The New York State Department of Taxation and Finance has updated its guidance on the taxation of out-of-state corporations entitled to protection under Public Law (P.L.) 86-272. P.L. 86-272 provides that an out-of-state seller of tangible personal property whose activities in a state are limited to the solicitation of sales delivered to a customer from outside of the state is exempt from state net income tax.
The New York corporation franchise tax is the greater of a net income tax, a tax based on capital, or a fixed-dollar minimum tax based on New York gross receipts. Previous informal guidance issued by New York indicated that taxpayers with P.L. 86-272 protection would not be subject to the net income tax, but would continue to be subject to the tax based on capital and the fixed-dollar minimum tax. New York has since clarified its position and now provides that a corporation subject to P.L. 86-272 protection is not subject to any component of the franchise tax.
The activities and income of a corporation with P.L. 86-272 protection and that is part of a unitary group must be included in a combined report. However, in this situation, the corporation is not considered a taxpayer and, therefore, is not subject to the fixed-dollar minimum tax. In addition, if all the members of the unitary group are protected by P.L. 86-272, no members of the unitary group are considered taxpayers, and the group would not be required to file a combined report.