New Jersey Tax Court Upholds MTC-Based Internet Rules Related to P.L. 86-272 Protection

The New Jersey Tax Court ruled on October 1, 2026, against the American Catalog Mailers Association (ACMA) in its declaratory judgment challenge to the Division of Taxation's regulations on internet business activities under Public Law (P.L.) 86-272.¹ The court granted the director's motion for summary judgment and dismissed the complaint. This is one case in a string of challenges to states that have adopted the Multistate Tax Commission's (MTC) Statement of Information related to activities conducted over the internet for purposes of establishing the parameters of P.L. 86-272 protection.

Background

P.L. 86-272 (15 U.S.C. § 381) prohibits states from imposing a net income tax on out-of-state sellers of tangible personal property if the sellers' only in-state business activity is soliciting orders and those orders are approved and shipped from outside the state. The federal law was established in 1959 and has not been updated in nearly 70 years.

The ACMA is a trade group whose members include out-of-state internet sellers of tangible goods, such as home audio and video products. Many of these sellers offer interactive technical support over the internet and place cookies on the computers of potential and actual buyers. In June 2025, the director adopted regulations² treating such activities as in-state business activities that can subject a seller to New Jersey corporation business tax. The ACMA argued that its members' internet activities are the modern version of "drummer" activities and that P.L. 86-272 therefore preempts the regulations.

The Court's Framework: An Economic Activity Standard with a Drummer Exception

Judge Michael Cimino traced the history of state taxation of interstate commerce in detail. The opinion covers the 19th-century drummer cases, the U.S. Supreme Court's 1959 decision in Northwestern States Portland Cement and the decision in Wayfair.

The drummer cases separated solicitors into two categories: peddlers and drummers. A "peddler" is one who carries goods for immediate delivery. Sales from a peddler are taxable and "essentially [an] intrastate process whether a retailer operates from a fixed location or from a wagon."³ Conversely, a "drummer" is one who sells with or without samples of goods for future delivery via interstate commerce. Drummers sold retail goods door-to-door to households or traveled a circuit selling wholesale to stores and shops. Although drummers were physically present in the taxing state, the Supreme Court carved out a drummer exception. The exception applied if the only in-state activity consisted of solicitation or advertising and the orders were sent to an out-of-state home office for out-of-state acceptance, filling and delivery back to the buyer.

The New Jersey Tax Court read P.L. 86-272 as taking the drummer exception that existed under the physical presence standard and attaching it to the economic activity standard that Northwestern Cement adopted. On the court's reading, the U.S. Congress made three choices: 1) It did not abrogate the economic activity standard, 2) it rejected a competing House bill that would have imposed a physical presence requirement and 3) it codified the drummer exception with P.L. 86-272.

Although ACMA did not raise a physical presence argument, the court inferred such an argument and therefore rejected ACMA's suggestion that P.L. 86-272 sets a physical presence standard for sales of tangible goods. Rather, the court held that the statute turns on where the business activity happens, not where the seller is physically located. Relying on Wayfair, the court concluded that a seller can carry on business activity within a state without ever entering it. The court also described the internet as "just the latest technological iteration of past practices," noting that telephones, telex and TV advertising already reached buyers remotely in 1959.

Interactive Technical Support: Synchronous vs. Asynchronous

Neither party argued that technical support is solicitation. The only real question was whether the support takes place within New Jersey. To answer that question, the court borrowed a distinction from education between synchronous and asynchronous communication. Regarding asynchronous support (e.g., FAQ webpages), the regulations state that this is not in-state business activity. ACMA agreed, and the court found that conclusion correct. Regarding synchronous support (e.g., live chat and internet help desks), the court found the seller is "reaching into New Jersey and interacting with the buyer" and, as such, it held that the regulation correctly treated this as in-state activity.

The court held that interactive support happens both outside the state, where the seller provides it, and inside New Jersey, where the buyer receives it. Because some portion of the support is in-state activity, the support exceeds mere solicitation and P.L. 86-272 protection does not apply.

