P.L. 86-272 and state income tax nexus for out-of-state sellers

Scope and who this is for

This Guide covers the federal limit on state net income taxes in Public Law 86-272, codified at 15 U.S.C. § 381, and how it interacts with state economic nexus rules for income and franchise taxes. It is for accountants deciding whether an out-of-state business must file a state income or franchise tax return.

It covers:

• what § 381 protects, and what it does not;
• the Supreme Court's reading of "solicitation of orders" and its de minimis rule in Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214 (1992);
• state positions on internet activity (California, New York and New Jersey, from their own published texts);
• economic nexus thresholds in those states, and Ohio's gross receipts tax as a contrast;
• throwback, throwout and combined-group effects.

Figures are for tax year 2026 where a state has published them; where it has not, the latest published year is given and labelled. A dated section covers 2025 returns.

Not covered: sales and use tax nexus, payroll withholding, property tax, city and local taxes, and computing a state return. Other states' positions are not covered state by state. For any state not named here, check that state's revenue department before relying on P.L. 86-272 or on a threshold.

Ask the client first

• Where is the business incorporated or organised, and where is it commercially domiciled? Is the owner an individual resident in the state in question?
• What exactly does it sell into the state: tangible goods only, or also services, software access (SaaS), licences, streaming, subscriptions, warranties or financial products?
• Who acts for it in the state (employees, a sales rep for one company, an independent agent for several companies), and what do they do beyond asking for orders?
• Where are orders accepted, and from where are goods shipped? Is any stock held in the state, including at a marketplace's fulfilment centre, a 3PL warehouse, or on consignment?
• What does the website or app do: static pages only, a cart, customer accounts, post-sale chat or email, cookies used for product research, job applications, credit card applications, remote software updates, extended warranties?
• Did any of these activities happen at any time in the tax year, even briefly?
• What are its receipts, property and payroll in each state, and in total, for each year under review?
• Is it part of a unitary or combined group? Do any affiliates have nexus in the state?
• Has it registered, filed or received a nexus questionnaire in any state?

The method, step by step

Step 1: is the tax a net income tax? (15 U.S.C. § 383; 15 U.S.C. § 381)

1. P.L. 86-272 applies only to a "net income tax", which the statute defines as "any tax imposed on, or measured by, net income". It binds "any State, or political subdivision thereof", so a city or county net income tax is covered too. It does not stop gross receipts taxes (for example the Ohio CAT, below), sales and use taxes, or a state's fixed minimum tax or filing requirement.
2. It bars the tax "for any taxable year" in which the only in-state business activities are protected ones. So test each year separately.
3. It never protects a corporation incorporated in the taxing state, or an individual domiciled in or resident in it (§ 381(b)).

Step 2: is everything sold into the state tangible personal property? (15 U.S.C. § 381; FTB Pub. 1050; 20 NYCRR 1-2.10)

4. The protection covers only "the solicitation of orders ... for sales of tangible personal property". Services, intangibles, licences, leases and rentals are outside it.
   • New York: the exemption "does not include the solicitation of orders for the sale of services or intangible property" (20 NYCRR 1-2.10(e)).
   • California: "the leasing, renting, licensing or other disposition of tangible personal property, or transactions involving intangible property ... are not protected activities" (Pub. 1050, Article I).
5. Selling services into the state as well as goods can end the protection for the whole business in that state. In New York's Example 4, a corporation with $950,000 of protected goods receipts and $100,000 of services receipts "is subject to tax".

Step 3: are orders sent out of state for approval and filled from outside the state? (15 U.S.C. § 381)

6. Both conditions must hold: the orders "are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State".
   • Missionary solicitation is also protected. § 381(a)(2) covers soliciting orders "in the name of or for the benefit of a prospective customer" of the seller, for example a manufacturer asking retailers to buy its goods from its wholesaler. This holds only if the customer's own orders to the seller meet the (a)(1) conditions (FTB Pub. 1050, Article IV, Section B, item 7; 20 NYCRR 1-2.10(a)(2)).
7. Approving or accepting orders in the state is unprotected (FTB Pub. 1050, Article IV, Section A, item 8).
8. Stock in the state ends the protection, except a supply used only as free samples in soliciting orders (20 NYCRR 1-2.10(g); Pub. 1050, Article IV, Section A, item 16(f)). This includes stock held by a marketplace at an in-state fulfilment centre (Pub. 1050, Section C(a), example 7; 20 NYCRR 1-2.10, Example 14), or a stock of goods held by an independent contractor on consignment, except goods held for display and solicitation.

