State Tax Snapshot: Web Servers Can Trigger Sales Tax Nexus


Sales tax nexus can be triggered by an out-of-state corporation that leases space on a third party’s web server located within their borders, several states have indicated in the preliminary results of the Bloomberg BNA 2013 Survey of State Tax Departments.

But  some states also indicated that nexus would not be created by an out-of-state corporation that pays a web hosting provider with a server located in their jurisdiction to provide the corporation with web services that enables the firm to sell products over the internet.

The 2013 survey asks each of the states if sales tax nexus would result for a corporation that makes remote sales of tangible personal property in the state and

  • owns an internet server located in the state;
  • owns an internet server located in the state and hires third-party technicians located in the state to keep the server functioning;
  • leases a third-party's internet server located in the state. (Assume that the server is used exclusively by the corporation);
  • leases space on a third-party's internet server located in the state. (Assume that space on the third-party's server is also leased to several other unrelated corporations);
  •  leases space on a third-party's network of internet servers, some of which are located in the state. (Assume that the corporation's data is on the third-party's internet server in you’re the state for less than six months during the year);
  • leases space on a third-party's network of internet servers, some of which are located in the state. (Assume that the corporation's data is on the third-party's internet server for more than six months during the year);
  •  does not own or lease property in the state, but pays a web-hosting provider with a server located in the state to provide the corporation web services to sell products over the internet.

The preliminary results of the 2013 survey show that Arizona was among several states that indicated that nearly all of the above listed activities would trigger sales tax nexus. The sole exception for Arizona was paying for services to a web hosting provider with an in-state server. “The key inquiry is whether the Arizona third party is creating or expanding a market in this state for the remote vendor,” an official with the Arizona Department of Taxation told BNA. “The more indicia, the more likely the remote vendor will have nexus for the transaction privilege tax.”

By Steven Roll

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