salesperson.jpg

Recently, we were engaged to perform a sales tax nexus review.  I always ask if the business has any affiliates in any states we are reviewing. 

Their immediate question was “what do you mean by an affiliate?” 

In this situation I was attempting to understand whether the client had any entity that operated on their behalf for compensation.  This could be an independent sales representative or a company performing services on behalf of the client. 

While these may be independent contractors the type of services they perform could very likely create sales tax nexus.  Independent contractors don’t always create nexus; it depends on the type of service that’s being performed. 

The key phrasing the states use is whether these activities help “establish or maintain a market” in the state. 

An independent sales rep or a manufacturers’ rep could very easily be deemed to establish a market for a company.  Similarly, if a company sells a product that has a warranty and they use an independent, local business to service the warranty, that independent business is very likely helping the original company maintain a market in that state.

What about internet affiliates? 

Many states have passed “Amazon Laws” that more formally attach sales tax nexus to the out-of-state internet retailer that has affiliate programs with in-state businesses.  A case could be made that these internet affiliates have helped the internet companies “establish a market” in their state and as such sales tax nexus exists with or without any new “Amazon Laws".

The key point is that the type of activities performed on behalf of a company by their affiliates or independent contractors should be considered as part of a sales tax nexus review.

If you have questions, call us or look at TaxConnex Sales Tax Consulting for more info.

 

SUBSCRIBE TO TAXCONNEX BLOG

Brian Greer

Written by Brian Greer