The Case Weighing on How States Tax Internet Activity, Explained

A recent California court ruling damaged the state’s efforts to extend the corporate income tax to tens of thousands of out-of-state sellers, but the state’s loss only makes the future of a novel tax initiative in other states less clear.

The Dec. 13 ruling is one chapter in a longer drama that will ultimately determine the relevance of Public Law 86-272, a 1959 federal law imposing restrictions on state taxes of out-of-state businesses, in the era of online commerce.

The ruling also has implications for the Multistate Tax Commission’s recent reinterpretation of that law broadening what out-of-state businesses may ...