Click-Through Nexus: Are You Affected?
One of the greatest areas of concern for E-Commerce companies is determining if their website clicks are generating over a certain revenue threshold, in which can create “nexus” in certain states. Click-through nexus in simple terms describes a “presumption” that an out of state retailer has created a taxable connection and sales tax filing requirement with a state when the retailer enters into an agreement with an in-state resident to refer customers to the online retailer’s website for a commission. Generally, click through rules provide that the presumption may be rebutted by proof that the resident with whom the seller had an agreement did not engage in any “solicitation” on the seller’s behalf.
Click-through Nexus – State and Local Law
Currently, 21 states have adopted click-through nexus. Each of those states has its own interpretation and designation of click-through nexus. These states have decided that they can collect more revenue from those who sell over a certain threshold in their state, regardless if the company has a location or not. It is also important to distinguish how much revenue is then being generated in the state the consumer (who clicked through the ads) is located in. The online retailer must remit a percentage of sales tax to its home state, and may need to remit sales tax to the consumer’s state if the applicable threshold and criteria for the state is met.
The internet retailers would prefer to not be taxed since the company is not located in the states its consumers are located in. However, each state thinks otherwise. Will each state adopt the click-through nexus?
Which states find click through nexus to be the latest means of collecting sales tax?
States that have adopted click-through nexus include, New York, Arkansas, California, Connecticut, Georgia, Illinois, Kansas, Missouri, Michigan, Minnesota, Maine, North Carolina, Rhode Island, Ohio, Tennessee, Pennsylvania, and New Jersey, and the District of Columbia. The most recent states that have adopted click-through nexus in 2015 include Vermont, Washington, Ohio, Tennessee, Michigan and Illinois. Each one of these states has their own definition and criteria for the determination of click-through nexus. The following notes some examples of click-through nexus:
- Rhode Island defines click-through nexus as “selling or delivering in the state, any activity related to the selling or delivering of … prewritten computer software delivered electronically or by load and leave for storage, use, or other consumption in the state…” (RI SU 11-20).
- Tennessee defines click-through nexus as “A dealer enters into an agreement with a person under which such person refers potential customers to the dealer whether by an Internet link, website or other means, and that dealer’s cumulative gross receipts from the retail sales made by the dealer …exceed $10,000 during the preceding twelve months” (Tennessee ASC 740).
- New York defines click-through nexus as “A person making sales of tangible property or services taxable under this article (‘seller’) shall be presumed to be soliciting business through an independent contractor or other representative if {20NY3d at 592} the seller enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an internet website or if the cumulative gross receipts from sales by the seller to customers in the state who are referred to the seller by all residents with this type of an agreement with the seller is in excess of ten thousand dollars during the preceding four quarterly periods” [*3] (NY Tax Law 1101 [b] [8][vi]).
When determining the qualification criteria for click-through nexus, one must go on the state website. Here are a few examples of different criteria:
- Tennessee uses the same criteria as NY: Product/Service link, commission fee, and a $10,000 threshold during the preceding four quarters.
- Rhode Island uses the same criteria as NY, however it’s threshold is $5,000 during the preceding four quarters (RI General Law 44-18-15).
- Pennsylvania – No threshold amount to meet
Click-Through nexus legislation typically requires that a remote seller meet a minimum sales threshold in the state in question resulting from activities of an in-state referral agent. The seller must be making commission payments to the in-state resident for any orders that come about as a result of the click-through referral from the resident’s website. The question now lies as: are you affected?
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Ottaviana De Ruvo T (212) 751 9100 [email protected]
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