In Technical Advice Memorandum (TAM) 2022-01, the California Franchise Tax Board (FTB) considered whether remote workers and various online activities eliminate P.L. 86-272 protection. In large part reflecting the Multistate Tax Commission (MTC) guidance issued last year, the TAM concludes that a variety of activities may disqualify a taxpayer from the protections provided under P.L. 86-272. Examples of purportedly disqualifying activities a business may conduct on its website include:
- providing post-sale assistance to California customers via electronic chat or email;
- soliciting and receiving branded credit card applications;
- soliciting job applications for non-sales positions; and
- placing cookies on visitors’ computers or other electronic devices.
The TAM also provides that “an employee who telecommutes on a regular basis from within California” will eliminate protection unless the employee’s in-state activities are entirely ancillary to solicitation of sales of tangible personal property. Taxpayers operating a website, or having remote workers located in California, should carefully consider how the TAM applies to their facts if they currently rely on P.L. 86-272 (or have sales currently subject to California’s throwback rule for income tax apportionment purposes).
Note that a TAM, which is advice the FTB legal team gives when they receive a question from FTB staff, is not binding on FTB but gives a good indication of where FTB’s stands on an issue.