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The End of Nexus

The End of Nexus

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Published by avalara
What’s happening at the federal level to change sales tax requirements for remote sellers? How to states handle so-called Amazon laws? What is affiliate nexus? What do remote sellers such as online retailers need to worry about in 2013 and 2014 in terms of their changing sales tax obligations?

Read this paper for a lively discussion of these and other issues.
What’s happening at the federal level to change sales tax requirements for remote sellers? How to states handle so-called Amazon laws? What is affiliate nexus? What do remote sellers such as online retailers need to worry about in 2013 and 2014 in terms of their changing sales tax obligations?

Read this paper for a lively discussion of these and other issues.

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Categories:Business/Law
Published by: avalara on May 10, 2013
Copyright:Attribution Non-commercial

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877.780.4848 • www.avalara.com
© 2013 Avalara, Inc. All rights reserved
THE END OF NEXUS
“Nexus
she said with a long pause as she settled intothe chair across from the private detective. “I thought Ihad a handle on it, but I’m just not so sure anymore.”She was just another out-of-state business owner — tall andremote, a real cool customer. She sold furniture out of a New Yorkstorefront, and smaller housewares online. With her warehouse anddistribution center in Ohio, a traveling sales force out of Colorado,and most of her customers on the West Coast, she was in a real salestax compliance bind. And she knew it.He knew all about nexus — that simple word with the troubled past.How since the early ‘90s, out-of-state sellers, including multi-stateonline retailers, only had to collect sales tax within a state ifthey demonstrated a significant physical presence — like a warehouseor distribution center.He knew it was a game of cat and mouse.Out-of-state businesses trying to sidestep sales tax collectionobligations, and states trying to enforce a broader definition ofnexus to capture more sales tax revenue. How states had passed so-called “Amazon laws” to require more online retailers to collectsales tax, and that Amazon had finally agreed to start collectingsales tax for the first time in states like New York and Californiaand Pennsylvania — with other states in hot pursuit.He also knew that businesses often get caught in the nexuscompliance net. They are the ones hung out to dry — left holdingthe bag when the auditor comes knocking and fines them for notcollecting sales tax correctly.“The questions just keep piling up,” she said, almost despondently.“Do Amazon laws apply to me? And what about click-through andaffiliate nexus? I need to get to the bottom of this.”The detective gave her a long steely look before answering.After all, he’d seen it all before. “Most states need moremoney, see?” he explained, “And it looks like Internetsales tax is the way they’re going to get it.”“Pay attention and I’ll give you the skinny,” he said.“Here’s how it works.
All fun aside,we know these areserious issues. So, now, just the facts, ma’am.
 
877.780.4848 • www.avalara.com
© 2013 Avalara, Inc. All rights reserved
THE END OF NEXUS
Amazon Laws
Since the early ‘90s, states haven’t required multi-stateonline retailers to collect sales tax, unless they had asignicant physical presence within that state.
1
Generallyspeaking, this ‘signicant physical presence’ includedthings like having a warehouse, store, oce, sales orceor other demonstrably direct connections with a state.Years o legal battles between multi-state onlineretailers like Amazon and states like Caliornia hinged onwhether these retailers had enough o a connection totrigger a nexus obligation.Meanwhile, many states enacted Amazon laws torequire more multi-state online retailers to collect salestax or the rst time. These laws expanded denitionso nexus to include online-specic relationships such asaliate and web advertising.Multi-state online retailers, catalog retailers, andbusinesses that make signicant sales over the phonemust also keep track o proposals at the ederal levelthat would allow all states to change nexus. The days otax-ree online shopping may be over, but the debatesrage on.Amazon laws vary rom state to state and typicallycontain one or more o the ollowing elements.
2,3
 1. Aliate & Related Entity Nexus2. Click-Through Nexus3. Consumer Use NoticationBy incorporating aliate and click-through languagewithin the statutes, Amazon laws efectively remove thetraditional nexus loophole—wherein a company withouta signicant physical presence is not obligated to collectsales tax.
Aliate and Related Entity Nexus
One strategy states use to capture more sales taxrevenue is to dene the kinds o aliate or subsidiaryrelationships that trigger nexus or out-o-statecompanies.Aliate nexus describes a type o relationship betweenan out-o-state seller and its in-state aliate that triggersa nexus obligation. An aliate is usually considered anentity within a state with activities directly benettingan out-o-state seller. Many state laws designate whatkinds o aliate relationships trigger sales tax collectionobligations on remote sellers, so tracking each state is agood idea.
• Arkansas.
* Out-o-state-retailers must collectsales tax i an aliate “delivers installs, assembles,or perorms maintenance services or the seller’spurchasers within the state.”
• California.
* Out-o-state retailers must collect salestax i they are related in any way to any entity locatedin the state. This includes entities that conductbusiness on the out-o-state seller’s behal, as wellas entities that use a similar patent or the sametrademark. Caliornia considers aliate nexus to applyeven i the related business operations are utterly
The bottom line is that statutes are changing at the state andfederal level to require more out-of-state retailers to collectsales tax. And it’s not just the online retailers or mail ordercompanies that will feel the pinch. Any businesses that sellacross state lines need to be paying close attention.

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