Multistate Nexus Issues with Far-Reaching Implications

by David Jasphy, Esq., McDermott Will & Emery LLP | February 15, 2024

Recent guidance from the New Jersey Division of Taxation (TB-108) may have far-reaching implications for those companies that rely on the protections of P.L. 86-272 (a federal law which prohibits states from imposing net income tax on sellers whose only business activity in the state is solicitation of sales). CPAs should be aware of how those changes will impact nexus.

The guidance is modeled after the Multistate Tax Commission’s (MTC) 2021 Revised Statement on P.L. 86-272 which came on the heels of the Supreme Court’s decision in South Dakota v. Wayfair, Inc. The MTC’s revised statement concludes that “the Court’s analysis as to virtual contacts” in Wayfair is “relevant to the question of whether a seller is engaged in business activities in states where its customers are located for purposes of” P.L. 86-272.  The revised statement goes on to outline a number of virtual contacts with a state that would be treated as exceeding the protections of P.L. 86-272.

Already, a few states (New York, New Jersey and California) have published guidance consistent with the MTC’s position. By joining this list, New Jersey severely weakens the protection afforded by P.L. 86-272.

New Jersey

By definition, P.L. 86-272 prohibits a state from imposing a net income tax on foreign corporations that derive income within its borders, if the corporation’s only in-state activity is

[t]he solicitation of orders by such person, or his representative, in such State for sales of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State.

Like the revised statement issued by the MTC, New Jersey’s revised TB-108 applies a surprisingly expansive interpretation of what constitutes unprotected “in-state activity.” Under TB-108, certain electronic contacts, which are seemingly extraterritorial, are considered in-state activities that exceed the protections of P.L. 86-272. The following are some of the most surprising examples:

  • Transmitting code or electronic instructions through the internet to repair or upgrade products as part of [a warranty]
  • Placing apps or internet cookies on computers and devices in New Jersey to gather market or product research that is packaged and sold to data brokers or other third parties
  • Contracting with in-state customers to stream (but not download) videos and music to electronic devices
  • Providing certain types of post-sales assistance through an electronic chat, email or application that customers access through the company’s website
  • Inviting and/or accepting applications for employment through an internet-based platform that are not specifically targeted to in-state residents or for in-state job positions other than for sales positions

This may come as a shock to some multistate businesses, so practitioners need to familiarize themselves with the full list of unprotected activities and should pay close attention to how taxpayers handle these issues in other states.

New York

On Dec. 27, 2023, New York formally adopted regulations that contain provisions resembling the MTC’s revised statement. Thus, New York has adopted the MTC’s position that placing internet cookies onto computers or other electronic devices to gather customer search information is an in-state activity that exceeds the protections of P.L. 86-272.  


In 2022, California published a Technical Advice Memorandum and FTB Publication 1050 adopting the MTC’s revised statement. Taxpayers challenged the guidance and a superior court found in their favor, finding that the publications were invalid underground regulations. The court, however, did not address the merits of the taxpayer’s claims, so the public may need to wait for a decision on appeal or for litigants in New Jersey or New York to fully analyze the issues.

More clarification may be needed regarding what business activities exceed the federal protections.

David  Jasphy

David Jasphy

David Jasphy, Esq., is an associate in Tax Controversy and Planning at McDermott Will & Emery.

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