Step 4: is every in-state activity solicitation, entirely ancillary to it, or de minimis? (Wrigley, 505 U.S. 214)

9. The Supreme Court held that "solicitation of orders" covers, besides "any speech or conduct that explicitly or implicitly proposes a sale", "those activities that are entirely ancillary to requests for purchases—those that serve no independent business function apart from their connection to the soliciting of orders".
10. Activities "that the company would have reason to engage in anyway but chooses to allocate to its in-state sales force are not covered".
11. The de minimis rule, in the Court's words: "whether in-state activity other than "solicitation of orders" is sufficiently de minimis to avoid loss of the tax immunity conferred by § 381 depends upon whether that activity establishes a nontrivial additional connection with the taxing State."
12. On Wrigley's own facts (as summarised in the syllabus), three activities were not protected:

• replacing retailers' stale gum without cost;
• occasionally using "agency stock checks" to sell gum to retailers who agreed to install new display racks;
• storing gum for these purposes at home or in rented space. Recruiting and training staff, stepping into credit disputes, and using hotels and homes for sales meetings were ancillary. "the nonimmune activities, when considered together, are not de minimis. While their relative magnitude was not large compared to respondent's other Wisconsin operations, they constituted a nontrivial additional connection with the State."

13. California's reading of de minimis: "An activity conducted within a taxing state on a regular or systematic basis or pursuant to a company policy (whether the policy is in writing or not) normally will not be considered trivial" (FTB Pub. 1050, Article III).
14. Do not quote any de minimis dollar or percentage safe harbour. Neither the statute nor Wrigley sets one.

Step 5: are the people acting in the state employees, representatives or independent contractors? (15 U.S.C. § 381)

15. Sales of, or soliciting orders for, tangible personal property by independent contractors, and an office they maintain, do not count as the seller's business activities. The office rule applies only where the contractors' activities for the seller in the state "consist solely of making sales, or soliciting orders for sales" of tangible personal property (§ 381(c)). But an "independent contractor" must sell or solicit "for more than one principal" and hold itself out as such (§ 381(d)(1)). A rep working for one principal is a "representative", not an independent contractor.
16. An independent contractor who does unprotected work for the seller, such as warranty work or accepting returns, ends the protection (FTB Pub. 1050, Article V).

Step 6: test the internet activity in each state (FTB Pub. 1050; 20 NYCRR 1-2.10; NJ TB-108(R))

17. The MTC statement. The Multistate Tax Commission (MTC) publishes a model statement on P.L. 86-272 that includes internet activity. It is model guidance only. The MTC is not a federal or state authority and its site is not on this Guide's list of sources. Check the statement's current text and date on the MTC's own site. Treat it as binding in a state only if that state has adopted it by statute, regulation or published guidance, and only for the years that state says.
18. The state texts below all follow the same pattern: interacting with customers through a website or app counts as activity in the customer's state, while static content does not.

• New York (20 NYCRR 1-2.10(f), adopted text published December 2023): solicitation does not include activities the corporation would engage in anyway "including interacting with customers or potential customers through the corporation's website or computer application. However, a corporation will not be made taxable solely by presenting static text or images on its website." Check which tax years the Department applies these internet examples to.
• California (FTB Pub. 1050, rev. 05-2022, Section C): "when a business interacts with a customer via the business's website or app, the business engages in a business activity within the customer's state".
• New Jersey (TB-108(R), revised 5 June 2026, for privilege periods ending on and after 31 July 2023): lists internet activities that exceed the protection, and some that do not.

