American Catalog Mailers Association v. Department of Taxation and Finance, New York Supreme Court, Appellate Division, Case No. CV-25-0865
The New York Supreme Court, Appellate Division, held that the New York Department of Taxation and Finance’s “Internet Activities Rule” was not preempted by Public Law 86-272. P.L. 86-272 prohibits a state from imposing a net income tax on an out-of-state seller of tangible personal property whose in-state activities do not exceed solicitation. The Department issued regulations that, for purposes of P.L. 86-272, treat internet-based activities as in-state activities—the “Internet Activities Rule.” For example, if a seller provides a customer located in New York with post-sale assistance via the internet from a location outside New York, the Internet Activities Rule treats the seller as having performed that activity, which exceeds solicitation, in New York State. The American Catalog Mailers Association challenged the Internet Activities Rule, asserting that it conflicted with P.L. 86-272 on its face. The Court disagreed, concluding that the Internet Activities Rule, as written, did not necessarily conflict with P.L. 86-272, and that the Internet Activities Rule did not obstruct Congress’s objective in enacting the federal statute. The court did, however, appear to leave the door open for as-applied challenges.