Until recently, the concepts of "click-through nexus" and "affiliate nexus" remained within the exclusive purview of tax practitioners. The headlines regarding Amazon.com and tax legislation being debated in Congress and state legislatures, however, have made "nexus" into the new hot topic.
Motivated to generate more tax revenue, states are expanding their nexus thresholds to impose new sales and use tax compliance obligations on out-of-state businesses. Generally, these nexus rules require Internet retailers to collect sales tax from customers despite not having a physical presence in the state where the customers are located. Businesses and consumers have taken notice, and many are concerned.
Emboldened by legislation passed in other states, Maine has recently enacted legislation that includes "click-through nexus" and "affiliate nexus" rules that are scheduled to take effect 90 days after the close of the 2013 legislative session, which ended on June 19.
What is "click-through" nexus?
Nexus is the term used to identify when a business' presence in a state determines whether it is subject to taxes in that state.
"Click-through" nexus, as provided in the new Maine legislation, refers to the presumption that a seller has nexus in the state if it enters into an agreement with a business or individual and receives consideration for referring potential customers. For this purpose, a referral may arise through a link to the seller's website via the website, telemarketing, in-person presentations, or otherwise while in the state. "Click-through" nexus will apply to any seller who has cumulative gross receipts in Maine from all referrals previously identified in excess of $10,000 in the preceding 12 months.
What about "affiliate" nexus?
"Affiliate" nexus, under the legislation, refers to the presumption that a seller has nexus in the state and is therefore subject to sales tax and collection if an affiliated business or individual has substantial physical presence in the state. The determination of whether a business or individual is affiliated with a seller depends on several factors that are broadly defined such that a number of retailers may easily fit the mold.
The current trend
With a growing trend among states to adopt rules prescribing "click-through" and "affiliate" nexus, many businesses will be impacted, from small stores with online sales to large online retailers. All affected retailers will see an increase in the amount of sales tax they are required to collect and an increase in the number of jurisdictions where they are required to collect sales tax.
In addition, other practical concerns will need to be addressed including identifying affiliates that have nexus in states adopting "click-through" and/or "affiliate" nexus rules and understanding the sales tax collection and reporting requirements in each of these jurisdictions. The latter concern may be amplified at smaller online retailers that do not have a service provider or specialized tax software for tracking and reporting sales tax requirements.
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