In its first Technical Advice Memorandum (TAM) of the year, TAM 2022-01, the California Franchise Tax Board (FTB) set forth a new interpretation of the protections of Public Law 86-272 (PL 86-272). By May 2022, the FTB also issued Guidance 1050 further expanding on the application of PL 86-272 based on the changed sales environment since the Public Law was enacted more than 60 years earlier.
On August 19, 2022, the first lawsuit challenging California’s new interpretation was filed by the American Catalog Mailers Association (ACMA) in the Superior Court of California. TAM 2022-01 defines certain activities such as enabling cookies on customer’s computers, and providing post-sale assistance through e-mail or chat functions on the website, as activities that exceed the protections of PL 86-272.
In its lawsuit, the ACMA claims amongst other things, that the TAM is invalid under the Supremacy Clause of the U.S Constitution as a significant departure from prior interpretations of the protections afforded under federal law and is inconsistent with PL 86-272 itself.
Under TAM 2022-01, very few circumstances exist in which a taxpayer would be protected by PL 86-272, thus dismissing those protections established by federal law.
Business owners with sales in multiple states should monitor the status of the litigation closely, understanding that the result may be that any activity in another state beyond a static website, or one that only accepts orders, will no longer receive the benefits of the federal law, PL 86-272.