New York Court Upholds PL 86-272 Internet Rule, Narrowing Protections for Online Businesses

On May 7, 2026, the New York Appellate Division upheld the state’s regulation interpreting Public Law 86-272, ruling that it is not preempted by federal law. This decision affirms that the federal statute, which protects out-of-state businesses from income tax if their in-state activity is limited to soliciting sales, does not prevent New York from identifying when online activities go beyond that protection.

Under the regulation, businesses may lose PL 86-272 protection if they engage in additional online functions with New York customers, such as providing post-sale assistance via chat or email or placing cookies on customer devices. The court emphasized that these activities could exceed mere solicitation and create a taxable presence.

As a result, the ruling significantly narrows the practical scope of PL 86-272, suggesting that many out-of-state businesses with active websites may no longer qualify for its protections.