Can a website defeat California throwback?
Edvin Givargis Published 11 minute read
The short answer
That is now a serious position, and the states built it themselves. California throws back sales of tangible personal property shipped from California into the numerator when the taxpayer is not taxable in the destination state, and taxable in another state has always had two prongs: the destination state actually subjects the taxpayer to a net income tax, or the destination state has jurisdiction to do so whether or not it exercises it. For decades, Public Law 86-272 answered the jurisdiction prong against the taxpayer in every market state where the company's people only solicited orders: the state could not tax, so the sales came home to California and its rate. Then the states began announcing, first through the Multistate Tax Commission's revised statement and now through formal regulations, that a modern seller's website does things that defeat the protection: cookies that gather customer data for the seller's own business purposes, chat functions that assist customers after the sale, applications accepted for non-sales jobs, post-sale support delivered electronically into the state. Whatever that reading does to inbound remote sellers, a taxpayer sitting in a throwback state should notice what it does outbound. If New York says a seller's cookies and chat widget give New York the power to tax, then a California company whose website drops those cookies on New York customers is, on New York's own duly adopted view, within New York's taxing jurisdiction, and sales shipped from California to New York no longer belong in the California numerator. The states' expansion of their own reach is, sale for sale, a contraction of throwback, and for open years it is a refund claim.
The mechanism, and why the jurisdiction prong does the work
The claim does not require the taxpayer to file or pay anywhere new. The second prong of taxability asks only whether the destination state has jurisdiction to impose a net income tax, and jurisdiction here means the combined constitutional and federal statutory limits, of which Public Law 86-272 is the binding federal piece for sellers of tangible personal property. So the analysis per market state runs: does this taxpayer have, in the claim year, in-state activities or their internet equivalents that exceed protected solicitation under the reading that state applies? Where the answer is yes, the state could tax, the taxpayer is taxable there within the meaning of the throwback statute, and the destination sales drop out of the throwback. What changed is the evidence available for the yes. Before the internet-activities campaign, a pure remote seller had strong protection everywhere and its throwback was correspondingly total. Now the market states themselves supply the contrary position, and in ascending order of force: the Multistate Tax Commission's revised statement, adopted as policy by a growing list of states; formal regulations, New Jersey's adopted in June 2025 and Massachusetts's cookie provision effective October 2025; and, at the top, New York's regulation, adopted at the end of 2023, sustained at the trial level in April 2025, and affirmed by the Appellate Division in May 2026, which makes the jurisdiction question in New York not merely asserted but judicially confirmed, twice, for periods the regulation governs. A California seller with meaningful New York destination sales, cookies collecting analytics and marketing data, a support chat, post-sale account functions, has, for those periods, close to a state-endorsed answer on the prong that decides throwback.
One evidentiary reality should be priced into every claim, because the Franchise Tax Board has history here. The regulation implementing the taxability test puts the burden on the taxpayer and authorizes the Board to request proof that the taxpayer filed returns and paid tax in the destination state, with the failure to produce that proof something the Board may take into account. For a stretch of audit cycles in the early 2010s, examiners hardened that permission into a demand, treating actual filed returns as effectively the price of a no-throwback position and disallowing jurisdiction-prong claims presented without them; practitioners who carried those cases to protest found the hearing officers genuinely divided, and the position was never formally repudiated. What the Board's own materials say now is more careful, and more useful. The regulation itself makes filed returns one form of evidence, not the test: payment of tax in the destination state is prima facie proof of taxability, while a voluntary filing unaccompanied by real activity there proves nothing, and the jurisdiction prong by its terms operates regardless of whether the other state imposes its tax at all. The Board's current audit manual concedes the same, instructing auditors that a taxpayer who establishes destination-state jurisdiction through evidence of its business activities is taxable there irrespective of whether that state chooses to levy, while telling them to ask for the returns whenever the claim rests on filing, and reserving for the activity route a demand for incontrovertible evidence, a standard found in no statute and best understood as the old hard line surviving as an evidentiary instinct. The practical translation: a claim built on the jurisdiction prong alone is legally sound and should say so plainly, but its file must be built to survive a skeptical reading, dated, third-party-corroborated activity evidence rather than assertions, and where the taxpayer is prepared to actually register and file in the destination states the claim cites, the position converts from argued to prima facie, which is one more reason the refund strategy and the prospective filing posture belong in the same engagement.
G&G's founder represented taxpayers in these examinations and protests during the era described above; the account here is firsthand.
