New Jersey’s New Rebuttable Presumption for Out-of-State Sellers
- Dec 31, 2015 | Gail Cole
New Jersey implemented click-through nexus on July 1, 2014. Now the definition of seller has been modified to create a rebuttable presumption for out-of-state sellers.
Under A 3486, “sellers using commissioned physically present independent contractors to market in-state sales, online or otherwise, invoke the duty to collect sales tax if cumulative sales through those contractors exceed $10,000 for the four prior calendar quarters.”
Under the new rebuttable presumption, an out-of-state seller who makes taxable sales in New Jersey is considered to be soliciting business in New Jersey through in-state representatives if both of the following conditions are met:
- "The seller enters into an agreement with a New Jersey independent contractor or other in-state representative to refer potential customers via a link on a website, or otherwise, to that out-of-state seller in exchange for consideration based on completed sales; and
- The seller has sales from these referrals to customers in New Jersey in excess of $10,000 for the prior four quarterly periods ending on the last day of March, June, September and December."
If the agreement does not stipulate that the seller will compensate the in-state representative based on completed sales, then the agreement with the in-state representative “is merely for advertising” and does not trigger nexus.
Out-of-state sellers meeting both of the above conditions are presumed to be soliciting business in New Jersey and therefore must register with the state and “collect and remit sales tax on all sales delivered into New Jersey unless the presumption can be rebutted.”
Rebutting the presumption
To rebut the presumption that New Jersey sales are being solicited through an in-state representative, an out-of-state seller must establish that:
- "The only in-state activity of the in-state representative(s) on the out-of-state seller’s behalf is the placement of a link on the in-state representatives’ website(s) to the out-of-state seller’s website for compensation; and
- None of the in-state representatives engage in any solicitation activity targeted at potential New Jersey customers on behalf of the out-of-state seller."
In order to establish the above, both of the following conditions must be met:
- Prohibition language: The agreement between the in-state representative and the out-of-state seller specifically prohibits the representative from soliciting New Jersey sales. Prohibited activities include but are not limited to: distributing flyers, coupons, newsletters and other printed promotional materials; distributing electronic equivalents of the above, verbal solicitation, initiating phone calls, and sending e-mails; and
- Proof of compliance: The out-of-state seller must obtain from the in-state representative each year signed certification that the representative engaged in no prohibited solicitation activities in New Jersey during the prior four quarterly periods.
Click-through nexus may be presumed if an out-of-state seller does not comply with the above conditions. Additional information, including examples, is available in New Jersey Division of Taxation Technical Bulletin 76.
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