Does Your Website Create Tax Exposure? Understanding California’s PL 86-272 Guidance

For years, Public Law 86-272 offered a clear line of protection. If an out-of-state business limited its activity in another state to soliciting sales of tangible goods—typically through mail, phone, or more recently e-commerce—it could avoid that state’s income tax. That line has blurred.

California is leading a quiet but consequential shift in how PL 86-272 is interpreted for the digital age. In 2022, the state issued Technical Advice Memorandum 2022-01, taking the position that certain website features—such as customer logins, interactive chats, and return-processing tools—go beyond solicitation. That means businesses using those tools might no longer qualify for protection under PL 86-272 in California.

Although the guidance was struck down by a court, the ruling may not hold. For now, the guidance is not binding. But it remains a signal of the state’s enforcement posture. Auditors may still treat modern e-commerce features as taxable connections.

The line between protected and taxable activity is growing harder to see. Basic shopping carts and static FAQs may still be protected. But if your website allows customers to access account history, initiate returns, or speak with a representative, California could argue your company has established a taxable presence.

California is not alone. Other jurisdictions are watching closely and, in some cases, preparing their own interpretations. Businesses with significant California sales and even modest online functionality should evaluate how their web presence may expose them to income tax obligations.

How We Help

AAFCPAs advises businesses navigating state and local tax implications, including California’s changing interpretation of PL 86-272. In this case, we help clients assess potential tax exposure related to website functionality. Our State and Local Tax advisors provide nuanced, practical guidance grounded in multistate nexus and apportionment analysis.

We help businesses evaluate where and when tax obligations arise and offer compliance solutions that are streamlined with advanced tax automation technology, ensuring efficient and accurate adherence to multi-state requirements. Clients rely on our team to translate regulatory shifts into clear, actionable insight—helping reduce risk as they grow across state lines.

These insights were contributed by Tyler Champagne, CPA, MSA, Director.

Questions? Reach out to our authors directly or your AAFCPAs partner.

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