California's own position, and the whipsaw the FTB cannot easily escape
California's posture makes the outbound claim stronger, not weaker, and the irony deserves to be used precisely. The Franchise Tax Board spent 2022 and 2023 telling inbound sellers that internet activities defeat protection; its guidance was invalidated on procedural grounds as an underground regulation, it has not commenced the formal rulemaking that would fix the defect, no such project appears on its published rulemaking calendar, and by practitioner report its auditors continue to apply the same principles informally. A taxpayer claiming throwback relief hands that record back: the taxing agency's own operative view of federal law is that a website like the taxpayer's defeats protection, the same activities point outbound as inbound, and an agency that asserts the broad reading when it collects cannot credibly assert the narrow reading when it refunds. This is leverage rather than formal estoppel, and it should be framed that way, but it changes the audit conversation, because the examiner denying the claim must either disavow the agency's institutional position or explain why federal law means one thing for sellers into California and another for sellers out of it. The honest limits belong in the file from the start. The claim is only as good as the facts: the taxpayer must actually have had the unprotected activities in the claim years, and a static brochure site with nothing but product pages supports no claim at all, so the workpapers begin with a dated inventory of what the website and post-sale operations actually did, cookies and their purposes, chat and what it handled, electronic support functions, year by year. And the era tiers are real. For years a destination state's valid regulation was in force, the claim rides on that state's own law. For earlier years, the claim rests on the underlying argument that Wrigley's line, applied to modern facts, already put these activities outside protection, a genuinely contestable position, and New York's own courts, which blocked retroactive application of the regulation on due process grounds even while sustaining it, will be quoted by both sides: the taxpayer says the activities always defeated protection and the regulation merely codified it; the state says a rule that could not constitutionally be applied to earlier years can hardly prove jurisdiction existed in them. Claims should be tiered accordingly, strongest into New York for regulation-era years, strong into New Jersey and Massachusetts after their adoptions, argued with open eyes everywhere else.
The export lane: Dresser, and the sales that were never protected
For foreign-destination sales, none of the internet-activities machinery is needed, because the premise that makes throwback work domestically has never applied abroad. Public Law 86-272 by its terms governs interstate commerce, and California's State Board of Equalization held in Appeal of Dresser Industries, four decades ago, that the statute does not apply to foreign commerce: in testing whether a taxpayer is taxable in a foreign country for throwback purposes, the federal solicitation shield simply drops out of the analysis, and jurisdiction is measured by ordinary U.S. jurisdictional standards alone. The consequence is a materially lower bar. Activities in a foreign country that would be fully protected in a sister state, salespeople soliciting and taking orders, with the goods shipped from California, were enough in Dresser itself for the foreign jurisdictions to have the power to tax, so the export sales stayed out of the California numerator whether or not any foreign tax was ever imposed. The claim still requires facts in the destination country, some purposeful activity there beyond the shipment itself, a rep visiting customers, an agent soliciting, a subsidiary whose people take orders, and the file should document those activities country by country and year by year exactly as the domestic claim documents its website functions. But for any California manufacturer or distributor with real export volume and any human sales presence abroad, Dresser is the oldest and most settled refund theory in this article, routinely overlooked because the throwback schedule in the return software treats foreign sales like sales to Montana, and the two lanes stack: internet activities for the domestic market states, Dresser for the export book, on the same amended returns.
Building the claim: years, states, dollars, and the audit that follows
The engagement is a matrix again, destination state by year, and the arithmetic that orders it is simple: throwback relief is worth the California rate times the income attributable to the re-sourced sales, so the states that matter are the ones with real destination volume, and the years that matter are the open ones, generally four years from the later of the original due date or timely filing. The sequencing disciplines are the ones this library's refund articles keep repeating. Protective claims preserve years about to close while the analysis finishes. For pass-throughs the shareholder cascade governs the money and the deadlines, entity and owners on separate statutes, as the companion S corporation refund article details. The support file is assembled at filing to audit standard, because a refund claim is an invitation to examine and the burden sits with the claimant: the website activity inventory with contemporaneous evidence, screenshots, privacy policies and cookie disclosures for the claim years, which conveniently document exactly the data collection the position needs, the destination sales detail, and the recomputed factors. And the position should be priced with its second-order effects in view: taxability in a market state under this theory is taxability for that state's own filing expectations, most acutely in the states whose regulations the claim cites, so the claim strategy and the prospective compliance posture in those states should be decided together rather than discovered sequentially. None of this is exotic; it is the throwback framework this library already covers, pointed at a set of facts the states themselves have spent five years insisting upon. The refund window is open now, the strongest era began in late 2023, and every year that closes takes its claim with it.
Practice notes
The screening questions for any California-based seller of goods: destination sales by state and by foreign country for the open years, with the export book screened separately under the lower Dresser bar; what the website and post-sale operations actually did in those years, cookies, chat, electronic support, documented from archived pages and policies; and which destination states had formal internet-activities rules in force for which periods. Tier the claims by that overlay, file protectively where windows are closing, and write the methodology memo to acknowledge the era tiers explicitly, because a claim that distinguishes its strong years from its argued years reads as analysis rather than aggression. Use the agency's own record where it exists, symmetrically and without overstatement. Decide the prospective filing posture in the cited market states as part of the same engagement. And track the moving parts on a calendar rather than in memory: California's rulemaking status, further appellate developments in New York, and each new state adoption changes a tier somewhere, which is why the live version of this fight sits on this site's Watchlist while the framework above stays put.
This article states the law as of September 16, 2026
Statutes, rates, thresholds, and agency practice change, and a different set of facts can change the answer. Before acting on anything discussed above, contact G&G State Tax Group to confirm what has changed since this was written and how the rules apply to a specific situation.
G&G State Tax Group, LLC is a state and local tax advisory firm. The firm provides state and local tax consulting and representation in state and local tax controversies. G&G does not prepare or file tax returns, perform attest services, or provide bookkeeping, and is not a CPA firm.