New York State Court Ruling on Internet Business Activity
Posted by Mark Stack on May 22, 2025
Background on Public Law 86-272
- Established in 1959 by the U.S. Congress to limit state income tax on interstate businesses engaged solely in soliciting orders for tangible personal property.
- Application evolved to include web-based customer outreach methods.
New York Rule Changes
- 2015 Proposal: New York State Department of Taxation and Finance introduced draft apportionment regulations.
- Finalized in December 2023: Regulations applied retroactively to the 2015 proposal date.
- Key Regulation: Activities conducted via the internet that go beyond soliciting orders are not protected under P.L. 86-272.
Examples of Non-Protected Activities
- Online chat assistance for customers.
- Applying online for non-sales positions.
- Placement of internet cookies on a company website.
Challenge to the New Rules
- American Catalog Mailers Association (ACMA) sued to invalidate the revised regulations.
- Arguments: Regulations erase federal protections, conflict with P.L. 86-272, and retroactive application is excessive.
Court Ruling
- Validity: Court upheld the revised regulations, stating they follow MTC guidance and identify substantial nexus for tax purposes.
- Retroactivity: Court agreed with ACMA that retroactive application to 2015 violates due process.
Implications
- Potential broader impact: U.S. House Judiciary Committee proposed an amendment to P.L. 86-272.
- Taxpayer advice: Consult advisers on activities protected by or piercing P.L. 86-272.
The Department has 30 days to appeal the retroactivity decision. At the time of publication, no public statements were made regarding an appeal.
for more information
Mark is responsible for tax compliance services to businesses and individuals, with specialized knowledge related to international taxation as well as state and local tax (SALT), including nexus and multistate consulting, reviews, and compliance.