Tax alert

New York takes steps to follow revised MTC P.L. 86-272 guidance

May 09, 2022
Income & franchise tax State & local tax Tax policy

Recently, the New York Department of Taxation and Finance released draft regulations (Parts 1 – 3) that provide guidance on, and examples of, internet activities that are no longer protected by P.L. 86-272. The department’s draft regulations generally follow the guidance issued by the Multistate Tax Commission (MTC) in August of 2021. New York would become at least the second state to address the new MTC changes regarding P.L.86-272. California issued a technical advice memorandum in February which essentially adopted the MTC approach to the federal law (California TAM 2022-01), although the MTC was not specifically named. The New York draft regulations request public comments by June 30. 

The draft rules

The draft rules carve out a new section specifically to address P.L. 86-272. The rules explain that any activities, including those conducted over the internet, would not be protected by P.L. 86-272 unless the activities consist only of solicitation of orders for tangible personal property, or are de minimis. The rules include a dozen new examples that generally mirror the revised list of protected and unprotected activities from the MTC’s updated guidance. For example, activities involving "interacting with customers or potential customers through the corporation's website or computer application" would not be protected. Similarly, using internet ‘cookies’ or identifying data placed on customer devices in ways that are not ancillary to solicitation of orders would also not be protected. Other examples where the protection is lost include the soliciting and receiving applications for branded credit cards or inviting viewers to apply for non-sales positions with an electronic application, cover letter or resume. 

The revised MTC guidance

The MTC’s revised P.L. 86-272 guidance is intended to modernize the federal safe-harbor prohibiting a state from imposing a net income tax when a seller’s business activity is limited to the solicitation of sales of tangible personal property. The amendments specifically address when a business’ interactions with customers over the internet, either through a website or mobile application, are treated as unprotected in-state activities. 

Under the guidance, the following activities are considered in-state activities that are not protected by P.L. 86-272:

1. Providing post-sales assistance through an electronic chat or email that customers access through the company’s website

2. Soliciting or receiving online credit card applications

3. Inviting and or accepting applications for employment through a web-based platform

4. Placing internet ‘cookies’ on computers of customers that are designed to gather market or product research

5. Transmitting code or electronic instructions via the internet to fix or upgrade products

6. Offering or selling extended warranty services over the internet

7. Contracting with a marketplace facilitator to house products or inventory or to fulfill orders and

8. Contracting with in-state customers to stream videos and music to electronic devices

The following are examples of internet activities that, if performed alone, continue to receive the protection under P.L. 86-272:

1. Posting a static FAQ to assist customers

2. Placing Internet ‘cookies’ that are used ancillary to the solicitation of orders such as to remember items in a shopping cart, and

3. Offering tangible personal property for sale on a searchable website


It is likely that the New York Department of Taxation and Finance will eventually adopt the draft regulations as written, or a version substantially similar, after they are formally proposed. All businesses taking or contemplating taking a P.L. 86-272 position should be aware of the draft regulations. If promulgated, the regulations may materially impact New York income tax liabilities, as well as filing responsibilities. The regulations could also change a business’ apportionment positions.  

Moreover, it is likely more states will follow California and New York in addressing the MTC’s new position on P.L. 86-272. In an age where virtually all businesses have interactive websites, it is imperative to know which states are pursuing this approach. Essentially, any internet activity beyond a static website – or one that merely allows for order taking – is likely to lose the protection of federal law. Please consult a New York state tax professional for more information. 

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