Eisenstein and Bessey Pen Cover Article in State Tax Notes on Cloud Services and State Income Tax

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Eisenstein and Bessey Pen Cover Article in State Tax Notes on Cloud Services and State Income Tax


In their cover article in the May 21, 2018, issue of State Tax Notes (Public Law 86-272: Sunlight for a Cloud Service”), Managing Partner Martin I. Eisenstein and Partner Nathaniel A. Bessey analyze the 1959 Interstate Commerce Tax Act (commonly referred to as Public Law 86-272) as it applies to out-of-state providers of cloud computing services.  The authors conclude that P.L. 86-272, which was passed under Congress’s commerce clause authority, and prohibits states from imposing net income taxes on out-of-state companies whose activities in the taxing state are the in-state solicitation of sales of tangible personal property, which are accepted out of state and shipped from out of state by a common carrier, must also be understood to shield from taxation the income of cloud services providers who engage in no in-state activities (though they may have customers in state who utilize the provider’s cloud-based services).  This immunity from income taxation is provided by federal statute, and is independent of any constitutional limitations on taxation under the dormant commerce clause and due process clause of the U.S. Constitution.  Accordingly, this protection should be available regardless of the outcome of South Dakota v. Wayfair currently pending before the Supreme Court, in which Brann & Isaacson Senior Partner George S. Isaacson, along with Eisenstein and B&I partner Matthew P. Schaefer, represent Wayfair, Overstock.com and Newegg.

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