nexus and California income tax filing requirements for taxpayers located outside California while benefitting taxpayers located in California. Taxpayers in California would no longer have to throwback sales for purposes of the California sales factor. All taxpayers should review the new provisions to see how the changes may impact their specific tax positions/calculations and if amended returns would be beneficial. 


Ted Tourian, Manager, State and Local Tax Services


Krista Schipp, CPA, Director, State and Local Tax Services


Subject matter expertise

  • corey rosenthal
    Contact Corey Corey+Rosenthal
    Corey Rosenthal

    JD, Principal, Practice Leader, State and Local Tax (SALT) Services

  • Close


    Let’s start a conversation about your company’s strategic goals and vision for the future.

    Please fill all required fields*

    Please verify your information and check to see if all require fields have been filled in.

    Please select job function
    Please select job level
    Please select country
    Please select state
    Please select industry
    Please select topic

CohnReznick Tax: Alerts and Webinars

Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.