Navigating 50 State Corporate Income Tax Nexus Requirements - Need Resource

Does Public Law 86-272 still protect companies from income tax in states where they're just selling tangible goods without any physical presence? I thought that was still a thing despite all the Wayfair fallout.

Public Law 86-272 does still provide protection in many cases, but its application has narrowed significantly in recent years. It only applies to sales of tangible personal property (not services or digital products), and only if your activities in the state are limited to solicitation of orders. Many states have been aggressively reinterpreting what constitutes "protected solicitation activities" versus "unprotected activities." For example, providing customer service, maintaining a website accessible to state residents, or having remote employees in a state can all potentially exceed the protection of PL 86-272 in various states' interpretations. The Multistate Tax Commission recently issued updated guidance that many states are adopting which further limits these protections in the digital economy.

Does it cover pass-through entities too? We're an LLC taxed as an S-Corp and I'm not sure if the nexus rules are the same as C-Corps in all states.

I'm skeptical about these types of tools. How reliable is the information? Tax laws change constantly and if they're not updating daily, you could end up with compliance issues.

It definitely covers pass-through entities including LLCs taxed as S-Corps. The tool specifically asks about your entity structure because you're right - some states have different nexus standards for different entity types. For example, it flags states that impose entity-level taxes on pass-throughs or have mandatory composite return requirements. As for reliability, that was my initial concern too. From what I've seen, they update their database whenever states announce changes, and they cite the specific state statutes and regulations they're relying on. You can actually click through to see the legal sources behind each recommendation. I've had my CPA verify some of the more unusual state positions it flagged, and they confirmed the tool was correct.

How does this even work? The IRS phone lines are notoriously impossible to get through - I've spent hours listening to that hold music only to get disconnected.

Sounds like BS to me. There's no way to "skip the line" with the IRS. They're chronically understaffed and everybody has to wait. If this actually worked, everybody would be using it and there wouldn't be any wait times.

It uses a proprietary callback system that navigates the IRS phone tree and waits on hold for you. When they actually get a live agent, you get a call connecting you directly. I was skeptical at first too when my accountant recommended it. It's not about "skipping the line" - you're still in the same queue as everyone else. The difference is that their system is persistent and keeps trying different IRS departments until it gets through, instead of you having to do it manually and getting frustrated.

Thanks for the suggestion! Do you know if the CCH tool covers the edge cases like remote employees vs independent contractors and how they affect nexus? Also, any idea on pricing for a small-medium business?

The CCH tool definitely covers the distinction between remote employees and independent contractors for nexus purposes. It breaks down each state's position on various business activities - whether having remote workers creates nexus, what types of solicitation activities are protected under P.L. 86-272, and factor presence thresholds for economic nexus. Pricing is unfortunately on the high side for small businesses - typically around $2,500-3,000 annually for the state tax module. If that's beyond your budget, you might consider bringing in a regional CPA firm with multi-state expertise for a one-time nexus study. They often have access to these resources and can provide you with a comprehensive analysis for less than buying the tools yourself.

How do the voluntary disclosure agreements work? We probably should have been filing in some states for the past couple years but haven't been.

Voluntary Disclosure Agreements (VDAs) are essentially deals you can make with states where you come forward voluntarily to register and pay back taxes before they audit you. Most states offer some form of VDA program because it's easier for them than tracking down non-compliant businesses. The typical benefits include: limiting the lookback period (usually 3-4 years instead of the full statute of limitations), waiving penalties (though you'll still owe interest), and sometimes reducing the interest rate. You have to be "clean" when you apply - meaning the state can't already be investigating you or have contacted you about the tax. The process usually involves submitting an anonymous pre-application where you describe your business activities without identifying yourself. The state reviews it and tells you what relief they're willing to offer. If you accept, you then formally identify yourself and enter into the agreement. I'd definitely recommend working with a tax attorney or experienced CPA for VDAs since there are strict procedures and deadlines. Also, some states require you to register for all taxes at once (income, sales, payroll) so you need to understand the full compliance picture before applying.