"Amazon.com" Nexus: Can You Rebut the Presumption?

As you may already know, New York has taken one of the boldest steps, challenging Quill in the enactment of new sales tax rules affecting internet retailers.

Under its so called “Amazon.com” rules, an out-of-state retailer that has a commission arrangement with a company for sales through its website is required to collect state sales tax if the website company has New York nexus. While certain safe harbors apply, New York is imposing its sales tax collection responsibilities on businesses with no in-state physical presence. The most significant consequence of these developments for a multistate business is that it might find itself subject to income and sales tax in states with which it has few contacts and little or no tangible presence.

Rhode Island and North Carolina followed in New York’s footsteps and adopted “Amazon.com” type nexus rules as well. Other states such as Connecticut, Florida, Illinois, Maryland, Minnesota, Tennessee and Virginia have either proposed similar laws or discussed the possibility.

The nexus presumption standard in all three states is similar and contains the following rules:

  1. The seller must enter into an agreement with an in-state resident;
  2. A commission or other consideration must be paid to the in-state resident;
  3. The in-state resident directly or indirectly refers potential customers to the seller by link on a website or otherwise; AND
  4. The total gross receipts from sales by the seller to customers within the state as a result of referrals to the seller by all of the seller’s in-state representatives under the type of contract or agreement described above total more than $10,000 for New York and North Carolina ($5,000 for RI) during the preceding four quarterly sales tax periods.

All of the nexus presumption standards of New York, North Carolina and Rhode Island are rebuttable. The seller must establish that the only activity of its in-state representative is a link provided on the representative’s website to the seller’s website and none of the in-state representatives engage in any solicitation activity in the state targeted at potential in-state customers on behalf of the seller.This is the criteria a company must meet to rebut the nexus presumption standards:

  1. Establish that the only activity of in-state affiliates is a link on the affiliate’s website that directly or indirectly sends customers to your company's site.
  2. The in-state affiliates do not engage in any solicitation activity in the state targeted at potential in-state customers on behalf your company.

If your company is involved in an affiliate program, please contact me for an analysis of your company's relationships with your affiliates to determine if you have "Amazon.com" nexus or are able to rebut the presumption. I can be reached at brian.strahle@bakertilly.com or 612.876.4824.

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Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States.  He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect."  For more info, visit his website: www.leveragestateandlocaltax.com

You can reach Brian at strahle@leveragesalt.com.

Connect with Brian on LinkedIn. Follow Brian on Twitter. Join the Leverage | SALT LinkedIn Group, connect and contribute with your colleagues!  

Because state and local taxes are deceptively simple and endlessly complicated.

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