The Massachusetts Department of Revenue (DOR) recently adopted amendments to the state’s corporate income tax nexus regulation (830 CMR 63.39.1), which became effective on Oct.10, 2025. This new regulation partially adopts the Multistate Tax Commission’s (MTC) 2021 guidance on P.L. 86-272 and internet activities. In doing so, Massachusetts has followed New York and New Jersey, which previously adopted similar regulations consistent with the MTC’s revised interpretation. Massachusetts’s revised regulation states that certain online business activities (e.g., use of internet cookies for inventory management or product development), are not protected under Public Law (P.L.) 86-272.
P.L. 86-272 is a federal law from 1959 which, in general, prohibits a state from imposing a net income-based tax on an individual who or corporation that is not domiciled within that state if their only activities within the state are the solicitation of orders for the sale of goods. Those orders are accepted at and fulfilled from a location outside of the state. Consequently, a business that limits its activities in a state to those that are protected by P.L. 86-272 is immune from the state’s net income-based tax.
Businesses selling products into states with an income tax can lose their immunity from state income taxes under P.L. 86-272 by engaging in sufficient unprotected activities, typically those that occur after a sale or are not associated with inviting orders for future sales of products.
Impact of MTC Guidance
The MTC is an intergovernmental state agency which endeavors to promote uniform and consistent tax policy and administration among the states. While its published guidance is not authoritative, many of its member states will adopt regulations that correspond with the MTC’s pronouncements on various subjects regarding state taxation.
The relevant new regulatory language partially follows the MTC’s guidance from 2021 regarding P.L. 86-272’s application to internet activities and reads as follows:
“As an example, 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.”
The major takeaway is that out-of-state businesses with over $500,000 in Massachusetts sales and a non-de minimis amount of unprotected activities, which now include certain forms of “internet cookies” installed on customers’ internet browsers, are presumed taxable, even without a physical presence in the Commonwealth.
It should be noted that other states proposing similar regulations have been met with challenges. California issued similar guidance in 2022, which was successfully challenged on procedural grounds. Similarly, New York’s corporate tax regulations from 2023, which adopt the MTC’s new interpretations, are being challenged in that state’s courts, and the New Jersey Tax Court recently issued a ruling stating that nexus must be established before any state interpretations of P.L. 86-272 can occur. We expect similar challenges to the new Massachusetts regulation, and some business groups have already raised arguments on the amendments to it, stating they overstep the Commonwealth’s taxing authority.
Looking Forward
At the federal level, bills have been proposed, as recently as in the initial drafts of the One Big Beautiful Bill Act, to 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.” Additionally, while the amended regulation is clear on cookies, it should be noted that the Massachusetts Supreme Judicial Court (SJC) has previously and unequivocally ruled that cookies do not constitute “physical presence.” The competing SJC and DOR views will inevitably be cited in any challenges to the regulation.
If your business makes sales in Massachusetts and does not currently file a corporate income tax return or pays only net worth tax under P.L. 86-272, you should reach out to your CBIZ advisor to understand the implications for your business.
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