New Jersey adopts the Multistate Tax Commission’s guidance on taxing internet activities and moves to factor-based presence for the state’s corporate business tax.
New Jersey’s latest guidance on internet activities (TB-108) closely follows the Multistate Tax Commission’s revised statement issued in 2021related to activities qualifying for P.L. 86-272 protection. Companies that conduct limited in-state or internet activities in New Jersey must evaluate their ability to rely on P.L. 86-272 for protection against state net income based taxes (See MTC Guts Federal Protections for Remote Sellers).
With this adoption, New Jersey becomes the second state to generally adopt the MTC’s new guidance on the federal law. California led the state pack in 2022 by issuing guidance generally consistent with the MTC’s revised statement (TAM 2022-01). California’s guidance is currently being litigated (See California’s P.L. 86-272 Guidance headed to Court). New York and Minnesota are in various stages of considering regulations that follow the MTC statement as well.
New Jersey’s guidance became effective July 31, 2023, and provides examples of activities exceeding the protections of P.L. 86-272, several of which are noted below. Refer to the guidance for a more extensive list of in-state activities that exceed protections.
- Offering, soliciting, selling, accepting, or buying digital assets such as virtual currency or non-fungible tokens
- Offering or selling extended warranty services over the internet
- Contracting with a marketplace facilitator to house products, inventory or fulfill orders
- Transmitting code or electronic instructions via the internet to fix or upgrade products
- Placing internet ‘cookies’ on computers of customers gathering market or product research sold to third parties
- Providing post-sales assistance through an electronic chat, email or application that customers access through the company’s website
- Soliciting or receiving employee or online credit card applications
- Contracting with in-state customers to stream videos and music or provide certain business services
Examples of internet activities that continue to qualify for P.L. 86-272 protection include:
- Soliciting through advertising
- Carrying samples and promotional materials without charge
- Providing vehicles to sales personnel for use in conducting protected activities
- Placing Internet ‘cookies’ that are used ancillary to the solicitation of orders (i.e., remembering items in a shopping cart) and data is not resold to third parties
- Offering tangible personal property for sale on a searchable website
- Accepting electronic payment via the website, with the exclusion of digital assets as payment
As New Jersey requires combined groups doing business in the state to use the Finnigan method, P.L. 86-272 protections no longer apply to the entire group if any member of a combined group is engaged in a disqualifying activity. The combined group cannot claim P.L. 86-272 protection if one of the members either has activities that are not protected by P.L. 86-272 or that exceed the protections of P.L. 86-272.
Factor-Based Presence Nexus
The state of New Jersey has also moved to factor-based presence for its Corporate Business Tax. Nexus for the corporate tax now is aligned to the state’s sales tax Wayfair threshold of $100,000 in sales or 200 transactions or more within the state during the corporation’s fiscal or calendar year.
Companies should review their sales and transactions into New Jersey to determine whether they have exceeded the nexus thresholds for income tax and sales tax. Those doing business in New Jersey may be at risk if they rely on P.L. 86-272 protections without understanding what type of internet activities may exceed P.L. 86-272 standards under the more restrictive guidance.
While companies with static websites may still enjoy protections, companies that engage with customers or data collection activities via website should consult with their TaxOps advisor before taking a P.L. 86-272 position.