It is not unusual for taxing authorities to apply “creative” interpretations of a business’s tax operations to maximize their tax obligations. What is a little more unusual is for two or more states’ “creative interpretations” to be directly contradictory. Unfortunately, in states’ scramble to get a slice of tax revenue from Netflix, that is exactly what is happening.
The Interstate Income Act of 1959, more commonly known as P.L. 86-272, has long been a thorn in the side of states seeking to apply their corporate income tax to out-of-state businesses. P.L. 86-272 prohibits states from assessing corporate income tax obligations on businesses whose sole activity in that state is the sale of tangible goods to that state’s residents.
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