State Tax Snapshot: Many States Say Affiliate Nexus Is Already in Tax Code

Over the past few years, several states have enacted laws imposing “affiliate” or “click-through” nexus on online vendors with associates located within their borders. These states are Arkansas, Connecticut, Illinois, New York, North Carolina, and Rhode Island. A provision enacted by Vermont last year takes effect after 15 other states have adopted click-through nexus.

After Connecticut enacted a so-called “Amazon” law in 2011, the state’s Commissioner of Revenue claimed that online retailers with in-state affiliates were subject to sales and use tax reporting and collection requirements even before the measure took effect.

Tax agencies in other states, such as Pennsylvania, maintain that affiliate or click-through nexus laws apply even though the state has not enacted such a provision. In December, the Pennsylvania Department of Revenue issued Sales and Use Tax Bulletin 2011-01, which it characterized as a reminder to several types of remote vendors that they are subject to sales and use tax requirements.

Many other state tax agencies for jurisdictions that have not enacted an affiliate nexus provision believe that remote vendors with in-state associates have a duty to collect sales and use tax, according to the   Bloomberg BNA 2011 State Tax Department Survey (April 22, 2011). These states are:


  • Arizona,
  • District of Columbia,
  • Florida,
  • Iowa,
  • Kansas,
  • Louisiana,
  • Maryland,
  • Missouri,
  • Nevada,
  • New Mexico,
  • North Dakota,
  • South Dakota,
  • Tennessee,
  • Utah, and
  • Washington.

Some prominent state and local tax practitioners do not believe affiliate nexus laws pass constitutional muster. Under Tyler Pipe v. Washington State Dept. of Rev., 483 U.S. 232 (1987), the test for determining whether an in-state person creates attributional nexus for an out-of state person is whether the activities of the out-of-state person are “significantly associated with the seller's ability to establish and maintain a market in the state,” said Arthur R. Rosen in a Bloomberg BNA Webinar last year.

In many cases, the activities of an in-state internet affiliate most likely fall short of this standard, said webinar panelist Annette Nellen, a professor at San Jose State University. Some affiliates do no more than post a link to a remote seller's website. The in-state affiliate is typically not involved with the sale once a consumer accesses the remote seller's website, she observed.

Other state tax experts believe that the affiliate nexus laws are constitutional under Scripto v. Carson, 362 U.S. 207 (1960), a case in which the high court found nexus based on the activities of independent contractors in a state. But even some of those taking this position believe that states should specify that they are adopting this approach.

 “Since Scripto in 1960 there should be no legal question about requiring Amazon under a properly drafted state statute to collect use tax based on their use of associates,” said Professor Richard Pomp at a recent  Bloomberg BNA State Tax Advisory Board Roundtable. “But if a state has never taken that position, I’d be a little hesitant without at least clarifying the statute to make it clear that this is the way we are interpreting Scripto.”

By Steven Roll
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