19. Activities these states treat as ending the protection (check the exact wording for each state):

• regular post-sale help by chat or email that customers start from the website (NY Example 7; CA Section C(a)1; NJ item 21);
• online applications for the seller's branded credit card (NY Example 8; CA C(a)2; NJ item 14);
• online applications for non-sales jobs (NY Example 9; CA C(a)3). NJ names applications "specifically targeted to in-State residents or for in-State job positions other than for sales positions" (item 25). Check other cases in NJ;
• cookies that gather data used to adjust production or inventory, develop products, or pick new items to sell (NY Example 10; CA C(a)4). NJ's list names cookies whose data is sold to data brokers or used to sell advertising services (items 19 and 20). That list "include[s], but [is] not limited to" the items named, and NJ protects only cookies that are ancillary to the solicitation of orders (protected item 10). Check other cookie uses in NJ;
• remotely fixing or upgrading products sold (NY Example 12; CA C(a)5). NJ names this where it is part of a service subscription or a warranty contract (item 18). Check other cases in NJ;
• selling extended warranties online (NY Example 13; CA C(a)6; NJ item 16);
• a marketplace holding the seller's goods at an in-state fulfilment centre (NY Example 14; CA C(a)7; NJ item 17);
• streaming video or music for a charge (NY Example 15; CA C(a)8; NJ item 22).

20. Activities these states treat as keeping the protection:

• static FAQs (NY Example 6; CA C(b)1; NJ protected item 9);
• cookies used only for purposes entirely ancillary to solicitation, such as remembering the cart (NY Example 11; CA C(b)2; NJ protected item 10);
• a website that only offers goods and lets customers search, choose delivery options and pay (NY Example 16; CA C(b)3; NJ protected item 11).

21. California status: check. The FTB's litigation roster records that in American Catalog Mailers Association v. Franchise Tax Board (San Francisco Superior Court, No. CGC-22-601363) the court filed an "Order Granting Plaintiff's Motion for Summary Adjudication" on count two of the complaint on 13 December 2023, and entered judgment on 18 December 2023. It denied the FTB's motion to vacate and modify the judgment on 13 February 2024. The roster lists three issues: whether Technical Advice Memorandum (the TAM) 2022-01 and Pub. 1050 contradict P.L. 86-272; whether they are underground regulations; and whether applying them retroactively breaches due process. It does not say which issue count two is, or what relief the judgment gave (FTB litigation roster).

• On 25 September 2026 the TAM could not be retrieved from the FTB site, while Pub. 1050 (rev. 05-2022) still could.
• Before relying on Pub. 1050's internet examples in California, read the judgment and check the FTB's current position.
• No official source found for this Guide ties a "Kimberly-Clark" case to the TAM. The 2019 OTA decision in Kimberly-Clark Worldwide, Inc. is about the large corporate understatement penalty, not P.L. 86-272 (OTA opinion).

22. Other states: check. This Guide has not verified any other state's adoption of the MTC statement. Search each state's revenue department for P.L. 86-272 guidance, and note the tax years each state applies it to.

Step 7: if P.L. 86-272 does not protect, apply the state's own nexus rules (FTB doing business; NY deriving receipts; NJ TB-108(R))

23. Losing P.L. 86-272 does not create nexus by itself. It means the state's own nexus rules apply to the net income tax. Test physical presence and the state's economic nexus threshold (see Figures with years).
24. P.L. 86-272 protection does not always mean "no return":

• California: protected businesses "still may be considered to be doing business in California and may be liable for filing and paying the applicable amounts".
• New Jersey: a protected corporation that is registered or otherwise has nexus "is subject to the Corporation Business Tax minimum tax and must file a Corporation Business Tax return".
• New York: a corporation claiming protection may still file Form CT-3 and mark box C (see Filing and payment).

Step 8: apportionment, throwback, throwout and combined groups (Cal. R&TC § 25135; FTB Pub. 1050; 20 NYCRR 1-2.10; NJ TB-108(R))

25. Throwback. P.L. 86-272 affects the state goods ship from as well as the state they ship to. California assigns a sale of goods to California if the goods ship from a place of storage in California and "the taxpayer is not taxable in the state of the purchaser" (R&TC § 25135(a)(2)(B)).

