A number of states have passed so-called “Amazon” or “click-through nexus” laws in an attempt to cast a wider net on the types of activities that create “substantial nexus” to a particular jurisdiction. Generally, such laws create a presumption of nexus for out-of-state sellers that compensate in-state residents for sales made via links on their (in state) websites. Some states further establish a threshold minimum amount of sales that the remote seller must make before the nexus provisions presumptively apply and provide whether that nexus presumption is rebuttable or irrebuttable.
Depending on the state, certain Internet activities could create “substantial nexus,” triggering an Internet seller’s obligation to collect sales and use tax in the non-resident state, provided that any applicable minimum sales thresholds are met. Substantial nexus could potentially be created by an Internet seller if it has any of the following:
• A web link to a third party in the non-resident state.
• A “per impression” agreement with a company located in the non-resident state.
• A “per impression” or “per conversion” agreement with a company located in the non-resident state.
• An Internet server in the non-resident state.
• A third-party Internet server under lease, either exclusively or through a shared-use agreement.
• A server run by a paid webhosting service in the non-resident state.
In light of the fact that sales and use taxes are a creature of state rather than federal law, the nexus laws vary from state to state, creating additional complexity. For instance, some states, including California and New York, provide that substantial nexus is not created merely by “advertising” online.
Other states, such as Connecticut, have established an irrebuttable presumption in finding nexus if a remote seller makes more than $2,000 in in-state sales within four consecutive quarters, if such sales are made through an agreement where the remote seller pays a person located in Connecticut a commission or other sales-based compensation for referring, directly or indirectly, potential customers to the remote seller. Additionally, as sales and use taxes are typically charged primarily on tangible personal property. However, the definition of “tangible personal property” varies by state, resulting in inconsistency in whether, for example, digital products are subject to sales tax. From the Internet retailer’s perspective, state law variations create a seemingly endless web of confusion and potential traps for the unwary.