The New Jersey Tax Court ruled that the in-state activities of an out-of-state wholesale produce distributor were protected under Public Law 86-272 (P.L. 86-272), a federal law that prohibits states from imposing a net income tax on an out-of-state taxpayer. The Taxpayer had no offices, property, employees or inventory in New Jersey, but it did deliver produce to customers within the state primarily using third-party trucks and took the position that it was not subject to New Jersey Corporation Business Tax (CBT).
The court found that the Taxpayer’s practice of delivering produce to in-state customers and accepting returns of rejected produce upon delivery and prior to acceptance was “ancillary to solicitation of sales” and thus was protected under P.L. 86-272. The Taxpayer had an obligation under the federal Perishable Agricultural Commodities Act of 1930 to accept the rejected produce before title had transferred to the customer. However, the Taxpayer’s practice of sending its own trucks into the state to pick-up returned produce after delivery and acceptance by the customer was not protected under P.L. 86-272. In all but one of the tax years at issue, these activities were de minimis and thus the Taxpayer was not subject to CBT. For the outlier year, the court held these activities plus the Taxpayer’s practice of sending trucks into the state to obtain produce from a related party constituted “sufficient contacts” in-state that exceeded the protection of P.L. 86-272 and was thus subject to the CBT.