State Tax Snapshot: Unanswered Questions in the 'Wild West' of Click-Through Nexus

Bloomberg BNA’s Daily Tax Report put out a special report today detailing the status of click-through nexus laws in the several states that have enacted legislation to collect sales tax from online retailers for sales to their residents. A practitioner who commented on the situation, especially in light of the U.S. Supreme Court’s denial of certiorari in the New York Amazon case, referred to the situation as “the wild west,” and suggested that some states might “go rogue” in trying to see how far they can extend nexus.

The report notes that some states have actually seen little increased revenue despite enacting click-through nexus, because the new laws have caused online retailers like Amazon to respond by removing any affiliate ties with those states. For example, Amazon and have each cut ties with affiliates in several states that have enacted click-through nexus laws. Some argue that this situation makes it clear that a federal solution is needed.

However, not everyone is motivated by increased revenue, the report notes, adding that the issue of tax fairness between online and brick-and-mortar retailers is also at play, as are issues regarding how far a state’s taxing power may extend. Further, another practitioner suggested that even if states are not reporting increased revenues directly from their click-through nexus policies, they may be getting it simply from greater voluntary compliance as a result of increased attention in the public to sales tax issues.

Others suggest that while some states are skirting the issue for now by reaching individual agreements with Amazon to start collecting sales taxes, those states will only be appeased in the short term, and will eventually want to collect sales taxes from other online retailers as well.

Additional questions exist regarding states that have not enacted legislation addressing remote sales.

At a September Bloomberg BNA State Tax Advisory Board Roundtable discussion, Diann Smith, tax counsel at McDermott Will & Emery LLP, raised the question of whether states that have not adopted click-through nexus laws should be required to have some type of legislation to impose their collection liability, as opposed to simply through administrative guidance.

In light of that issue, here are three questions that remain unanswered in the “wild west” of click-through nexus:

1: What about states that have not enacted click-through nexus legislation, but have provided administrative guidance suggesting their position?

2: What about states that have not enacted legislation, and have no administrative guidance?

3: For states that have legislatively adopted click-through nexus, and have provided administrative guidance, does click-through nexus apply to prior years?

How should taxpayers address these questions? Continue the discussion on Bloomberg BNA’s State Tax LinkedIn Group.

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