• COVID-19
  • Insights
  • Who We Help
    •   Industrial Automation
    •   Manufacturing & Distribution
    •   A&E Professional Services
    •   International Businesses
      • ◦   Expanding Outside the U.S.
      • ◦   Expanding to the U.S.
  • Services
    •   COVID-19
      • ◦   Cash Flow Confidence Assessment
      • ◦   Maximize Your Loan Forgiveness
      • ◦   5 Key Focus Areas
      • ◦   COVID-19 Resource Center
    •   Client Accounting
      • ◦   Software Solutions
      • ◦   Accounting Support
      • ◦   Reporting
    •   Tax
      • ◦   R&D Tax Credit
      • ◦   Tax Credits & Incentives
      • ◦   Tax Structure
      • ◦   Federal Tax
      • ◦   State & Local Tax
      • ◦   Personal Tax
      • ◦   Other Tax Filings
    •   Advisory & Assurance
      • ◦   Assurance Levels
      • ◦   Reporting
      • ◦   Employee Benefit Plan Audits
      • ◦   Technical Accounting & Reporting
    •   Consulting
      • ◦   Data Analytics
      • ◦   Transaction Services
      • ◦   Business Planning
      • ◦   Succession & Exit Strategies
    •   International
      • ◦   International Tax
      • ◦   Foreign Direct Investment
      • ◦   Global Expansion
      • ◦   International Accounting
  • Events
  • Careers
    •   Why C&M
    •   Students
      • ◦   Campus Events
      • ◦   Internships
      • ◦   Reach Beyond Program
    •   Experienced Professionals
      • ◦   Team member profile videos
    •   Opportunities
    •   Employee Journals
    •   Office Tour
  • About Us
    •   How We Help
      • ◦   Service Approach
      • ◦   Affiliations
      • ◦   Communications & Technology
    •   Meet Our Team
    •   Testimonials
    •   Our Videos
    •   Our Story
  • Contact Us
  • Subscribe
CHANGE COUNTRY:
  • United States
  • 中国
  • Client Login
Clayton & McKervey Logo
  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe
    • Most Recent Insights
  1. Home
  2. Insights
  3. Sales Tax – Evolving Nexus Standards

Sales Tax – Evolving Nexus Standards

Posted by Jim Biehl on June 24, 2014

Jim Biehl Jim Biehl

Read article in Mandarin

Almost all 50 states have a type of sales tax. This tax often helps fund vital projects such as roads, police, fire, and other public safety and works. States expect employers doing business and having nexus in their respective states to register and remit sales tax in a timely manner. Traditionally, brick and mortar stores were only subject to sales tax if they had a tangible, physical presence in the state. However, as cash strap states are trying to find ways to fill holes in their budgets, they are becoming more aggressive with on-line and out-of-state retailers with no physical presence in their state. Unsuspecting retailers are receiving notices and tax bills from states for sales tax remittance they were not aware they were obligated to make.

Physical Presence Threshold

It is clearly understandable to businesses that if you have a permanent presence in a state that charges sales tax then you have an obligation to collect and remit this tax. What is not clear to most businesses is that a simple occasional delivery or visit to a respective state has the possibility of triggering sales tax nexus. Unfortunately, there is no uniform nexus trigger among states.

For example, the Florida Department of Revenue recently ruled that a company, who sold heavy equipment to customers from outside of Florida and did not have any employees residing in the state, was subject to sales tax because the company made deliveries using their own vehicles and accepted Florida equipment as payment. In a similar case, the Indiana Department of Revenue recently issued a letter ruling upholding sales tax assessed against an out-of-state retailer. The retailer made regular service trips and sold fire suppression products to customers in Indiana. Even though the retailer did not have a permanent establishment in Indiana or Indiana employees, an occasional presence in the state was enough to trigger nexus.

Many states have attempted to help businesses and create a “safe harbor” standard based on how many visits or types of activities a company can perform in a state without being obligated to collect and remit sales tax. Unfortunately, compliance is difficult because the standards are not uniform.

Related Party Nexus

Traditionally, a connection to a related affiliate or party doing business in a state was not sufficient to create nexus. Unless the related party acted on behalf of the out-of-state business, such as accepting returned products, the two were considered separate. However, New Mexico, West Virginia, Kansas, Iowa, Maine, and Missouri all recently passed laws that classified the out-of-state business as having nexus and “doing business” in their states if a related party:

  • Used similar trademarks, trade names, or service marks.
  • Sold similar goods and services.
  • Performed other related activities.

The New Mexico Court of Appeals recently ruled that Barnesandnoble.com LLC, an online store with no traditional physical presence in New Mexico, had sales tax nexus in New Mexico because a related book selling company with a physical presence in New Mexico promoted Barnesandnoble.com in their stores and helped “to establish and maintain a market in New Mexico.” Furthermore, the Court wrote that using Barnesandnoble.com LLC trademarks in its stores also created “substantial nexus.”

