Nexus and Amazon Rules
Nexus is the minimum connection or presence in a taxing jurisdiction that gives rise to a tax payment or tax collection duty. Businesses are not required to collect sales or use taxes on behalf of a state unless they have nexus in that state. Doing business in a state can create a connection (nexus) to that state. Historically, nexus required a physical presence in a state such as a business having physical property (such as inventory or samples) in a state, an employee (such as a traveling sales person) in the state, or having agents in the state operating on the company’s behalf (such as an independent contractor who is a repairman for the company).
However, New York was the first to say that nexus can be created when an online retailer has a commission-based referral agreement with a resident within the state (an “affliate.”) One such example is when an out of state business with no physical connection with New York agrees to place a banner ad on an in-state business’s website. The out of state business agrees to pay a commission to the in-state business every time someone clicks on the banner ad and buys products. Nexus has just been created. In New York, this has become known as the “Amazon Rule” or affiliate nexus.
Several states have followed New York’s lead. We know the nexus rules and we can review your operations to determine if you have nexus in various jurisdictions. We can also help resolve any potential sales and use tax liability in these different jurisdictions.