By Shane Ratigan

Recently, states have developed and tested legal theories in order to push the boundaries of nexus. Some have met with success and some have not; most disconcerting, however, is that some theories are still being vetted in state and federal courthouses.

Attributional Affiliate Nexus (Amazon Laws): The expansion of the affiliate concept is currently being pushed by a few states. New York has had success defending its so-called “Amazon Law” with the following affiliate definition of nexus:

“… an affiliated person that is a vendor as otherwise defined in this paragraph uses in the state trademarks, service marks, or trade names that are the same as those the seller uses; or (II) an affiliated person engages in activities in the state that inure to the benefit of the seller, in its development or maintenance of a market for its goods or services in the state” N.Y. Tax Law 1101(b)(8)(i)(I)

These laws are directed at Internet-based vendors who use “affiliate advertisements.” The ads appear on web pages based on servers in New York State. Under these circumstances, the court stated Amazon’s lack of control over the web page owners did not preclude the state from enforcing collection on the Internet vendor.

The “Amazon law” opens the door for states to require sales tax collection in situations where a company has only limited commercial activities within a state. As Internet marketing becomes more complex and entangled, there are more opportunities for otherwise remote activities to trigger sales tax nexus in a given state.

In-State Representatives: It seems intuitive that paid representatives in a state will trigger nexus. However, the use of independent contractors and sales representatives performing significant activities in a state has generally been held to create nexus. An independent representative need not even be paid in some states in order to trigger nexus!

Occasional or Minimum Presence: In general, permanence is not a required element for the nexus analysis. In fact, many courts find nexus either through existence of property or agents of the vendor. For example, the N.Y. Court of Appeals declared that while a physical presence of the vendor is required, it need not be substantial. Rather, it must be demonstrably more than a “slightest presence.” Vermont Info Processing 86 NYS 2d 165 (1995). Otherwise innocuous instances of a vendor’s presence, such as deliveries, installation or occasional service calls can trigger nexus.

Transactional Nexus: Any office in a state can trigger nexus. Even sales entirely unrelated to the in–state presence of a vendor’s employees are subject to sales tax collection. For example, a mail order company with an advertising office in-state, even where that office is entirely unrelated to the mail order business, is still required to collect on mail order sales.

If your clients have business in more than one state, nexus laws affect them. Don’t be caught unaware! Keep up with sales tax laws so your clients can rest easy.

About the Author

Shane Ratigan, JD, LLM, is content compliance manager working in sales tax law and sales tax compliance with Avalara, a Software-as a-Service end-to-end sales tax solution for businesses of all sizes. Contact him at shane.ratigan@avalara.com.

By Shane Ratigan

Proposed and actual Amazon Laws focus on the ability of states to compel sales tax collection by remote sellers. Amazon Laws do not impose any new taxes, but rather force or tend to pressure remote sellers to collect sales taxes. As the volume of Internet and virtual commerce grows rapidly, states are desperate to find an acceptable legal path to compel collection – a legal path within the bounds established by the courts. In addition, the actual and proposed state laws are somewhat diverse in their approaches, adding an additional layer of murkiness to an already cloudy area of law.

What is an Amazon Law?

The term Amazon Law does not have a clear definition. The term is really journalistic and political shorthand for any law intended to compel sales tax collection upon vendors who sell via the Internet. A legal requirement for Internet vendors to collect sales tax tests the legal concept of nexus. Nexus describes the minimum connections a vendor must have with a state before that state can compel collection of sales taxes on sales within its borders.

In plain talk, an Amazon Law is any law whose purpose is to force or pressure collection of sales taxes by a vendor who lacks “traditional” contacts with a state such as an office or depot, employees on the ground, or other physical or tangible connections.

Although these laws are associated with Amazon, Inc. in part due to the Internet vendor’s massive profile in the e-commerce space, the laws are also associated with Amazon, Inc.’s determined challenges against demands to collect sales taxes in many states. The fervor of Amazon, Inc.’s resistance to sales tax collection may have faded some in the past few years, but the company’s aggressive early stance and continuing spirited resistance really have forced a policy conversation about sales taxes and Internet sales among government and business leaders, economists and consumers.