Click Through Nexus

In attempt to gain a greater market share, online retailers are paying commissions to unrelated websites that link customers to the online retailer’s website. Similar to related party nexus laws, click through nexus laws attempt to assign nexus to a business with no physical ties to a state. Unlike related party rules, the two parties do not have to be affiliated. Specifically, these laws look through the transaction to the unrelated website owner’s state of residence.

New York’s highest court recently heard a case related to click through nexus laws. Amazon.com was receiving customers through an unrelated website and paying the owner of the website commissions. Neither Amazon nor the website owned physical property, employed New York residents, or shipped goods to New York under the transaction. However, the owner of the unrelated website was a New York resident. New York’s click through nexus law stated that since this was the case, Amazon.com was responsible for collecting and remitting sales tax to the State of New York. The high court agreed and Amazon.com was forced to pay sales tax.

In addition to New York, Illinois, Kansas, Maine, Minnesota, and Missouri all have passed similar laws. However, Illinois’ highest court recently struck down the state’s click through nexus law. The court ruled the law violated the Commerce Clause of the US Constitution and was preempted by the Federal Internet Freedom Act.

As states are becoming more aggressive and business is evolving from traditional brick and mortar stores, unsuspecting business owners may be surprised by a sales tax obligation they never knew existed. It is crucial to thoroughly research and stay informed regarding the ever changing patchwork of laws regarding sales tax nexus.

Our team is always ready to help.

Please contact us for more information.

Jim Biehl

Jim Biehl

Shareholder, Manufacturing & Distribution

Contact Jim   |   Read Jim's bio

related news

How to Calculate R&D Tax Credits

As we’ve seen in the first two installments of this series, business owners often miss out on the R&D tax credit opportunity and the bottom-line infusion it can provide. Many…

Read full story

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

What Expenses Qualify for R&D Tax Credits?

The R&D tax credit is one of the most overlooked opportunities to boost your bottom line. Many business owners fail to claim it under the mistaken belief that they’re not…

Read full story

Clayton & McKervey Launches The Sound of Automation Podcast

Media Contact: Denise Asker, dasker@claytonmckervey.com; 248.936.9488 Southfield, Mich.—February 17, 2021—Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, is excited…

Read full story

Misconceptions About the Research & Experimentation Tax Credit

As companies put more emphasis on Industry 4.0 and business processes become more automated and accessible, the opportunities for Research & Experimentation tax credits increase. The Research and Experimentation (R&E)…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

    • Ben Smith
    • Beth Butchart
    • Bryan Powrozek
    • Carlos Calderon
    • Casey Haggerty
    • Clayton & McKervey
    • Dave Van Damme
    • Denise Asker
    • Eric Lin
    • Jim Biehl
    • Julie Killian
    • Kevin Johns
    • Margaret Amsden
    • Miroslav Georgiev
    • Nina Wang
    • Rob Dutkiewicz
    • Ruben Ramirez
    • Sarah Russell
    • Sue Tuson
    • Tarah Ablett
    • Teresa Gordon
    • Tim Finerty
    • Tim Hilligoss
    • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you
  • Main Content
  • Related Insights

Sales Tax – Evolving Nexus Standards

Posted by Jim Biehl on June 24, 2014

Jim Biehl

Read article in Mandarin

Almost all 50 states have a type of sales tax. This tax often helps fund vital projects such as roads, police, fire, and other public safety and works. States expect employers doing business and having nexus in their respective states to register and remit sales tax in a timely manner. Traditionally, brick and mortar stores were only subject to sales tax if they had a tangible, physical presence in the state. However, as cash strap states are trying to find ways to fill holes in their budgets, they are becoming more aggressive with on-line and out-of-state retailers with no physical presence in their state. Unsuspecting retailers are receiving notices and tax bills from states for sales tax remittance they were not aware they were obligated to make.

Physical Presence Threshold

It is clearly understandable to businesses that if you have a permanent presence in a state that charges sales tax then you have an obligation to collect and remit this tax. What is not clear to most businesses is that a simple occasional delivery or visit to a respective state has the possibility of triggering sales tax nexus. Unfortunately, there is no uniform nexus trigger among states.

For example, the Florida Department of Revenue recently ruled that a company, who sold heavy equipment to customers from outside of Florida and did not have any employees residing in the state, was subject to sales tax because the company made deliveries using their own vehicles and accepted Florida equipment as payment. In a similar case, the Indiana Department of Revenue recently issued a letter ruling upholding sales tax assessed against an out-of-state retailer. The retailer made regular service trips and sold fire suppression products to customers in Indiana. Even though the retailer did not have a permanent establishment in Indiana or Indiana employees, an occasional presence in the state was enough to trigger nexus.

