New York Rule On Internet Engagement Could Cost Companies Protection under P.L. 86-272

The Interstate Income Act of 1959 (P.L. 86-272) protects an out-of-state business or representative from a state’s net income tax if the only activity in the state is soliciting orders for sales of tangible personal property and if the orders are reviewed and approved out of state and the property is delivered from outside the state.

On February 14, 2022, California became the first state to update its interpretation of P.L. 86-272, adopting the view of the Multistate Tax Commission (MTC) that an out-of-state person or business could lose protection under PL 86-272 due to internet-based activities with in-state customers. The MTC’s guidance contends that a customer using a business’s website in the customer’s home state is an activity of the business in the customer’s state.

On Friday, April 29, the New York Department of Taxation and Finance proposed guidance on P.L. 86-272 that would make it the second state to conform to the MTC interpretation. Like the MTC and California, New York proposes that any activities, including those conducted over the internet, would not be shielded by P.L. 86-272 unless they consist only of solicitation of orders for tangible personal property, or are insignificant. However, also like the MTC and California, posting text or images on a website alone would not trigger taxation.

Opponents of the New York proposal contend that it is inconsistent with the intent of P.L. 86-272. They suggest it incorrect to interpret P.L. 86-272 as supporting taxation of a corporation merely due to residents of a state engaging with a company’s website.

If you have questions on the New York’s legislation or other SALT matters, please contact HBK’s SALT Advisory Group at

About the Author(s)
Bryan M. Holm, CPA, MST, Manager, State and Local Tax Bryan Holm is a Manager in the Cherry Hill, NJ office of HBK CPA's and Consultants. He joined the firm in 2021 as a member of the HBK State and Local Tax (SALT) team. His background includes work with top 10 accounting firms. Prior to specializing in state and local taxation, Bryan worked in tax resolution for the Internal Revenue Service. He has served clients in a variety of industries including private equity firms, manufacturing, the restaurant industry, retail, construction, and the banking industry. Bryan has provided a variety of state and local tax services to clients, including; Audit Defense, Refund Reviews, Nexus Reviews, Voluntary Disclosure Agreements, Income/Franchise Tax Compliance, M&A Due Diligence, and SALT Consulting and Advisory Services. Bryan has also been a speaker and writer on state and local tax matters.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.