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The Latest on Affiliate Marketing and Sales Tax Nexus

  • Aug 13, 2015 | Suzanne Kearns

It’s no secret that many states are in a budget crises, and some of them are looking to online sales tax to make up the difference. The University of Tennessee conducted a study that forecasted states would lose a combined total of $11 billion in 2012 unless they could begin to collect sales tax on the ecommerce sales that take place in their state. Since then, the battle has been raging, and online sellers are caught in the crossfire.

The problem is that in 1992, the Supreme Court ruled in the case of Quill v. North Dakota that in order for a state to have the right to force businesses to collect and pay sales tax, that business would have to have some sort of physical presence in the state, such as a physical store, warehouse, or employee. So, how do states intend to get around nexus and make up for the lost revenue?

Enter the affiliate sales tax nexus law.

What Is It?

So far, fifteen states have passed these laws, which redefine traditional nexus laws by saying that affiliates who reside in their state create a physical presence, and thereby nexus, for the remote retailers who do business with them.

In other words, if an ecommerce store in Texas does business with an affiliate in California, the Texas business would have nexus under the California laws and have to collect sales tax when doing business in their state.

The Latest

So far, the states that have passed some form of affiliate sales tax laws, also called click-through nexus laws, are Arkansas, California, Connecticut, Georgia, Illinois, Kansas, Maine, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Tennessee and Vermont. In addition, at least eight other states are considering legislation.

The legislation has caused retailers to stop doing business with affiliates that reside in states with these nexus laws. For instance, Amazon, Blue Nile, and Overstock all sent out notices to affiliates in some states terminating their contracts.

The new laws have also caused some affiliate marketers to go to extremes to try and recoup their lost income. Some are reestablishing their business locations in states that don’t have nexus laws while physically remaining in the state that does.

Learn Your State’s Affiliate Nexus Laws

As with all things related to sales tax, the new laws are complicated, and that hasn’t made it easy for affiliates and the retailers they do business with to determine how the laws affect them.

Each state has different guidelines that establish when nexus kicks in for affiliates. Most have a sales threshold, usually about $10,000, and it must be meet in order for nexus to affect your business. In addition, each state’s law is either rebuttable or irrebuttable. If it’s rebuttable, you have a chance to prove that you don’t owe the tax, but if the state operates under an irrebuttable statute, you will not, under any circumstances, have the chance to prove that you don’t owe the tax.

How Do I Know What’s Right for My Business?

If you act as an affiliate or use affiliates to help market your business, you have a lot of research to do in order to determine how these new laws affect your business. And as more and more states look to increase their budgets by collecting tax on internet sales, things will continue to change rapidly.

It can be difficult to keep up with, and you will have to research the state for every affiliate partnership you enter into. As of now, the only way to do that is to look up each state’s sales tax laws and determine which states you have nexus in.

On the other hand, if you’d rather spend your time growing your business, you can automate your sales tax filing with Avalara TrustFile.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Suzanne Kearns
Avalara Author Suzanne Kearns