On June 16, 2025, New Jersey formally adopted rules classifying certain ‘internet activities’ as exceeding the protections of P.L. 86-272 consistent with the Multistate Tax Commission’s (MTC) guidance released in 2021. The revised guidance was intended to modernize the interpretation of P.L. 86-272 for business conducted over the internet. This article briefly describes the new rules and the status of P.L. 86-272.
The Interstate Income Act of 1959, commonly known as Public Law 86-272 or P.L. 86-272, generally prohibits states from imposing income taxes on income derived from interstate commerce if the business activities in the state are limited to solicitation of orders of tangible personal property that are sent outside the state for approval and, if approved, are filled by shipment or delivery from a point outside the state. For its member states, the Multistate Tax Commission (MTC) issued guidance over the past 40 years interpreting various aspects of this limitation on state and local income taxation. This guidance has been widely adopted and followed by states and courts and has provided a level of certainty for taxpayers engaging in multistate activities.
In an attempt to modernize the interpretation of the federal law, the MTC unanimously adopted an updated version of its guidance on Aug. 4, 2021, specifically addressing business conducted over the internet. The new guidance was the culmination of a two-year effort to identify which internet activities are, and are not, covered by the law. Adoption of the revised guidance has been slow, with an attempt in California overturned. New Jersey and New York are the only two states that have formally adopted the new guidance through rules and regulations.
On Sept. 5, 2023, the New Jersey Division of Taxation announced in TB-108 that the state will generally follow the approach of the new guidance concerning internet activities that are not protected by P.L. 86-272. TB-108 was followed by proposed regulations in early 2025, which were formally adopted, effective June 16, 2025.
As set forth in the rule, the following internet activities pursuant to New Jersey Administrative Code section 18:7-1.9A are unprotected under P.L. 86-272:
The following activities are protected:
New Jersey is just the second state behind New York to adopt formal rules following the expanded guidance. California’s attempt to follow the revised guidance through a technical advice memorandum was overturned and New York’s regulations addressing P.L. 86-272 have been challenged, but recently upheld. The taxpayer in the New York litigation has filed a notice of appeal with the state appellate court.
Many states may be taking a wait-and-see approach before adopting the MTC’s revised guidance as the likelihood of litigation over the interpretation of federal law is high. More recently, a bill was introduced in Congress to define the term ‘solicitation of orders’ to mean business activity that facilitates the solicitation of orders, even if that activity may also serve some independently valuable business function apart from solicitation. That language significantly expands the federal protection calling into question the MTC’s revised guidance, the previous guidance, and U.S. Supreme Court case law interpreting ‘solicitation’ for purposes of P.L. 86-272. The bill language was also in the House-passed version of the One Big Beautiful Bill Act as well as in the initial draft from the Senate Judiciary Committee, but was ultimately removed before the Senate’s floor vote.
Companies doing business in New Jersey should be aware of the new rules and narrowing of the federal protection for activities conducted over the internet. Taxpayers that could be impacted by New Jersey’s formal adoption of the MTC’s stance on internet activities, either currently taking or considering a P.L. 86-272 position, should contact their state and local tax advisers to understand how the rules could create a new filing requirement in the state.
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