Recent years have seen significant changes in how states interpret and enforce Public Law 86-272, particularly in relation to internet-based business activities. Following the Multistate Tax Commission’s (MTC) revised guidance, states such as Massachusetts have amended their regulations to clarify that certain online activities, including the use of internet cookies for product development, may fall outside the protections of Public Law 86-272 and trigger state income tax nexus. These developments, along with similar regulatory updates in California, New Jersey, and New York, represent a notable shift from the historical application of Public Law 86-272 and build upon issues first highlighted in this article.
Changing landscape for Public Law 86-272: New state regulations for internet activities
Effective Oct. 10, 2025, the Massachusetts Department of Revenue amended regulation 830 CMR 63.39.1(4)(e) to clarify that certain online activities conducted through websites accessible in Massachusetts may fall outside the scope of protection provided by Public Law 86-272. Although Public Law 86-272 generally protects out-of-state sellers of tangible personal property from state income tax when their only activity in the state is the solicitation of orders, the amended regulation now provides a specific example illustrating when this protection doesn’t apply.
The regulation explains that placing internet cookies on devices of Massachusetts users to collect data for purposes such as adjusting inventory, developing new products, or identifying new offerings constitutes activity beyond mere solicitation. These actions are considered nonancillary to solicitation and may establish income tax nexus in Massachusetts.
As a result, remote vendors with no physical presence in the state may still be subject to the Massachusetts corporate excise tax if their in-state sales exceed $500,000 during a taxable year.
New York and New Jersey have also taken formal steps to align with the MTC’s guidance. On Dec. 27, 2023, the New York Department of Taxation and Finance updated its corporate tax regulations to clarify how Public Law 86-272 applies to internet-based activities. These changes were initially intended to apply retroactively back to 2015. The revised rules state that functions such as live chat customer support, accepting job applications for nonsales roles, and using website cookies to track users or inform product development are no longer considered protected solicitation activities.
As a result, businesses engaging in these activities through websites accessible in New York may now be subject to corporate income tax, even without a physical presence in the state.
Additional court challenges and details around aligning with the MTC guidance
In April 2025, the department’s regulation was challenged in American Catalog Mailers Assn. v. Department of Taxation & Finance. While the court upheld the regulation’s validity, it ruled that retroactive application to 2015 violated taxpayers’ due process rights. Accordingly, tax exposure for affected businesses begins from the date the rules were officially adopted.
Similarly, New Jersey formally adopted regulations aligning the state with the MTC’s guidance. Beginning in September 2023, the New Jersey Division of Taxation issued Technical Bulletin TB-108, which was later revised as TB-108(R) in January 2024. The bulletin indicated, through its treatment of internet-based activities, that New Jersey is generally aligning with the MTC guidance regarding activities not protected by Public Law 86-272. The division formally adopted regulations effective June 16, 2025, addressing internet-based business activities. These regulations clarify that certain online functions exceed the scope of protected solicitation and may establish corporate income tax nexus in the state.
Unprotected activities now include placing internet cookies on New Jersey users’ devices for market research, providing post-sale support via electronic chat or email, offering targeted internet advertising services to in-state businesses, and accepting job applications for nonsales roles through web platforms. Additionally, subscription-based services, streaming media contracts, and internet-connected business services such as product design or logistics are considered nonancillary to solicitation and therefore fall outside Public Law 86-272’s protections.
Conversely, activities such as hosting FAQs, selling tangible personal property through a searchable website, and accepting electronic payments for such goods remain protected.
California has taken a different approach. In February 2022, the Franchise Tax Board (FTB) issued Technical Advice Memorandum 2022-01, which outlined scenarios where internet-based business activities may exceed the protections of Public Law 86-272 and create income tax nexus. Although the guidance aligned with the MTC’s approach, a December 2023 court ruling in American Catalog Mailers Association v. Franchise Tax Board invalidated the memorandum on procedural grounds. The court found that it wasn’t properly adopted under the California Administrative Procedure Act. Despite its removal from the FTB’s website and lack of formal regulatory status, businesses report that California auditors continue to apply its principles during examinations. This suggests ongoing informal enforcement and potential retroactive application.
Narrowing Public Law 86-272 protections and increased exposure for remote sellers
Taken together, these developments reflect a nationwide shift in how states interpret Public Law 86-272. New York, New Jersey, and Massachusetts have now formally aligned with the MTC’s expanded interpretation. California’s informal enforcement, despite procedural setbacks, continues to shape audit practices. Collectively, these changes narrow Public Law 86-272 protections and increase tax exposure for remote sellers operating across state lines.
If you have questions about how evolving state interpretations of Public Law 86-272 may impact your state and local filing requirements, please contact your Plante Moran advisor to discuss the specific facts and circumstances of your situation.