Types of Amazon Laws

There are three types of Amazon Laws:

Click-Through Amazon Laws. New York began the push in 2009. The state legislature drafted a presumption into law that Internet advertisers who solicit customers via “click-through” advertisements establish nexus through those solicitations. The law aims squarely at so-called “affiliate advertising,” where a customer who clicks on a website ad is directed to another company’s e-commerce portal to complete a sale. The presumption that affiliate arrangements trigger nexus is rebuttable, but requires additional compliance burdens to successfully defend the rebuttal. In the subsequent thee years, Rhode Island, North Carolina, Arkansas, California, Connecticut and Georgia passed similar laws. In Pennsylvania, the Department of Revenue issued administrative guidance indicating the same approach. California repealed its law three months after it was passed.

Related Entity Amazon Laws. Another legislative strategy is to broadly define the types of subsidiaries or other related entities that trigger nexus for out of state companies. Laws of this nature aim directly at entity isolation techniques employed by vendors wishing to avoid the complications of nexus. Legal separation from in-state activities, or entity isolation, sidesteps traditional elements of nexus such as property ownership or existence of employees. New York, Colorado, Oklahoma, Arkansas, California, Illinois, South Dakota and Texas expanded the types and categories of related entities that trigger nexus in their states with these types of laws. California repealed its version three months after the law was passed.

Consumer Notification Amazon Laws. A third and final legislative strategy requires Internet vendors to provide retail customers an accurate use tax obligation calculation for each sale. The notification laws also share a state reporting component where vendors may be required to report in-state sales to revenue authorities annually. Oklahoma, Colorado and South Dakota put these types of notification laws on their books. The Colorado law was successfully challenged in U.S. District Court with an appeal pending in the 10^th Circuit.

In part 2 of this two-part series, we will explore the effect Amazon Laws have on the remote seller and collection of sales taxes and a look into the future of Amazon Laws.

About the Author

Shane Ratigan, JD, LLM, is content compliance manager working in sales tax law and sales tax compliance with Avalara, a Software-as a-Service end-to-end sales tax solution for businesses of all sizes. Contact him at shane.ratigan@avalara.com.

By Shane Ratigan 

The first statewide sales taxes were enacted during the Great Depression. The laws were sold as short-term fiscal measures to alleviate the economic devastation of the times. Given the crisis of the times, it is not surprising the laws were generally haphazard in their approach, incomplete, unclear and often vague.
OK, so not much has changed in 80 years, except now everyone agrees the laws are here to stay. The last state to enact a sales tax did so in 1969. The last state to eliminate a statewide sales tax … well, that’s never happened.

A sales tax is an excise tax on transactions. Traditionally, the types of transactions where a state could demand sales tax collection were easy to identify. Typical transactions in the last century were remarkably localized compared to modern commercial channels. Cross-border transactions were the exception. Today, cross-border transactions are the norm.

Vendors of all sizes and all niches are likely to engage in business transactions with parties all over the United States – and perhaps the world. The elimination of borders as a barrier to trade places particular emphasis on the essential question, “Which vendors are compelled to collect sales taxes?”

In this arena, one very important legal principle always takes center stage: nexus. In the legal sense, nexus describes the connection between two or more participants, interests or concepts. In the world of sales tax, nexus refers to the connection a retailer has with a state. Nexus is the legal connection that empowers a state to demand collection and remittance of a retail sales tax.

The U.S. Supreme Court developed its core concept of nexus in the field of taxation more than 125 years ago:

“The power of taxation, however vast in its character and searching in its extent, is necessarily limited to subjects within the jurisdiction of the State. These subjects are persons, property and business. Whatever form taxation may assume, whether as duties, imports, excises, or licenses, it must relate to one of these subjects.” Cleveland v Penn. 82 US 179, 186 (1873).

More recently, the Court gave us one deceptively simple “bright line” nexus rule in 1992:

“… a seller whose only connection with customers in the State is by common carrier or the United States mail” lack(s) the requisite minimum contacts with the State” Quill v N.D., 112 S. Ct. 1904 (1992).

This “bright line” rule for sales tax nexus is presented in the negative. The Quill rule instructs a vendor what is not nexus, but it leaves a vendor empty-handed if it is looking for exactly what is nexus, constitutionally speaking of course.

The Court has its own reasons for avoiding specifics in this area because it believes the rules of sales tax collection between the states falls confidently on the U.S. Congress to figure out.

Where does this leave us? Since states are eager to require collection and remittance, many have taken steps to expand their definition of nexus by regulatory and policy efforts. However,the limited utility of the Quill decision left them plenty of room for creativity.

About the Author

Shane Ratigan, JD, LLM, is content compliance manager working in sales tax law and sales tax compliance with Avalara, a Software-as a-Service end-to-end sales tax solution for businesses of all sizes. Contact him at shane.ratigan@avalara.com.