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 [email protected].
