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What Is Attributional Nexus? And Do You Have It?

  • Jun 13, 2016 | Suzanne Kearns

In the ever-expanding reach of states trying to broaden the definition of nexus, many have begun to assert nexus on businesses that simply have a relationship or affiliation with another entity doing business in the state. This is called attributional nexus, and some experts are troubled by it. They point out that if a third party conducted the same activities in a state, it would not create nexus.

Let’s take a closer look at attributional nexus and determine who it affects and how.

What is Attributional Nexus?

When an out-of-state seller has a relationship with an in-state entity, it sometimes creates attributional nexus. In other words, the nexus-causing activities of the in-state seller are attributed to the out-of-state seller on the basis of their relationship, triggering nexus.

This can take many forms, and has led to similar, but related nexus concepts such as affiliate nexus, where a hyperlink from an in-state entity to an out-of-state’s website creates nexus, or when using independent contractors trigger nexus because the business relies on them to do business.

But another form of attributional nexus happens when an out-of-state business and an in-state business are commonly owned, controlled, or share business attributes. Some of the things that trigger this type of nexus are when the two entities share similar trademarks, trade names, or logos; the entities sell a similar line of products or have common business plans; or the out-of-state entity has a franchisee or licensee operating in the state. In some states, just being a member of an affiliated group filing a federal consolidated return that includes a member having nexus in the taxing state is enough to trigger nexus.

Some State Examples

Although every state’s statute reads differently, here are some examples of what triggers attributional nexus in some states:

  • Illinois: Being controlled or owned by an entity that owns or controls another retailer that is in the same type of business. If you are part of a commonly controlled group where the parent company owns more than 50 percent of at least one of the subsidiaries.
  • New York: If an entity in this state uses a trademark, trade name, or service mark similar to yours, or they engage in activities that help you develop and maintain a market for your business, it can trigger nexus. In addition, if you have common ownership of as little as 5 percent with an entity in this state, you will have nexus.
  • Ohio: An out-of-state entity is a member of a commonly controlled group that contains a member that has nexus in the state.
  • Texas: The in-state and out-of-state entities have the same or similar line of business, sell similar products, or use similar marks.

Every state has its own rules that dictate this form of nexus, and if you’re worried that you may be subject to it, you should contact the Department of Revenue in that state and ask about the requirements.

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