• "Taxable in another state" is defined in R&TC § 25122. A taxpayer is taxable there if "(a) in that state it is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax, or (b) that state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not."
• So P.L. 86-272 protection in the purchaser's state does not by itself mean throwback. If that state still charges the seller a franchise tax for the privilege of doing business (for example, a minimum tax on a protected corporation that is registered there), the seller is taxable there and the sale is not thrown back. Check each destination state's taxes on the seller.
• For a combined group, for taxable years beginning on or after 1 January 2011, a sale is not thrown back to California if any member of the combined reporting group is taxable in the purchaser's state (§ 25135(b)). Pub. 1050 says a sale is thrown back "only when no member of the seller's unitary group is taxable within the destination state".
• California applies the destination state's definition of "tangible personal property" when deciding throwback (Pub. 1050, Article VI).

26. Throwout. Some states remove such "nowhere" sales from the sales factor denominator instead of throwing them back. This Guide has not verified any state's current throwout rule. Check each state's apportionment statute.
27. Finnigan. California includes in the sales factor numerator all combined-group sales assigned to California, whether or not the member making the sale is taxable there (§ 25135(b), taxable years beginning on or after 1 January 2011). New Jersey requires all combined groups to use the Finnigan method for privilege periods ending on and after 31 July 2023. It also says a 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".
28. New York. A corporation exempt under P.L. 86-272 may still be included in a combined report (other than a corporation that cannot be included under § 210-C(2)(c)). Its receipts count when deciding whether the unitary group is deriving receipts from New York. If every member of the group is exempt under P.L. 86-272, the group need not file a combined report (20 NYCRR 1-2.10(h)).

Figures with years

Economic nexus thresholds for income and franchise tax (FTB doing business; Cal. R&TC § 23101; NY deriving receipts; NJ TB-108(R))

State and tax	Year	Threshold (condition)	Source
California franchise/income tax: sales	2025	CA sales exceed $757,070 or 25% of total sales	FTB
California: property; payroll	2025	Each exceeds $75,707 or 25% of the total	same
California: sales; property and payroll	2024	$735,019; $73,502	same
California	2026	Not yet posted on the FTB page (last updated 7 November 2025). Check.	same
California statute	from 2011	Sales "exceed the lesser of" $500,000 or 25% of total sales; property or payroll "exceed the lesser of" $50,000 or 25% of the total; amounts indexed every year; include distributive shares of partnerships and S corporations	R&TC § 23101
New York Article 9-A	tax years beginning 2024 to 2026	NY receipts of $1,283,000 or more	NY
New York unitary group	tax years beginning 2024 to 2026	only members with $12,000 or more of NY receipts count toward the group total	same
New Jersey CBT	privilege periods ending on and after 31 July 2023	NJ receipts in excess of $100,000, or 200 or more separate transactions delivered to NJ customers	TB-108(R)

• California also treats a taxpayer as doing business if it is organised or commercially domiciled in California, or engages in any transaction in California for financial gain.
• New York adjusts its threshold when the CPI changes by 10% or more. For tax years beginning in 2027, check the deriving receipts page.

A gross receipts tax that P.L. 86-272 does not reach: Ohio CAT (Ohio CAT)

Test	Year	Figure	Source
Bright-line presence (any one)	current	Ohio property $50,000 or more; Ohio payroll $50,000 or more; Ohio sales $500,000 or more; 25% or more of total property, payroll or sales in Ohio; or domiciled in Ohio	Ohio
Exclusion: CAT owed only if Ohio taxable gross receipts are over	2025 and after	$6 million	same
Exclusion	2024	$3 million	same
Before 2024	before 2024	at least $150,000 of Ohio sales was needed	same

• A business must meet both the bright-line test and the sales threshold to owe CAT.

