Many states are attempting to tax the sales of remote/online sellers (i.e. retailers that sell over the internet) by enacting sales tax laws that have become known as the “Amazon Laws” or “Click-Through Nexus” provisions. A state cannot force a retailer to collect sales tax in that state if the retailer does not have nexus. Nexus means that a retailer has established a presence with the state or jurisdiction and is the basis for the sales tax collection obligations of out-of-state businesses. Nexus gives the state or jurisdiction the right to require the retailer to collect and remit sales tax on their sales to its in-state customers.
Traditionally, a company had to have a physical presence to establish nexus, but the definition of a physical presence included more than having a physical brick & mortar location within the state. The presence of employees, such as salespeople or contractors in a state for the purpose of selling, often establishes nexus. Storing inventory in a state or the renting or leasing of property may trigger nexus in some circumstances. Temporary nexus can even be created by people attending trade shows, visiting customers, or speaking with prospects in certain states. The “Amazon Laws” reflect the most recent legislative trend aimed at raising state sales tax revenue by expanding the requirements for sales and use tax nexus to apply to online purchases.
Amazon.com has become associated with these laws because of the giant presence the online retailer has in the e-commerce marketplace. Also, in the past Amazon aggressively challenged each state that enacted any law which would compel the giant online retailer to collect sales tax on internet sales. There are various types of “Amazon laws” that the states have enacted, and below is a short description of the different types of laws:
Click-Through Nexus: These laws require a remote/online seller to collect sales tax from customers located in a state if the seller has an association with any of its in-state marketing affiliates with links or ads through which customers buy from the sellers online store. Nexus is established because the in-state marketing affiliates refer customers to the remote seller’s online store. States that have enacted these nexus laws have taken the position that the association with the in-state marketing affiliates have created a physical presence for the remote/online seller with whom they contract.
Affiliated/Related Party Nexus: These laws create nexus in a state if the remote/online seller uses a subsidiary or some other commonly owned members of its group to perform in-state services in connection with the retailer’s sale of tangible personal property; owns or leases a storage or distribution center or warehouse in the state; uses common trademarks or any activities that enhance the remote/online sellers’ sales position in the state.
Reporting/Notification Requirements: This approach does not try to establish nexus but instead requires the remote/online seller to report their sales transactions to the state’s tax authority and notify their in-state customers about their responsibility to pay use tax.
State Agreement with Amazon: Some states have decided not to enact special nexus laws but instead have reached individual agreements with the online retailer, Amazon.com. Under these agreements, the state will not collect sales or use tax for an agreed number of years if Amazon.com promises to locate some type of facility in the jurisdiction.
Amazon.com LLC, or its subsidiaries, is reporting that sales tax is being collected for the ship-to destinations in the following states:
Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia, and Wisconsin.
The Future of Nexus: The growing digital marketplace is a logical target for state governments, many of whom are running fiscal deficits. With states looking to raise tax revenue, laws expanding nexus appears to be inevitable. Continue to check back with Vertex Inc. for further developments.