Tax insight

House Judiciary Committee advances state tax restrictions in budget reconciliation

Insight
5 minute read
May 02, 2025

What happened?

The US House Judiciary Committee on April 30 approved budget reconciliation provisions under its jurisdiction pursuant to H. Con. Res. 14, the Concurrent Resolution on the Budget for Fiscal Year 2025.

Included in these provisions is a proposed expansion of Public Law 86-272, a 1959 law that restricts states and localities from imposing net income taxes if taxpayers’ in-state business activities are limited to the solicitation of orders for sales of tangible personal property, which are sent outside the state for acceptance or rejection, and are filled by shipment or delivery from a point outside the state.

Why is it relevant?

P.L. 86-272 has not been updated since its enactment, and states have increasingly sought to limit its application as the economy and business practices have changed. Especially in light of potential restrictions on the deductibility of corporate and pass-through entity taxes, efforts to limit the application of such taxes could provide enhanced benefits to multistate taxpayers. Since P.L. 86-272 applies only to sales of tangible personal property, these protections are especially relevant for manufacturers and wholesalers. For more on the outlook for reconciliation legislation, see our Insight.

Actions to consider

Taxpayers should monitor the progress of House action on budget reconciliation, especially regarding whether the limit on corporate deductibility is included and how restrictions on state taxation may interact with such limitations. While similar, and broader, state business tax preemption measures have been considered in prior Congresses, state and local governmental interests will be expected to push back on proposed limits on their taxing authority as federal budget negotiations continue.