AMAZON AFFILIATE NEXUS

I was recently approached regarding a nexus question by a company that was physically located in one state. The company was considering entering into a contractual arrangement with a third-party marketing company located in numerous states. The marketing company proposed to market and promote the company through links on the marketing company’s website. I had to advise the company that this arrangement opened the company to potential sales tax compliance in a number of states that have enacted Amazon affiliate nexus standards. By way of background, April 2008 legislation enacted in New York presented a new approach for getting certain out-of-state Internet vendors to collect sales tax from customers in New York, despite lack of a physical presence. The approach presumes that certain individuals and organizations in New York that have a commission-based web-linking agreement with the out-of-state vendor are affiliates (i.e., representatives) of the vendor that establish the requisite physical presence in the state to allow the state to require the otherwise out-of-state vendor to collect sales tax.

Corporate taxpayers should be evaluating whether their current structure and/or operations are creating additional sales tax compliance obligations.

To date, 14 states have enacted some form of affiliate nexus legislation, and Amazon continues to strike deals with states, conceding nexus and collecting sales tax (to date, Amazon collects sales tax in 12 states). Nearly every state has or is considering enactment of affiliate nexus laws. As such, corporate taxpayers should be evaluating whether their current structure and/or operations are creating additional sales tax compliance obligations.