The Massachusetts Department of Revenue has announced proposed amendments to its corporate income tax nexus regulation that would treat some common internet activities as unprotected by Public Law 86-272.1
The Department’s proposal incorporates features of the Multistate Tax Commission’s recommended approach to P.L. 86-272 immunity and would “clarify that certain in-state activities conducted by a vendor through an Internet website accessible by persons in the state may not be protected activities.”2P.L. 86-272 is a federal law that prohibits states from imposing a net income tax on a corporation whose activities in the state are limited to soliciting orders for sales of tangible personal property.
The existing regulation relies on the U.S. Supreme Court case of Wisconsin Department of Revenue v. William Wrigley, Jr., Co.,3 for the rule that a breach of P.L. 86-272 protection occurs “if the in-state business activity by or on behalf of a corporation, however conducted, includes activity that is not entirely ancillary to the solicitation of orders of tangible personal property.”4
The amendments are framed as an illustration of this principle. “As an example,” the proposed regulation continues, “in-state activities that are conducted by a vendor through an Internet website accessible by persons in the state may include activity that is not entirely ancillary to the solicitation of orders of tangible personal property, such as the placement of Internet cookies onto the computers or other electronic devices of in-state customers that gather customer search information used to adjust production schedules and inventory amounts, develop new products, or identify new items to offer for sale.”5
These provisions relate to an existing presumption that an out-of-state corporation lacking a physical presence in Massachusetts is subject to the net income measure of the state’s corporation excise tax if the corporation’s actities in the state are not protected by P.L. 86-272 and the corporation’s Massachusetts sales for the tax year exceed $500,000.6
While the proposed amendments are less detailed than the MTC’s statement, it is unclear whether the Department might consider additional activities targeted by the MTC’s statement to breach P.L. 86-272 protection.7 The language of the regulation does not explicitly restrict the Department’s interpretation of unprotected internet activities to the example provided.
The Department is inviting written comments on the regulation and has scheduled a public hearing, to be held remotely on April 29.8
A 2024 federal proposal has been revived by lawmakers in the 2025 House session (as H.R. 427) and would redefine “solicitation of orders” for purposes of P.L. 86-272 to mean “any business activity that facilitates the solicitation of orders even if that activity may also serve some independently valuable business function apart from solicitation.” In December, the U.S. Supreme Court denied certiorari in a challenge to an Oregon ruling that a tobacco manufacturer’s in-state activities were not protected by P.L. 86-272.9
Massachusetts’ proposed regulation is part of a larger trend. So far, three major state tax agencies – in California, New Jersey, and New York – have officially adopted approaches substantially similar to the MTC’s. However, as discussed in a previous article, the California guidance was voided by a state court for procedural reasons; New York’s regulations are being challenged; and a 2023 New Jersey Tax Court ruling reaffirmed that nexus must be established before interpretations of P.L. 86-272 protection come into play.
Checkpoint Catalyst’s 2024 state tax agency survey showed that many states are following the statement informally or preparing to follow it formally in whole or in part. Few agencies conclusively ruled out the possibility that they are following the revised statement. A detailed overview appears in Cornett and Newton-Clarke, Multistate Survey: Income Tax Immunity Erodes as States Follow MTC Statement on P.L. 86 – 272, State Tax Update, 08/06/2024.
Checkpoint resources.
Two Nexus Assistant Charts track each state’s approach, incorporating the findings of Checkpoint Catalyst’s survey alongside the state’s relevant laws, regulations, rulings, and guidance:
- P.L. 86-272 and MTC Conformity–Conformity to MTC Statement on P.L. 86-272 (2021 Revision); and
- P.L. 86-272 and MTC Conformity–Conformity to MTC Statement on P.L. 86-272 (Any Version).
Checkpoint Catalyst subscribers may preview these charts in Catalyst Topic #1002: Nexus (Corporate Income and Business Activity Tax), Quick Look. Filtering, sorting, and other deeper chart functionalities are available for subscribers to the Nexus Assistant charts tool.
Insights on each state’s approach to P.L. 86-272 and nexus are available in Catalyst Topic #1002: Nexus (Corporate Income and Business Activity Tax).
1 Mass. Regs. Code 830 CMR 63.39.1; Corporate Nexus (Proposed Regulation Amendment), Massachusetts Department of Revenue, 03/28/2025.
2 Notice of Public Hearing on Corporate Nexus, Massachusetts Department of Revenue, 03/28/2025; MTC’s 2021 Revised Statement.
4 Mass. Regs. Code 830 CMR 63.39.1; Corporate Nexus (Proposed Regulation Amendment), Massachusetts Department of Revenue, 03/28/2025.
5 Mass. Regs. Code 830 CMR 63.39.1; Corporate Nexus (Proposed Regulation Amendment), Massachusetts Department of Revenue, 03/28/2025.
6 Mass. Regs. Code 830 CMR 63.39.1(3)(d); Notice of Public Hearing on Corporate Nexus, Massachusetts Department of Revenue, 03/28/2025.
9 Santa Fe Natural Tobacco Co. v. Dept. of Rev., Or. S. Ct., Dkt. No. SC S069820, 06/20/2024, cert. denied, U.S. S. Ct., Dkt. No. 24-551, 12/16/2024.
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