November 3, 2026

On October 1, 2026, the Tax Court of New Jersey ruled against the American Catalog Mailers Association (ACMA) in its challenge to the New Jersey Division of Taxation’s 2025 regulations addressing when certain internet activities by out-of-state sellers exceed the protections of Public Law 86-272 (P.L. 86-272).

The decision upholds N.J.A.C. 18:7-1.9A, which identifies eight internet activities, including remote product updates and repairs, targeted advertising, online customer support, streaming and subscription services, and related digital interactions, that the state considers unprotected and potentially sufficient to subject an out-of-state corporation to New Jersey’s Corporation Business Tax.

The ruling has important implications for businesses selling tangible personal property across state lines, particularly those relying on P.L. 86-272 protections to limit their state income tax obligations.

Understanding P.L. 86-272 and the New Jersey Ruling

P.L. 86-272 generally protects an out-of-state business from a state’s net income tax if its only in-state activities consist of soliciting orders for tangible personal property that are approved and filled from outside the state.

New Jersey’s regulations, which align with key elements of the Multistate Tax Commission’s (MTC) August 2021 revised Statement of Information on P.L. 86-272, treat many common website and app interactions with in-state customers as activities beyond protected solicitation.

In granting summary judgment for the Division, the court held that P.L. 86-272 does not require a seller’s physical presence in the state. Drawing on the longstanding distinction between peddlers, who carry goods for immediate delivery, and drummers, who merely solicit orders filled from outside the state, the court emphasized that the relevant consideration is where the business activity occurs, rather than the physical location of the seller.

The court viewed the internet as the latest technological means of interacting with customers, analogous to earlier technologies such as telephones, telex, and television that existed when Congress enacted the statute. Consistent with the reasoning in South Dakota v. Wayfair, the court concluded that a company may conduct business activities within a state by interacting with in-state customers over the internet.

Treatment of Online Customer Support and Other Digital Activities

The court distinguished passive online resources, such as frequently asked questions (FAQs)  and static informational pages, from real-time customer interactions. Live chat functions and online help desks involve active engagement with customers located in New Jersey and therefore fall outside P.L. 86-272 protection.

However, the court left several questions unresolved, including:

• Cookies: The court declined to resolve the validity of the regulation's cookie provisions, noting that ACMA's factual description was vague and that the regulatory description of cookie implementation may not fully align with existing judicial decisions.
• Email support and AI-powered chatbots: Questions remain regarding the treatment of email support, depending on response speed, and AI-powered chatbot interactions.
• De minimis activities: The court reaffirmed that a de minimis exception continues to apply under Wisconsin Department of Revenue v. William Wrigley, Jr., Co.

These distinctions highlight the importance of evaluating the specific functionality and extent of a company’s digital interactions with customers in each state.

Broader State Developments and Implications

New Jersey’s ruling is part of a broader trend among states adopting interpretations of P.L. 86-272 that address internet-based activities.

New York and Massachusetts have also adopted regulations incorporating elements of the MTC’s 2021 revised statement on unprotected internet activities. New York’s regulations have survived a facial preemption challenge, although retroactivity was limited, and Massachusetts has addressed cookie-based data collection and related activities in its nexus regulation.

California’s Approach and Potential Throwback Implications

California was the first state to issue guidance closely tracking the MTC’s 2021 revisions when the Franchise Tax Board (FTB) released Technical Advice Memorandum 2022-01 and related updates to Publication 1050.

In American Catalog Mailers Association v. Franchise Tax Board (San Francisco Superior Court, Dec. 13, 2023), the court declared both documents void and without force or effect as invalid “underground regulations” that had not been adopted in compliance with the California Administrative Procedure Act. The court did not reach the merits of the underlying interpretation, and the FTB did not successfully appeal.

The contrast between California’s approach and the positions adopted by New Jersey, New York and Massachusetts is particularly relevant for California-based sellers subject to California’s sales-factor throwback rule.

Under this rule, sales of tangible personal property shipped to a state in which the seller is not taxable, including because of P.L. 86-272 protection, are generally thrown back and included in the California sales-factor numerator.

If New Jersey, New York, Massachusetts, or other states successfully treat certain internet activities as unprotected under P.L. 86-272, a California seller may be considered taxable in those destination states. In that event, the related sales would not be thrown back to California, potentially reducing the California sales factor.

Conversely, continued reliance on traditional P.L. 86-272 protection in destination states would preserve throwback treatment. California-based businesses should evaluate both their tax positions in destination-states and the resulting impact on California apportionment.

Considerations for Businesses

Companies that sell tangible personal property into New Jersey and other states adopting similar positions should evaluate whether their internet activities could affect their eligibility for P.L. 86-272 protection.

Areas to review include:

• Website and app functionality: Determine whether interactive features, including live chat and real-time customer support, extend beyond protected solicitation activities.
• Post-sale electronic assistance: Evaluate whether remote product updates, repairs, or other electronic support activities may create additional state tax exposure.
• Cookie usage and data collection: Review cookies used for inventory management, product development, or other business purposes that may be considered unprotected activities.
• State filing and tax obligations: Assess whether digital interactions with in-state customers could affect existing filing positions, including consideration of applicable de minimis exceptions.
• California apportionment: For California-based sellers, evaluate the potential impact of destination-state tax positions on sales-factor throwback calculations.

While the New Jersey ruling provides additional guidance, several fact-specific questions remain unresolved. The application of P.L. 86-272 protections may continue to depend on the nature and extent of a company’s activities and evolving state interpretations.

Businesses with multistate sales activity should continue to monitor these developments and assess whether their current activities and tax positions warrant further review.

Holthouse’s State and Local Tax professionals can help businesses evaluate their multistate activities, assess potential state income tax exposure, and consider the implications for filing obligations and apportionment. Please reach out to your Holthouse tax advisor to discuss how these developments may affect your business.