Sales Tax 101

What is Click-Through Nexus and How Does it Affect Online Sellers?

by Mark Faggiano

Affiliate nexus 3rd party nexus

Here at the TaxJar blog we spend a great deal of time going over sales tax nexus and it’s nuances. But there’s another type of nexus that some online sellers have to worry about – click-through nexus!

Click-through nexus is even more complicated than sales tax nexus, if you can believe that. Instead of trying to explain it, I’ll share an example:

Let’s say your coffee sales business operates in Illinois. You don’t have a warehouse, office, company car, or any physical presence in New York. Therefore, you don’t have physical nexus within the state.

However, you have an affiliate in the state. For example there’s a website, TomFoolerysCoffeeCups.com, that links to your business from their site via an affiliate program. When they send sales your way, you give them a small cut of the profits. Congrats, you now have click-through nexus for New York and now owe sales tax to that state.

Think it’s just another overreach of states trying to get money from online sellers? Well, you’d be right. Back in 2008, New York enacted a law popularly referred to as the “Amazon law.” It was the first time a state attempted to require online sellers to remit sales tax based on the click-through nexus. It was one of the earliest successful attempts to work around the 1992 Quill Corp v North Dakota ruling that helped eCommerce retailers sell without having to collect sales tax from out-of-state buyers for so long.

Since then, other states have taken notice of this revenue generation scheme. Some now maintain that sellers have click-through nexus, even though they seemingly have no legal authority to do so. California, Illinois, Minnesota, and Rhode Island are just a few of the states that took notice of what New York had done and ran with it.

Who Click-Through Nexus Affects

So could you be operating in a state like this and not even know it? Of course it’s possible that you have had an affiliate in a state like New York or Minnesota and not known it gave you nexus. Some states have been more…aggressive, let’s say, with their sales tax collection on click-through nexus.

But is it possible you had an affiliate somewhere and didn’t know it? If you’re part of a program or you spend money on click-through marketing like that, you might not know (or care) where they operate. Now, though, you should pay attention to that sort of detail, even if the states where you have click-through nexus haven’t come calling yet.

Why? Because as this sales tax debate continues to heat up, don’t expect states to give up on any potential sources of revenue. Paying attention to obscure rules like click-through nexus now means you may be able to handle it better when every state starts its own program.

Click-Through Nexus and Amazon

Click-through nexus is often talked about in the news with regard to Amazon. Amazon shut down it’s affiliate programs in several states because this would have forced Amazon to collect and remit sales tax to those states.

Amazon FBA sellers should not confuse click-through nexus with ‘traditional nexus’ (sales tax nexus due to having goods stored in Amazon Fulfillment Centers). Amazon.com itself may have to collect sales tax from buyers in a certain state, when FBA sellers do not – and vice versa. Find out more about the difference between sales tax collected by Amazon.com and sales tax you, as a an FBA seller, are required to collect.

Which States Enforce Click-Through Nexus?

Speaking of clicking, click here for a list of states that charge sales tax on click-through nexus.

Still confused? Want to vent? Comment below to get the conversation started!

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