Affiliated Sales Tax Nexus

By Jeff Meigs on Wed, Oct 31, 2012 @ 12:07 PM

Topics: sales tax nexus

Do you know where your “affiliate” has been? 

Are you utilizing the services of a third party to deliver value or product to your customers? 

Then you may have a nexus footprint for sales and use tax purposes far broader than you ever imagined.  Technology has brought a whole new perspective to sales and use tax nexus.  Most people are familiar with the “Amazon Laws” enacted by a growing number of states.  But there may be a more sinister adversary at play in your everyday business – the “server” (aka software, computer equipment, or a network).  If you are utilizing a third party technology enterprise to facilitate the provision of technology services to your customers throughout the United States, then you likely have nexus somewhere beyond your state of headquarters.  The provision of technology services, including “Software as a Service”, “Cloud”, or “Hosting” by a third party service provider is likely going to create nexus for you in those states where the third party maintains equipment used in the provision of these services. 


Do you know where your “affiliate” has been?  In what states does your third party technology service provider maintain equipment or employees integral to the delivery of your services to your customers?  How do you determine your nexus footprint as a result of your affiliates activities?  Better yet, how do the states determine your nexus footprint relative to your affiliate? 

How you determine your nexus footprint via your service provider is a matter between the two of you.  It is important that you collaborate in this regard.  Before entering into any agreement with a third party technology company for the provision of services to your customers, you need to consider requiring contractual obligations of the affiliate in terms of where it has nexus creating activities today and, as important, when and where it expands its nexus footprint prospectively.   

All the states have to do is audit a technology service provider to identify their customers from which they received an exemption/resale certificate to get to you.  One audit can result in one hundred audits and you may be caught in the net.  So ready yourself today so that you aren’t surprised in the future – and more importantly, aren’t left with an audit assessment and compliance responsibility you can’t afford/manage.

Jeff Meigs

Written by Jeff Meigs