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interaction between the new TAM and providing that solicitation activities enacted in 1959 to impose an income
FTB Publication 1050 would appear to that are protected “do not include those tax filing obligation on a business
be warranted. activities that the corporation would conducting certain activities using the
have reason to engage in apart from internet without having any physical
New York’s draft regulation the solicitation of orders but chooses presence in the taxing state. An argu-
In response to major corporate tax to allocate to its New York State sales ment may be made that the revised
reform legislation that was effective force, or to engage in via the Internet, statement largely invalidates the federal
for tax years beginning on or after Jan. including interacting with custom- law by limiting the scope of protected
1, 2015, the New York Department ers or potential customers through activities when applied to internet
of Taxation and Finance has issued the corporation’s website or computer commerce. In response, the MTC con-
a series of draft regulations to clarify application.” It is curious that the de- tends that until Congress updates P.L.
and implement the legislation. Some partment decided to add this fairly 86-272, states should determine how
of these draft regulations were first broad language that is not included in the federal statute applies to modern
released several years ago, but the de- the MTC’s statement and conceivably business transactions.
partment announced that it intends to could be used to further reduce P.L. It is too early to tell whether the
begin the administrative process to for- 86-272 protection for internet sell- methods by which California and New
mally adopt these regulations in 2022. ers beyond the intent of the MTC’s York have responded to the MTC’s
At this point, while the draft regula- statement. Out-of-state corporations statement will be followed by other
tions are not final, they do provide conducting activities via the internet states, particularly those that had a sig-
valuable insight on the department’s should carefully consider this language nificant influence over the MTC’s proj-
positions in this area, and substantially and consider whether it could result in ect that concluded in 2021. However,
similar regulations soon may be final- their losing P.L. 86-272 protection. Of the decisions by New Jersey and Ore-
ized. In April 2022, the department course, the language is not final and gon to formally promulgate regulations
posted a revised draft nexus regulation, may be changed before the regulation is on the topic may indicate that other
N.Y. Comp. Codes R. & Regs. tit. 20, officially adopted. Similar to the guid- states will follow New York’s approach.
Section 1-2.10 (draft), adding “[n]ew ance provided by California, the draft Taxpayers should monitor whether
provisions, largely modeled after the regulations do not provide an effective other states issue parallel guidance or
MTC model statute” that “address PL date and could apply retroactively. regulations on P.L. 86-272 protection
86-272 and activities conducted via the as applied to internet transactions.
internet.” Unlike the California TAM, Developments in New Jersey Taxpayers also should consider that
the introductory summary of the New and Oregon some state tax agencies may adopt
York draft regulation expressly refers to New Jersey and Oregon reportedly are internal policies on the application of
the MTC. following New York’s general approach P.L. 86-272 to internet transactions in
The New York draft regulation and formally promulgating regulations lieu of formal published administrative
discusses P.L. 86-272 protection as it that discuss P.L. 86-272 protection guidance or regulations. The state’s
applies to traditional business trans- as it applies to internet transactions. position may not be evident for some
actions as well as modern business This methodology arguably is prefer- time, perhaps until a business declaring
activities via the internet. Similar to the able to the release of administrative P.L. 86-272 protection is challenged at
MTC’s statement, the draft regulation guidance because it provides members audit. In applying the new standards,
provides that a corporation will not be of the tax community an opportunity businesses that previously determined
made taxable solely by presenting static to submit comments to the state rev- their activities were protected by P.L.
text or images on its website. The New enue departments. 86-272 may suddenly be at risk and
York draft regulation includes the 11 may not even be aware of the risk if the
examples provided in the MTC’s state- Further considerations state does not formally publish guid-
ment and reaches the same conclusions At this point, it is difficult to determine ance or promulgate regulations.
regarding whether each transaction is the effect that the MTC’s revised The MTC’s revised statement was
protected by P.L. 86-272. statement ultimately will have on the intended to provide uniformity among
While the New York draft regula- application of P.L. 86-272 to modern states regarding the application of P.L.
tion generally is consistent with the business transactions. There is some 86-272 to internet transactions, but
MTC’s statement, the draft regulation controversy regarding the MTC’s there is a distinct possibility that states
differs from the MTC’s statement by decision to interpret a federal statute may follow a patchwork of different

www.thetaxadviser.com December 2022 47