Sales Tax Slice: “Amazon Laws” Come in a Variety of Flavors

While Congress drags its feet on enacting a law like the Marketplace Fairness Act, which would give qualifying states clearer taxing authority over remote vendors, several states have taken matters into their own hands by enacting so-called “Amazon” or “click-through nexus” laws.

But these terms tend to conflate several different approaches used by the states. Below is a short primer on the different types of state laws aimed at requiring sales or use tax collection from remote retailers. Some states employ more than one of these strategies.

Click-through nexus: States employing this approach include Arkansas, California, Connecticut, Illinois, New York, North Carolina and Rhode Island. These laws require online retailers to collect sales tax from the state’s residents if the retailer has a relationship with in-state affiliates, such as bloggers with links or ads through which customers buy from the retailers. Nexus is triggered, and the online retailer is required to collect and remit sales tax, if the retailer meets certain thresholds for annual sales through the affiliate. 

Corporate group member nexus: Some states, such as California, require an online retailer to collect sales tax from customers if it uses commonly controlled members of their combined reporting group to perform in-state services in connection with the retailer’s sale of tangible personal property.

Warehouse nexus: Georgia, Maine and Virginia are among the states that focus on an otherwise remote vendor’s maintenance or use of a storage or distribution center in the jurisdiction, either directly or through an agent or subsidiary.

Agreement with Amazon: Several states, including Massachusetts, Tennessee, Texas and Wisconsin have opted against enacting a special nexus law and instead have reached individual agreements with giant online retailer, Under these agreements, the state agrees to forgo collecting tax for a given number of years in exchange for the company’s promise to locate facilities in the jurisdiction.

Reporting and notification requirements:Enacted by Colorado in 2010, this approach requires vendors that lack nexus with the state to report their transactions to the state’s tax agency and notify their customers about their obligation to pay use tax. The law’s enforcement has been stalled by litigation. Direct Marketing Association has unsuccessfully sought to enjoin Colorado over the statute, saying it violates the Interstate Commerce Clause of the U.S. Constitution. But the group is likely to petition for its case to be heard by the U.S. Supreme Court.

Continue the discussion on BBNA State Tax Group on LinkedIn:   Which type of sales tax nexus law do you think is the most unfair?

By Ean Hamilton

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