Boundary and exception table

Situation	Result	Source
Foreign corporation, only activity is reps asking for orders for goods, approved and shipped from outside	Protected from net income tax	15 U.S.C. § 381
Corporation incorporated in the taxing state, or an individual resident or domiciled there	Never protected	same, § 381(b)
Any services, SaaS, licences or intangibles sold into the state	Not protected; in NY, $100,000 of services beside $950,000 of goods ended the exemption (Example 4)	20 NYCRR 1-2.10
Unprotected activity at any time in the year	California: not protected "for the entirety of that year"	FTB Pub. 1050, Article VII.D
Only connection is registering or qualifying to do business	California: does not by itself forfeit protection	same, Article VII.C
Sample or display room for 14 days or less at one location in the year	California: protected; more than 14 days is unprotected	same, Article IV
Trade shows	NY: ancillary if not more than 14 days in total in the federal tax year	20 NYCRR 1-2.10
Rep's home office held out to the public	NY and CA: treated as an office; protection lost	same; FTB Pub. 1050
Employee telecommuting from the state doing non-solicitation work	California: unprotected	FTB Pub. 1050, Article IV.A item 20
Sales into foreign countries	California: P.L. 86-272 "does not directly apply to foreign commerce"	same, Article VII.A
Gross receipts tax (e.g. Ohio CAT)	Not a net income tax; P.L. 86-272 does not apply	15 U.S.C. § 383
Protected but registered or with nexus in NJ	NJ minimum tax and return still due	NJ TB-108(R)

Worked cases

These cases use hypothetical amounts. Each is for tax year 2026 unless it says otherwise.

Case 1: a goods seller with a plain online shop (20 NYCRR 1-2.10; FTB Pub. 1050)

• An Ohio corporation sells only furniture. Its website lets customers search, pay and choose delivery. It shows static FAQs and uses cookies only to remember the cart. Orders are accepted in Ohio and shipped from Ohio. It has no employees, property or stock in New York or California. It has $1,400,000 of New York receipts.
• New York: that is at or above $1,283,000, so it would have economic nexus. But its only New York activities are protected (Examples 6, 11 and 16), so it is exempt from Article 9-A. If it files, it marks box C on Form CT-3.
• California: the same facts are protected under Pub. 1050 Section C(b). It may still be "doing business" and liable for filing and paying the applicable amounts. Check with the FTB.

Case 2: the same seller adds post-sale chat (20 NYCRR 1-2.10; NJ TB-108(R))

• It now regularly advises customers, by chat started from the website, on how to use products after delivery. It also has $150,000 of New Jersey receipts.
• New York: not exempt (Example 7). Its $1,400,000 of receipts is at or above $1,283,000, so it is taxable under Article 9-A.
• New Jersey: post-sale chat of this kind exceeds the protection (item 21). $150,000 is in excess of $100,000, so it has bright-line nexus and must file a CBT return.
• California: Pub. 1050 treats this as unprotected, but see Step 6, item 21 on the ACMA judgment. Check before filing or not filing.

Case 3: a SaaS company and the California "lesser of" test (FTB doing business; R&TC § 23101)

• A Texas corporation sells software access by subscription. In 2025 it had total sales of $2,400,000 and California sales of $700,000. It has no California property or payroll.
• P.L. 86-272 does not apply at all, because SaaS is not tangible personal property.
• California: $700,000 does not exceed $757,070. But 25% of total sales is $600,000, the statute uses "the lesser of" the two, and $700,000 exceeds $600,000. So it is doing business in California for 2025.

Case 4: an Amazon marketplace seller (20 NYCRR 1-2.10; FTB Pub. 1050)

• A Florida corporation sells goods only through a marketplace that stores some of its goods at a fulfilment centre in New York.
• New York: not exempt, because its goods are held in New York (Example 14).
• California: the same rule applies in each state where a fulfilment centre holds the goods (Section C(a), example 7).
• Next, pull the marketplace's inventory location reports for every open year, then test each state's economic nexus.

