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Affiliate Nexus and the Out-of-State Seller

Why a federally imposed Internet sales tax doesn't matter

Avalara

A federal proposal to require tax on all sales made over the Internet has garnered significant attention over the past year. The Marketplace Fairness Act (MFA) would allow states to require businesses without a significant physical presence in a state (nexus) to collect sales tax from customers. What few understand is that existing Amazon Laws already require out-of-state sellers, including Internet retailers, to collect sales tax in key states. States such as New York, Pennsylvania, Texas, and California have laws in place that require certain out-of-state businesses to remit sales tax when they have an affiliate or subsidiary relationship with an in-state counterpart.  These relationships are defined differently in each state, even though they’re typically categorized as “affiliate nexus.”

States with either proposed bills or fully enacted affiliate nexus laws include Arkansas, California, Connecticut, Georgia, Illinois, Kansas, Maine, Missouri, Minnesota, New York, North Carolina, Pennsylvania and Rhode Island.

Affiliate Nexus Laws and Requirements by Select States:

Arkansas Out-of-state-retailers must collect sales tax if an affiliate delivers installs, assembles, or performs maintenance services for the seller’s purchasers within the state.

California Out-of-state retailers must collect sales tax if they are related in any way to any entity located in the state. This includes entities that conduct business on the out-of-state seller’s behalf, as well as entities that use a similar patent or the same trademark. California considers affiliate nexus to apply even if the related business operations are utterly separate from the retail operation in another state.

Georgia Out-of-state-retailers that make more than $50,000 in annual gross receipts from affiliate referrals must collect Georgia sales tax.

New York One of the first states to require out-of-state companies of a certain ilk to collect sales tax based on affiliate relationships, New York has been the center of the storm surrounding the implications of affiliate and subsidiary relationships for sales tax obligations. The New York law may end up in the Supreme Court.

North Carolina Out-of-state retailers that make more than $10,000 in annual gross receipts from affiliate referrals must collect North Carolina sales tax.

Oklahoma The Oklahoma legislature has enacted laws to increase the amount of taxes collected on items purchased by Oklahoma residents from out-of-state Internet retailers. Additionally, out-of-state retailers that make at least $100,000 in a year from Oklahoma sales and don’t collect the state sales tax must notify Oklahoma purchasers that use tax is due on nonexempt items.

Pennsylvania Out-of-state nexus includes storing property, having employees who travel to Pennsylvania on business, or having a contractual relationship with any entity located in Pennsylvania whose website has a link that encourages purchasers to place orders.

Rhode Island Out-of-state retailers that make more than $10,000 per year in gross receipts from affiliate referrals must collect Rhode Island sales tax.

Texas Battles between Texas and Amazon culminated in an agreement with the Lone Star State – it began collecting sales tax in Texas on July 1, 2012.

Summary
Article Name
Affiliate Nexus and the Out-of-State Seller
Description
The Marketplace Fairness Act (MFA) would allow states to require businesses without a significant physical presence (nexus) in a state to collect sales tax.
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