New Jersey adopts new P.L. 86-272 guidance on internet activities

Guidance closely follows the MTC revised statement from 2021

Sep 11, 2023
Business tax State & local tax Income & franchise tax

Executive summary:

New Jersey adopts MTC guidance on P.L. 86-272

On Sept. 5, 2023, the New Jersey Division of Taxation announced in TB-108 that the state will generally follow the approach of the Multistate Tax Commission’s (MTC) guidelines concerning internet activities that are not protected by Public Law 86-272 (P.L. 86-272). New Jersey’s P.L. 86-272 guidance was anticipated and comes after California’s 2022 guidance and New York’s recently proposed corporate franchise tax regulations. The updated state P.L. 86-272 position is effective beginning July 31, 2023.  

New Jersey adopts new P.L. 86-272 guidance on internet activities 

The New Jersey guidance

The MTC issued guidance in August 2021 setting forth the commission’s position which activities conducted over the internet were not protected by P.L. 86-272. The MTC guidelines list eight activities that are not protected by the federal law. According to the MTC, 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

In TB-108, the division generally adopts the MTC guidance. However, there are some nuanced differences between the division’s guidance and that of the MTC. For example, the MTC took a broader approach concerning internet cookies by finding that cookies used to gather customer information for the purpose of adjusting production and inventory, developing new products, or identifying new items to offer for sale defeats the protection because the cookies are not entirely ancillary to the sale. The New Jersey guidance explains that cookies exceed the P.L. 86-272 protection if they are used to gather market or product research and that data is sold to third-parties. 

In addition, the division includes activities not mentioned in the MTC guidance that the division finds are not protected. For example, the division explains that offering, soliciting, selling, accepting, or buying of digital assets such as virtual currency or non-fungible tokens are unprotected. The New Jersey guidance also determines that certain targeted advertising services is an unprotected activity. 

Finally, TB-108 clarifies the application of P.L. 86-272 to combined groups. As explained by the guidance, the state now requires combined groups to use the 'Finnigan method.' If one of the members have activities that are not protected or exceed the protection of P.L. 86-272, the combined group can no longer claim the protection. This change applies to privilege periods ending on and after July 31, 2023. 

The policies set forth in TB-108 are generally effective July 31, 2023.


New Jersey is now the second state to formally adopt the MTC guidelines. In 2022, California issued Technical Advice Memorandum 2022-01 indicating that the state would follow the MTC, although that guidance is currently subject to litigation. New York recently proposed regulations essentially adopting the guidelines, currently in a comment period. Minnesota has indicated that it would propose regulations that follow the MTC, but has not done so as of the date of this article. 

Companies doing business in New Jersey should be aware of the new guidelines and narrowing of the federal protection for activities conducted over the internet. Essentially, companies with more than a static website will, according to the division, not be protected by P.L. 86-272. Companies taking or considering a P.L. 86-272 position should consult with their state and local tax advisers.

Noteworthy, TB-108 also discusses the revised nexus standards recently adopted by the state’s corporate business tax overhaul earlier this summer. The guidance discusses the new bright-line economic corporate tax nexus standard as well as nexus in the context of combined reporting and as related to tax treaties. New Jersey has released numerous guidance documents since the overhaul and taxpayers are encouraged to review all of the new and revised guidance related to the corporate business tax. 

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