Case 5: throwback from California (R&TC § 25135; R&TC § 25122; FTB Pub. 1050)

• A California corporation ships $1,000,000 of goods from its California warehouse to customers in another state. In that state its only activity is protected solicitation. It is not registered there, and that state imposes no net income tax, franchise tax measured by net income, franchise tax for the privilege of doing business, or corporate stock tax on it. So it is not taxable there (§ 25122).
• The $1,000,000 is thrown back to the California sales factor numerator under § 25135(a)(2)(B).
• If instead the destination state charges it a franchise tax for the privilege of doing business, such as a minimum tax, it is taxable there under § 25122(a), and the sales are not thrown back.
• If a unitary affiliate in the same combined reporting group is taxable in the purchasers' state, the sales are not thrown back (§ 25135(b)).

Case 6: an Ohio gross receipts tax that protection does not stop (Ohio CAT)

• A Michigan seller of goods, protected by P.L. 86-272 in Ohio, has $7,000,000 of Ohio taxable gross receipts in 2026.
• It has bright-line presence ($500,000 or more of Ohio sales), and its receipts are over the $6 million exclusion, so it owes the CAT. P.L. 86-272 does not help, because the CAT is not a net income tax.

2025 returns (FTB doing business; NY deriving receipts; Ohio CAT)

• California 2025: sales $757,070, property and payroll $75,707 each (or 25% of the total).
• New York: $1,283,000 covers tax years beginning in 2024, 2025 and 2026.
• Ohio CAT: $6 million exclusion for 2025.
• Test every 2025 activity. One unprotected activity at any time in the year can end the protection for the whole year (Pub. 1050, Article VII.D).
• Due dates for extended 2025 corporate returns vary by state. Check each state's calendar.

When to refuse or refer

• A client wants to rely on P.L. 86-272 in California for internet activity that Pub. 1050 lists as unprotected. Refer to a California SALT specialist who has read the ACMA judgment.
• A state not covered here, or a year before a state's published guidance, where the state's position on internet activity is unknown.
• Any mix of goods with services, SaaS, licences, warranties or financial products where the split decides the outcome.
• Local income or business taxes (for example New York City or Philadelphia): outside this Guide. P.L. 86-272 can still apply to a local tax that is a net income tax, so refer rather than assume it does not.
• Voluntary disclosure, amnesty, or a response to a nexus questionnaire already received: refer, and do not file first-time returns until the approach is agreed.
• Foreign-commerce sellers, treaty positions, banks and other financial businesses: refer.
• Do not state any de minimis dollar figure, any retroactivity date, or any court holding that is not in an official source.

Filing and payment (CT-3-I; NJ TB-108(R); FTB doing business)

• New York: "If you are disclaiming tax liability in New York State based on Public Law 86-272, but still want to file" Form CT-3, mark box C, complete the whole return and enter 0 on Part 2, line 4. A corporation not protected by P.L. 86-272 and taxable solely because it derives receipts marks Part 1, Section B, line 6.
• New Jersey: a protected corporation is "not subject to the income component" of the CBT but is "still subject to the statutory minimum tax". New Jersey runs a Voluntary Disclosure Program for businesses that find they have nexus.
• California: a protected business may still be doing business in California and liable for filing and paying the applicable amounts. Check the return and minimum tax with the FTB.
• Penalties and interest for late or missed returns are set by each state. Where nexus existed in earlier open years, quantify tax, interest and penalties year by year before choosing between voluntary disclosure and filing.

Completion checklist (15 U.S.C. § 381; Wrigley)

• Year-by-year list of every in-state activity, including website and app features and marketplace stock.
• Each tax confirmed as a net income tax, or not.
• Goods only? Services, SaaS, licences and warranties identified.
• Order approval and shipping point documented (rep agreements, order acknowledgments, shipping records).
• Independent contractor status tested: more than one principal, and holds itself out as such.
• Each non-solicitation activity tested as entirely ancillary or de minimis, with Wrigley's words, not a dollar test.
• State guidance on internet activity checked for each state and year. California ACMA status checked.
• Economic nexus thresholds applied with the right year and the right condition (exceeds, at or above, lesser of).
• Throwback, throwout and combined-group effects checked in the origin state and the group's states.
• Minimum tax and filing duties checked even where protected.
• Items marked check resolved or disclosed to the client in writing.