Sales Tax Slice: State Standards Vary in Determining Affiliate Nexus Based on Related Parties

Bloomberg BNA’s annual 2013 Survey of State Tax Departments highlighted the different approaches states take in determining affiliate nexus based on an out-of state corporation’s dealings with a related party in the jurisdiction. Some states, such as Alabama and Texas, have statutes that spell out affiliate nexus requirements. Others do more of a balancing test.

Bloomberg BNA asked several questions on the survey this year about affiliate nexus, and nearly all states agreed that nexus would result for a remote retailer that accepted returns or made exchanges of items purchased from an affiliate’s in-state stores.

In 19 states, nexus would arise for a corporation that’s part of a controlled group with an affiliated entity that was physically located in their state. And in 30 states, making remote sales into the state and allowing customers to redeem loyalty points for merchandise at an in-state affiliate’s stores triggers nexus.

For Alabama, which did not participate in this portion of the BBNA survey, whether a remote entity has nexus based on its affiliation to an in-state business that maintains one or more locations in-state, depends on:

  1. the businesses have substantially the same name, trademark, tradename, or goodwill, to develop, promote, or maintain sales, or
  2. the businesses pay for each other’s services entirely or partly contingent on sales value or volume, or
  3. the businesses have a common business plan, or substantially coordinate them, or
  4. the Alabama business provides services to the out-of-state business related to developing, promoting, or maintaining the Alabama market. Ala. Code Ann. § 40-23-190.

In the 2013 Survey, states like Arizona said it bases an affiliate nexus determination on the key inquiry of whether the brick-and-mortar retail operation in Arizona creates or expands an in-state market for the remote vendor. Other states said they use a more general standard. Nevada focuses on whether the presence in Nevada is related to creating and/or maintaining a market there.

Purchase a copy of the Bloomberg BNA 2013 Survey of State Tax Departments here. 

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