However, the court left several issues open:

• Email and Regular Mail Support. Responses sent days later look more like asynchronous FAQs. Near-real-time email responses look synchronous. Because the regulations set no response-time thresholds and ACMA did not develop a factual record on email support, the court declined to rule.
• Chatbots and Artificial Intelligence. A simple preprogrammed decision tree may be no different from an FAQ. A sophisticated natural-language chatbot raises a harder question. Neither the regulations nor the record addressed it, so the court did not rule on this.
• De Minimis. Relying on Wrigley, the court suggested that some support, such as an emergency poison-control phone number for household chemicals, is de minimis and should not create taxable activity.

Cookies: The Court Declines to Rule

Under the regulations, cookies that track shopping-cart contents are part of solicitation and are protected. Cookies used to gather market data that the seller "gathers and assembles … for sale" to data brokers or other third parties are not protected. The court reviewed privacy litigation describing how cookies and tracking pixels actually work and found that, in practice, third-party analytics companies collect and profit from that data.

The court found that the regulation's description of taxable activity "does not technically square" with how cookies are actually deployed. It also found ACMA's own description of its members' cookie practices technically vague. Because neither side offered evidence that sellers assemble data for sale, the court refused to rule on the regulation's validity. However, the court noted that if the director views the typical arrangement as a quid pro quo amounting to in-state business activity, "the regulation needs to spell this out." In a footnote, the court observed that the activities of third-party analytics companies are "certainly" New Jersey business activities, though that issue was not before it.

Holland & Knight Insights

• Physical Presence Is Not the Test Under P.L. 86-272 in New Jersey: The court rejected the argument that the statute requires a physical presence for in-state "business activities." However, although the court acknowledges that the internet is "just the latest technological iteration of past practices" and that telephones, telex and TV advertising already reached buyers remotely in 1959, it fails to address why the internet makes activities that were not challenged when occurring over the telephone now outside the protection of P.L. 86-272 when they occur over the internet.
• Live, Interactive Online Support Is Risky: Although FAQ pages and other asynchronous resources do not count as in-state business activity, real-time chat and help-desk support can take a remote seller outside P.L. 86-272 protection in New Jersey and other states that adopt the MTC's guidance. Taxpayers should continue to watch as this case and others (e.g., New York) make their way through the appeals process.
• Email, Chatbots and Cookies Remain Unsettled: These questions are open, and future challenges will likely depend on a well-developed factual record.
• Smithfield Implications: New Jersey's decision comes on the heels of the Massachusetts Appellate Tax Board's decision in Smithfield Packaged Meats Corp. and Combined Affiliates v. Commissioner of Revenue, in which the board concluded that Massachusetts had "done indirectly what it cannot do directly" by including a P.L. 86-272 protected entity's sales receipts in the apportionment fractions of taxable members under the Finnegan approach. The board found that the state indirectly imposed a tax on income that P.L. 86-272 declares to be immune from state taxation. New Jersey also adopts the Finnegan approach. Therefore, taxpayers that claim P.L. 86-272 protection in New Jersey should also evaluate potential implications and applications of the Smithfield
• Future Litigation: The court repeatedly declined to strike down regulations in a declaratory judgment action without concrete facts showing their impact. ACMA did not raise a dormant Commerce Clause challenge, so that issue was not addressed by the court.

Remote sellers of tangible goods with New Jersey customers should review their customer-support channels and data practices now. Many states have adopted or are considering similar positions based on the MTC's guidance. The New Jersey decision is likely to figure prominently in the national debate over how P.L. 86-272 applies to internet activity.

Please contact the authors for further information.

Notes

¹ American Catalog Mailers Association v. Director, Division of Taxation, Tax Court of New Jersey, Docket No. 010021-2025 (decided Oct. 1, 2026).

² 57 N.J.R. 1303(b).

³ Howe Mach. Co. v. Gage, 100 U.S. 676 (1879).

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