What does it actually mean to “do business” in a state, thereby becoming subject to taxation by that state? For decades, Public Law 86-272 offered a simple answer, at least in the negative. If you’re just soliciting and fulfilling orders in a state—imagine a traveling door-to-door salesperson—you’re off the hook for state income tax purposes.
But the Maine Supreme Court’s ruling earlier this month against vodka manufacturer Fifth Generation Inc., which produces Tito’s vodka, may complicate things.
To sell Tito’s in Maine, Fifth Generation had to comply with the state’s liquor control system, which requires inventory to be stored in in-state warehouses and delays the transfer of title until the product leaves the warehouse. So Fifth Generation stored much of its vodka in Maine warehouses for a while.
Under PL 86-272, if in-state conduct goes beyond mere solicitation and fulfillment (no matter the reason), tax liability attaches. Warehousing inventory clears that bar easily. Maintaining a stock of goods in-state is a textbook example of unprotected activity. That’s what makes this case look like a trap hiding in plain sight.
The implications don’t stop with liquor in Maine. The same logic would apply anywhere regulation dictates how a product reaches market.
Congress should revisit the statute with that reality in mind. It could easily clarify that activities undertaken solely to comply with state law don’t create nexus for income tax purposes on their own.
States would then have a choice: Either regulate distribution or tax companies with genuine in-state presence. Absent intervention, PL 86-272’s protection isn’t a limit on state income taxing power in regulated industries at all—it’s just a drafting artifact waiting to be written around.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined the IRS R&D credit form, the “EU Inc.” bill, and more.
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Insights
Nonprofits Must Navigate New Hurdles When Preparing Tax Forms
Nonprofit CFOs and finance teams can’t just focus on assembling numbers when preparing Form 990. They also must understand the policy environment shaping those numbers.
UK Tax Gap Narrows as HMRC Modernizes Enforcement Capabilities
The UK tax authority has increased its enforcement capacity and focus on improving tax compliance among large corporates, which means that multinationals doing business in the UK will need to navigate a complex compliance landscape.
IRS R&D Credit Form Needs Better Fit With Taxpayer Expectations
Actions ultimately carry more weight than assurances on pending guidance. So how will the IRS bring Form 6765 into closer alignment with taxpayer expectations and broader tax reporting norms?
Five Ways Tax Pros Can Help Shake Loose Covid-Era Tax Refunds
Businesses that are still waiting for employee retention credits should confirm the IRS received the claim, respond quickly to any document request, and take steps to preserve litigation rights.
‘EU Inc.’ Measure Offers Only Minor Medicine for a Major Malady
The European Union’s “EU Inc.” measure is the latest in a series of overdue attempts to untangle the “stacking” tax and legal regulations on companies headquartered within the bloc.
Sweeping New Transfer Pricing Rules in India Mean a Major Reset
India’s transfer pricing regime is undergoing a sweeping reset, with the aim of becoming simpler, more predictable, and user-friendly. Multinationals should revisit their transfer pricing strategies to adapt to the changes.
Firms Must Use Client Feedback Strategically, Not as Report Card
Well-designed feedback programs are more than instruments for measuring performance; they’re platforms for exploring what comes next. They allow firms to test assumptions, probe emerging priorities, and understand how clients interpret changes happening within their industries.
Five Questions With Stinson Tax Partner Harry Teichman
Bloomberg Tax Insights & Commentary is featuring a recurring questionnaire of prominent tax professionals who are willing to share their thoughts about their work and the practice of tax these days. Today we feature Harry Teichman, a tax, corporate and estate planning partner at Stinson in Tampa, Fla.
Technically Speaking
To modernize the IRS, Congress must provide more consistent funding, Andrew Leahey says in a Technically Speaking column, analyzing a report showing that the Inflation Reduction Act’s supplemental funds for the agency were spent on basic operations.
“Any future infusions of capital should be paired with minimum baseline funding thresholds and clearer transparency requirements,” Andrew writes, arguing that rebuilding internal expertise will also be key, as the IRS’s reliance on contractors does little to improve tax administration in the long term. Read More
News Roundup
IRS Sets Guidance on Nominating Rural Areas as Opportunity Zones
The IRS issued guidance Monday on how states and territories should nominate rural areas to be designated as qualified opportunity zones eligible for tax breaks.
Washington’s Newly Minted Millionaire Tax Challenged as Unlawful
Washington state’s income tax on high earners met its first court challenge alleging it’s an illegal tax on property Thursday, two weeks after its enactment.
IRS CEO Pledges to Sift Through Fraud in Tips, Overtime Breaks
IRS CEO Frank Bisignano said the agency will be vigilant in looking out for fraud in new tax breaks on tips and overtime created by the 2025 GOP tax-and-spending law, as millions claim the benefits.
New Tax Disclosure Regimes Still Leave Gaps in Information
New corporate tax disclosures will provide investors with some answers to the persistent puzzle of where companies book their profits and pay their taxes—but some pieces of the puzzle are still going to be missing.
Tax Management International Journal
How Global Practice Could Shape Brazilian Transfer Pricing Audits
Brazil’s adoption of OECD Transfer Pricing Guidelines marks a significant shift towards global standards, presenting new challenges and opportunities for Brazilian taxpayers to align their practices with international norms and prepare for increased scrutiny.
Career Moves
Pryor Cashman Taps Attorney Olga Beloded as Partner in Tax Group
Olga Beloded joined Pryor Cashman as a partner in its tax group in New York, the firm announced Tuesday.
Archer & Greiner Brings Martyn Babitz to Private Wealth Practice
Martyn S. Babitz joined Archer & Greiner as of counsel in its private wealth, estates, and trusts practice in Voorhees, the firm announced Tuesday.
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