Hawaii Affiliate Nexus of Internet Seller
- Jul 18, 2012 | Susan McLain

In a recent letter ruling, dated July 10, 2012, the Hawaii Department of Taxation identified that an Internet retailer with an affiliate performing specific duties in the state of Hawaii creates nexus for that Internet retailer.
The “…physical presence of an affiliate/representative (“Affiliate”) who is participating in a mutual merchandise return and loyalty points program with and on behalf of the Taxpayer” creates nexus for the Internet business states the Letter Ruling 2012-10.
The activities identified as creating a relationship that causes nexus in Hawaii in this particular case include:
- The Affiliate “…acting as the Taxpayer’s agent…[with]…at least one retail store location in the county.”
- The Affiliate “…has physical retail store locations throughout the United States and as of December 1, 2011 there were eight Affiliate retail stores in the state of Hawaii.”
- “Affiliate began promoting a loyalty points program whereby the customers of each company will receive points for purchases made either from the Taxpayer’s internet site or Affiliate’s retail store locations.”
- Customers have the option to “…to return merchandise purchased on the Taxpayer’s internet website to Affiliate retail store locations in addition to regular online returns.”
Hawaii Administrative Rules (HAR) requires nexus for the purposes of imposing the General Excise Tax on sellers. According to the letter ruling, “One way to establish nexus is ‘in-state physical presence,’ whereby the activity carried on by the business in the State contributes significantly to the company’s ability to establish and maintain a market for its products (or other business activity) in Hawaii.”
In this situation, Hawaii did determine nexus for this Internet retailer and Affiliate relationship so the Internet retailer is required to begin paying the Hawaii General Excise Tax (GET) on Hawaii-based transactions. In addition, the presence of the Affiliate business located in Honolulu County means that “Gross receipts from sales transactions with consumers whose place of delivery is located in Honolulu County are subject to the 0.500% GET surcharge.”
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