CSG Law Alert: New Jersey Issues Guidance Narrowing P.L. 86-272 Protections: What Businesses Need to Know
On May 19, 2025, the New Jersey Division of Taxation (“Division”) adopted new regulations regarding the taxation of out-of-state entities conducting internet activities within the state.1 These new regulations may be viewed as expanding the scope of New Jersey corporate income tax to include more out-of-state entities and limit the protections of P.L. 86-272.
I. P.L. 86-272
In 1959, Congress enacted P.L. 86-272 to prevent states from imposing net income taxes on out-of-state businesses when (1) the only business activity performed in a state is the solicitation of orders of tangible personal property, (2) the orders are approved or rejected outside that state and (3) if approved, shipped from a location outside that state.2 New Jersey codified P.L. 86-272 under N.J.A.C. 18:7-1.9.3
Despite drastic developments in interstate commerce and global economics, the law has never been amended. However, in an effort to guide public understanding, the Multistate Tax Commission (“MTC”) has continually issued model guidance concerning the application of P.L. 86-272, which states can choose to adopt. Many practitioners believe that this guidance has contributed considerably to its inconsistent application across the country.
While many states have adopted MTC guidance, only New Jersey, New York, and California have adopted the most recently issued model guidance – the fourth revised Statement of Information Concerning Practices of Multistate Tax Commission and Supporting States Under P.L. 86-272. New Jersey recently adopted new regulations expanding its ability to tax out-of-state businesses that may have previously fallen under the protections of P.L. 86-272.
On January 18, 2024, the Division issued Technical Bulletin No. TB-108(R) (“Bulletin”), which provides general guidelines for determining whether the activities of a corporation exceed the protections of P.L. 86-272 for the purposes of imposing its Corporation Business Tax.4 Many believe this guidance creates confusion regarding the treatment of certain internet activities. Even though P.L. 86-272 makes no mention of internet activities, the MTC’s interpretation suggests that “when a business interacts with a customer via a business’s website or app, the business engages in an activity within the customer’s state.”
Like the MTC guidance, the language of the Bulletin is unclear in determining what constitutes more than the solicitation of orders of tangible personal property. According to the Division, in-state activities that do not exceed the scope of the law include “offering only tangible personal property for sale on a website that enables customers to search for items, read product descriptions, select items for purchase, choose delivery options, and pay for the items without having the taxpayer engage in any other in-State business activities or any of the activities that pierce the taxpayer’s P.L. 86-272 protection.”
While it remains unclear how and to what extent New Jersey may pursue out-of-state taxpayers for internet activities, other states adopting this guidance have already begun to consider the effects. New York adopted similar regulations and state courts have already received challenges regarding the meaning of internet activity.5 Despite these challenges, definitive resolutions are unlikely in the near future.6
II. New Jersey’s New Regulations
On June 16, 2025, the Division’s new regulations regarding internet activities became effective, potentially subjecting a greater number of companies to tax on a new category of “business activities.” Under these new regulations, certain internet activities are deemed to exceed the protections of P.L. 86-272, such as:
a. The use of a marketplace facilitator to facilitate the sale of a business’s products on the facilitator’s online marketplace, if the business’s products are held at a fulfillment center within the state;
b. Code transmission or electronic instructions to fix or upgrade products as part of a service subscription or as part of a warranty;
c. Placing “internet cookies” on computers of in-state customers to gather market or product research;
d. Fee-based targeted internet advertising;
e. Post-sale assistance via online chats or emails;
f. Contracting with in-state customers to stream videos and music to electronic devices;
g. Contracting with in-state customers for subscription services;
h. Contracting with in-state customers to provide business services and/or other types of services through internet-connected devices; and
i. Inviting or accepting applications for employment through a web-based platform that are targeted at in-state residents or for in-state job positions other than sales positions.
The regulations also provide specific internet activities that are deemed to fall under the protection of P.L. 86-272, such as:
a. Posting frequently asked questions (FAQs) on a webpage to assist customers or potential customers;
b. Placing “internet cookies” that are ancillary to the solicitation of orders and not used to gather data for sale;
c. Offering only tangible personal property for sale on a searchable website or application;
d. Inviting or accepting applications for employment through an internet-based platform, if the only positions are sales jobs;
e. Accepting electronic payment using a credit card or other form of electronic payment method; and
f. Using non-fungible tokens (NFTs) for a transaction when the sole use and purpose is to transfer the ownership of an item of tangible personal property.
III. Navigating these Regulations
Public comments published alongside the new regulations expressed concern regarding whether the expansion of business activities to include “internet activities” is lawful under P.L. 86-272. In response, the Division suggested its expansion of the rules falls in line with the MTC’s model guidance and allows for taxation based on activities, products and services beyond mere solicitation activities for the sale of tangible personal property—including internet activities. It remains to be seen whether and to what extent New Jersey courts may agree with the Division’s interpretation of the law.
While these regulations may aim to modernize tax enforcement in the digital economy, they introduce considerable uncertainty and complexity for businesses navigating the evolving landscape of New Jersey state taxation. As states fall in line with the most recent MTC guidance, companies must stay vigilant, reassess their online operations and seek professional guidance to ensure compliance and mitigate potential tax obligations.
1 See N.J.A.C. 18:7-1.9A.
2 15 U.S.C. § 381.
3 Although the language of N.J.A.C. 18:7-1.9(d) differs from § 381, subjecting out-of-state businesses to New Jersey tax liability if activities exceed (1) speech or conduct that explicitly or implicitly invites an order; and (2) activities that do not invite an order but that are entirely ancillary to requests for an order, it falls in line with the U.S. Supreme Court’s interpretation of § 381. See Wisconsin Dept. of Rev. v. William Wrigley, Jr., Co., 505 U.S. 214 (1992).
4 It is important to note that New Jersey courts have suggested that nexus is a distinct inquiry from P.L. 86-272 protection but remains a preliminary consideration. See H&M Bay Inc. v. Dir., Div. of Taxation, N.J. Tax Court, Dkt. No. 012545-2021, 12/18/2023.
5 See Am. Catalog Mailers Assoc. v. Dept. of Tax and Fin., Index No. 903320-24, Supreme Court of the State of New York, County of Albany, Verified Complaint, 04/05/2024.
6 See Santa Fe Nat. Tobacco Co. v. Oregon Dep’t of Revenue, 145 S. Ct. 989 (2024) (denying certiorari on a petition to determine whether an out-of-state tobacco manufacturer’s representatives exceeded the protections of P.L. 86-272).