P. L. 86-272 Case Study

We’ll start with the use of sales representatives and how this relates to potential tax liability. P.L. 86-272 allows the use of sales representatives relating to interstate commerce without generating any net income tax related to tangible personal property within certain restrictions. For the sale to be protected under P.L. 86-272, the work of the sales representatives must be limited to solicitation- a mere “implicit invitation to an order” or “activities that are entirely ancillary to request for an order”. In Wisconsin Department of Revenue V. William Wrigley Jr. Co., the United States Supreme Court emphasized the nature of activities that would be considered ancillary under P.L. 86-272, “Solicitation of orders covers only the actual requests for purchases, or, at most, the actions absolutely essential to making those requests”. The operations of your sales force seem to be following this model where 1) they do not have the authority to accept any orders, and 2) they send the orders back to Ely, MN for them to be accepted and shipped. By adhering to the standard that the US Supreme court set, the

86-272 for those who are only “inviting an order” the exception to this rule would cause income tax to be generated from the states that have sales offices located in Kentucky, California, and New Jersey. This is supported by the Supreme Court Case Wisconsin Department of Revenue V Wrigley Jr. Co. where they claimed “…Maintenance of an office within the state, but way of the company or on its behalf would go beyond the solicitation of orders…A company office within a state is such a significant manifestation of company presence, absente of specific exemption, income taxation should always be allowed.”. With this being a supreme court decision, it is safe to assume that income taxes must be filed for Kentucky, California, and New Jersey as the sales offices relate to a physical presence within such