Sales Tax Nexus for Internet Retailers

By Brian Greer on Fri, Jul 29, 2011 @ 09:23 AM

Topics: sales tax nexus

I have received numerous phone calls over the last few weeks from internet retailers concerned about some of the new sales tax nexus rules that states like California recently passed.  Most of these new rules/laws are centered on affiliate nexus or click-through nexus.  (Texas’ new nexus rules are a bit different and not addressed here.)  These new affiliate nexus rules are meant to assign nexus to internet retailers that have an “affiliate program”.  These affiliate programs are typically designed to pay a commission to an in-state business that refers business through a link on their website to an out-of-state business.

Here’s an analysis of the facts: The out-of-state business located in State A has historically taken the position that they have no nexus in State B.  The affiliate based in State B now is providing a market for the out-of-state business to conduct commerce in State B.  State B now assigns nexus to the out-of-state company by virtue of the relationship with the affiliate in their state.  An argument could be made that the out-of-state business has had nexus through their affiliates prior to the new laws being adopted.  But that’s a story for another time.  These new laws make the connection very clear.

Pure internet retailers with no affiliate program still have little to be concerned about – other than to watch how these laws develop.  They should also be mindful of other laws being considered and debated such as the need to report to a state where they have no sales tax nexus a list of customers who have purchased goods from them.  Colorado is an example of this genre.

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Brian Greer

Written by Brian Greer