States are continuing to try to limit the scope of Public Law 86‑272 (“P.L. 86-272”), and a recently filed Wisconsin case highlights this trend. On January 28, 2026, Crutchfield Corporation and Crutchfield New Media, LLC (collectively, “Crutchfield Companies”) filed a declaratory judgment action in the Wisconsin Circuit Court for Dane County against the Wisconsin Department of Revenue, the Secretary of Revenue, and the Wisconsin Attorney General, challenging a Wisconsin administrative regulation that interprets P.L. 86‑272. In Crutchfield Corp. v. Wisconsin Department of Revenue (Case No. 2026CV000298), the plaintiffs are asking the Wisconsin Circuit Court to determine how far Wisconsin may go in “interpreting” a federal statute that the U.S. Congress has left unchanged for more than six decades.
Facts
Crutchfield Companies are Virginia‑based retailers that sell consumer electronics nationwide through mail, telephone, and internet channels, including to customers in Wisconsin. According to the complaint, Crutchfield Companies have no employees, agents, offices, property, or other physical presence in Wisconsin, and no personnel travel to Wisconsin to conduct business activities. Crutchfield Companies allege that they structured their business operations in reliance on the federal safe harbor provided by P.L. 86‑272, which limits a state’s ability to impose a corporate net income tax on a taxpayer whose only in‑state activity consists of solicitation of orders for tangible personal property that are approved and fulfilled from outside the state. Presumably, Crutchfield Companies earn interstate income from multiple sources in addition to their income from sales of tangible personal property.
The Dispute
The dispute centers on Wisconsin Administrative Code § Tax 2.82(3)(b) (the “WI Regulation”), which addresses “Federal Public Law 86‑272.” The WI Regulation provides, in relevant part, that “a state may not impose its franchise or income tax on a business selling tangible personal property, if the only activity of that business is the solicitation of orders by its salesperson or representative which orders are sent outside the state for approval or rejection, and are filled by delivery from a point outside the state” (emphasis added). The regulation further provides that the federal protection under P.L. 86-272 does not extend to businesses that derive interstate income from services, intangibles, or other non‑tangible sources, even if their only in‑state activity is limited to solicitation for sales of tangible personal property. As a result, the WI Regulation appears to tie P.L. 86‑272 protection not only to the nature of the taxpayer’s in‑state activities, but also to the sources of its interstate income.
Crutchfield Companies are seeking to invalidate the WI Regulation on grounds that it unlawfully narrows the scope of P.L. 86‑272. According to the complaint, the federal statute draws a clear line between the type of in‑state activity that is protected and the types of interstate income that remain insulated from state corporate net income tax. While P.L. 86‑272 limits protected in‑state activity to solicitation of orders for tangible personal property and ancillary and/or de minimis activities, it does not otherwise restrict the types of interstate income a taxpayer may earn to fall within its scope. According to the plaintiffs, the WI Regulation improperly conditions P.L. 86‑272 protection not just on in‑state solicitation activities, but also on the nature of the taxpayer’s interstate income.
Crutchfield Companies further contend that Wisconsin’s interpretation directly conflicts with federal law and violates the Supremacy Clause of the U.S. Constitution. Only Congress (not a state tax agency) has the authority to amend or narrow the protections of a federal statute. Crutchfield Companies argue that by attempting to change this federal statute through administrative rulemaking, Wisconsin imposes corporate income tax on out‑of‑state businesses like Crutchfield Companies despite the business limiting its activities to conduct that Congress expressly intended to protect.
Implications
Crutchfield follows a broader trend of states attempting to narrow the reach of P.L. 86-272. As discussed in prior SALT Savvy posts, including Public Law 86‑272 – Federal Law Seeks to Giveth What the States Continue to Taketh Away with a Retroactive Twist, many states (including New York, California, and New Jersey) have increasingly looked for ways to limit the reach of P.L. 86‑272 in the modern economy. Those efforts have included reliance on Multistate Tax Commission guidance addressing internet‑based activities, digital interactions with customers, and other e‑commerce‑related conduct that states argue exceeds “mere solicitation.” Wisconsin’s regulation reflects yet another example of this theme. Here, however, Wisconsin’s focus is not on the taxpayer’s in‑state activities, but on whether the taxpayer earns any interstate income from non‑tangible sources.
What is notable is that the WI Regulation purports to interpret sections 71.22(1r) and 71.23(1) and (2) of the Wisconsin Statutes, which reference P.L. 86‑272. However, those Wisconsin statutes do not purport to alter P.L. 86-272 unlike the WI Regulation, which arguably does. The WI Regulation also raises the question whether the Department has exceeded the authority granted to it by statute. This case reflects a familiar pattern of state taxing authorities relying on longstanding regulatory or statutory language to support novel enforcement positions.
While the Crutchfield case is still in its early stages, taxpayers should continue to monitor its development. For multistate businesses, particularly those with revenue streams that include services or intangibles along with tangible goods, the outcome of this case could have implications beyond Wisconsin, especially if other states adopt or defend similar regulatory interpretations of P.L. 86-272.
Contact the Authors: Niki Ford, Mike Tedesco and Matt Musano