Many states have attempted to help businesses and create a “safe harbor” standard based on how many visits or types of activities a company can perform in a state without being obligated to collect and remit sales tax. Unfortunately, compliance is difficult because the standards are not uniform.

Related Party Nexus

Traditionally, a connection to a related affiliate or party doing business in a state was not sufficient to create nexus. Unless the related party acted on behalf of the out-of-state business, such as accepting returned products, the two were considered separate. However, New Mexico, West Virginia, Kansas, Iowa, Maine, and Missouri all recently passed laws that classified the out-of-state business as having nexus and “doing business” in their states if a related party:

  • Used similar trademarks, trade names, or service marks.
  • Sold similar goods and services.
  • Performed other related activities.

The New Mexico Court of Appeals recently ruled that Barnesandnoble.com LLC, an online store with no traditional physical presence in New Mexico, had sales tax nexus in New Mexico because a related book selling company with a physical presence in New Mexico promoted Barnesandnoble.com in their stores and helped “to establish and maintain a market in New Mexico.” Furthermore, the Court wrote that using Barnesandnoble.com LLC trademarks in its stores also created “substantial nexus.”

Click Through Nexus

In attempt to gain a greater market share, online retailers are paying commissions to unrelated websites that link customers to the online retailer’s website. Similar to related party nexus laws, click through nexus laws attempt to assign nexus to a business with no physical ties to a state. Unlike related party rules, the two parties do not have to be affiliated. Specifically, these laws look through the transaction to the unrelated website owner’s state of residence.

New York’s highest court recently heard a case related to click through nexus laws. Amazon.com was receiving customers through an unrelated website and paying the owner of the website commissions. Neither Amazon nor the website owned physical property, employed New York residents, or shipped goods to New York under the transaction. However, the owner of the unrelated website was a New York resident. New York’s click through nexus law stated that since this was the case, Amazon.com was responsible for collecting and remitting sales tax to the State of New York. The high court agreed and Amazon.com was forced to pay sales tax.

In addition to New York, Illinois, Kansas, Maine, Minnesota, and Missouri all have passed similar laws. However, Illinois’ highest court recently struck down the state’s click through nexus law. The court ruled the law violated the Commerce Clause of the US Constitution and was preempted by the Federal Internet Freedom Act.

As states are becoming more aggressive and business is evolving from traditional brick and mortar stores, unsuspecting business owners may be surprised by a sales tax obligation they never knew existed. It is crucial to thoroughly research and stay informed regarding the ever changing patchwork of laws regarding sales tax nexus.

Our team is always ready to help.

Please contact us for more information.

Jim Biehl

Shareholder, Manufacturing & Distribution

Contact Jim   |   Read Jim's bio

related news

How to Calculate R&D Tax Credits

As we’ve seen in the first two installments of this series, business owners often miss out on the R&D tax credit opportunity and the bottom-line infusion it can provide. Many…

Read full story

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

What Expenses Qualify for R&D Tax Credits?

The R&D tax credit is one of the most overlooked opportunities to boost your bottom line. Many business owners fail to claim it under the mistaken belief that they’re not…

Read full story

Clayton & McKervey Launches The Sound of Automation Podcast

Media Contact: Denise Asker, dasker@claytonmckervey.com; 248.936.9488 Southfield, Mich.—February 17, 2021—Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, is excited…

Read full story

Misconceptions About the Research & Experimentation Tax Credit

As companies put more emphasis on Industry 4.0 and business processes become more automated and accessible, the opportunities for Research & Experimentation tax credits increase. The Research and Experimentation (R&E)…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

  • Ben Smith
  • Beth Butchart
  • Bryan Powrozek
  • Carlos Calderon
  • Casey Haggerty
  • Clayton & McKervey
  • Dave Van Damme
  • Denise Asker
  • Eric Lin
  • Jim Biehl
  • Julie Killian
  • Kevin Johns
  • Margaret Amsden
  • Miroslav Georgiev
  • Nina Wang
  • Rob Dutkiewicz
  • Ruben Ramirez
  • Sarah Russell
  • Sue Tuson
  • Tarah Ablett
  • Teresa Gordon
  • Tim Finerty
  • Tim Hilligoss
  • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you

Website

  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe

Location

+1 248.208.8860
2000 Town Center
Suite 1800
Southfield, MI
48075 | USA

Connect

  • Events
  • Newsletter
  • Client Login

Social

  • LinkedIn
  • Facebook
  • Twitter
  • Glassdoor
  • YouTube
  • Instagram

Awards

DFP Top Work Places Best & Brightest
Prime Global

Tax | Accounting | Assurance | Consulting | Highly technical and accessible team of CPAs helping growth driven, closely held, middle market companies compete in the global marketplace. Michigan-based accountants and advisors focused on helping business owners in the United States and throughout Europe and China.

Privacy Policy Disclaimer

© 2021 Clayton & McKervey