Maryland court analyzes scope of P.L. 86 272 protection

Start adding items to your reading lists:
or
Save this item to:
This item has been saved to your reading list.

January 2020

Overview

The Court of Special Appeals of Maryland held that a taxpayer’s in-state gathering of competitive information exceeded P.L. 86-272 protection from state income taxation. Specifically, the Court found that collecting “concrete and informative” competitive intelligence, including the inventory status of competitive products and detailed insights into competitors’ marketing strategies, was not ancillary to solicitation and occurred regularly enough to constitute a nontrivial connection to Maryland. 

The Court also concluded that certain activities were protected as solicitation or ancillary to solicitation, including persuading customers to purchase products, attending community events, conducting training sessions, reworking product displays, and reporting customer complaints. 

Additionally, the Court found that performing quality control activities such as restocking shelves and pulling defective products exceeded mere solicitation, but occurred so infrequently that these activities should be considered de minimis and, therefore, protected.

The takeaway

This case provides a useful framework for companies engaged in a P.L. 86-272 analysis. The opinion highlights the Court’s analysis around protected activities, such as persuading customers to purchase products, attending community events, conducting training sessions, reworking product displays, and reporting customer complaints. The case also highlights the reach of what courts may view as ancillary to solicitation. 

Additionally, although the Court found that a particular activity may not be considered solicitation (such as quality control), the infrequency of such activity could render state contacts to be considered trivial and de minimis such that P.L. 86-272 protection remains. 

The Court’s analysis regarding competitive intelligence is instructive to an application of P.L. 86-272, particularly the de minimis analysis, which appears to involve both a quantitative and qualitative review. Even though the activity was relatively infrequent, the concrete, informative, substantial, and deliberate nature of the activities rendered, in this Court’s determination, such activities to be nontrivial and not protected by P.L. 86-272.

Contact us

Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

Follow us