California Affiliate Nexus Exemption
- Sep 11, 2012 | Will Frei
The California Board of Equalization has provided information on exemptions for out-of-state retailers who have certain agreements with California entities but do have to register with the state to collect sales and use tax.
Affiliate Nexus Provision
California Revenue and Taxation Code section 6203, subdivision (c)(5) requires a retailer who does business in California to register with the state and collect use tax if the retailer enters into ". . . an agreement or agreements under which a person or persons in this state, for commission or other consideration, directly or indirectly refer potential purchasers of tangible personal property to the retailer, whether by an Internet-based link or an Internet Web site, or otherwise...."
For a retailer to be subject to this provision, they must meet the following conditions:
- Their total sales price from all sales to purchasers in California referred by in-state entities is more than $10,000, within the 12 previous months;
- Their total sales of tangible personal property to purchasers in California exceeds $1,000,000, within the 12 previous months.
Affiliate Nexus Exemption
According to California Sales and Use Tax Regulation 1684, the affiliate nexus provision does not apply to retailers that can demonstrate that none of the affiliates with whom they have agreements ". . . directly or indirectly solicited potential customers for the retailer in California."
Retailers may demonstrate this through the following steps:
- Their agreements with in-state entities explicitly prohibit the entities from engaging in any solicitation activities in California, ". . . including, but not limited to, distributing flyers, coupons, newsletters and other printed promotional materials or electronic equivalents, verbal soliciting (for example, in-person referrals), initiating telephone calls, and sending emails;"
- The entities operating under the agreement in California ". . . certify annually, under penalty of perjury, that they have not engaged in any prohibited solicitation activities;" and
- The retailer accepts these certifications in good faith, and does not have any reason to believe they are false or fraudulent.
A retailer that has an agreement with California organizations or non-profit groups can prove the agreement is not subject to the nexus affiliate provision through the following steps:
- The agreement requires that the organization ". . . will maintain information on its website alerting its members to the prohibition against each of the solicitation activities described above, . . ." and
- The retailer receives an annual certification from the organization under penalty of perjury ". . . that includes a statement certifying that its website includes information directed at its members alerting them to the prohibition against the solicitation activities...."
Forms for Affiliate Nexus Exemption
An Annual Certification of No Solicitation form and an Additional Statement form Organization form are available here. These can be used by entities and non-profit organizations to certify that they did not participate in any of the solicitations described above.
The California Board of Equalization recommends that retailers retain these forms on record for a minimum of eight years.
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