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Amazon Laws Are Not All Created Equal

author photo of Sylvia F. Dion

In the past few weeks, I've been reminded of how those of you with sales tax responsibilities (and those of you who dabble in sales tax) are genuinely interested in solid, practical sales tax information. Those reminders have come not only from my lovely editor here at SalesTaxSupport.com (I mean this is a sales tax resource and information website, right?) but also as a result of some recent events I’ve participated in, like an Avalara Sales Tax Community Q&A session and a Strafford Sales Tax Webinar for retailers.

So today, as opposed to blogging about new or developing “Amazon” legislation, I thought I’d refocus and talk more generally about Amazon Laws. I’m sure you’ll agree, there’s been no shortage of “Amazon” developments lately!

You see, I believe there’s a lot of confusion about which states have enacted an “Amazon law" and what that law looks like, or should I say – what type of “nexus” provision it includes. If you're following "Amazon law" developments - you're probably like me in that you're constantly reading everything related to this exciting topic! If so, you've probably noticed how articles will often quote conflicting information about the number of states that have enacted "Amazon laws". But you see, that number may vary because there are various types of "Amazon" provisions.

That’s right, not all "Amazon laws" are created equal!

So, let's get things moving and take a look at the various types of "Amazon law" provisions.

Click-Through Nexus

Let’s first take a look at the type of Amazon provision that most people think of when they hear the phrase “Amazon law” – the “click-through” nexus provision. States that have enacted a “click-through” nexus law have essentially taken the position that in-state marketing affiliates create a physical presence (that satisfies the Quill requirement) for the out-of-state (remote) retailer with whom they contract. Because the in-state marketing affiliates (individuals and businesses) indirectly refer customers to the remote retailer's on-line store, contracting with in-state marketing affiliates creates a "nexus presumption." Although “click-through” nexus is probably the most common term used to refer to this type of Amazon provision, other terms used to describe this type of nexus provision include “web-linking”, “affiliate tax” and “presumptive.”

Affiliate (Related Party) Nexus

Recently, we’ve seen more and more states enacting “Amazon laws" that focuses on nexus being created for a remote retailer when a related party, such as subsidiary or other commonly owned entity, owns or leases property, such as a distribution center, in a state; performs services on the goods or property that are sold by the remote retailer; uses common trademarks in the state; or in general, engages in other specified activities that enhance the remote retailer’s market in the state.

Now, let’s stop here for a minute and focus on the term “affiliate.” Whenever I present on this topic I like to spend a few moments talking about the confusion that the term “affiliate” creates. As I just mentioned in the “click-through” nexus section, Amazon laws are sometimes referred to as “Affiliate Tax” Laws because of the marketing affiliate connection. But legally “affiliate nexus” actually refers to the related party (as in a corporate affiliate) nexus I’m describing here. See? Confusing!

The point is – to understand how a particular Amazon law impacts your business or your clients or customers, it’s important to understand what type of nexus provision is being discussed and that the term “affiliate” is used in various ways.

Here’s another point, many of the states that have “click-through” nexus provisions also have an affiliate (i.e. related party) nexus provision. That's right, some states have taken the position that a “click-through” provision isn’t enough. Think back to all the situations where Amazon and Overstock severed their marketing affiliate contracts in states that enacted click-through nexus laws. Adding a “related party” nexus provision is a way for states to ensure that the big on-line retailers will still have nexus to their state even if they sever their contracts with their in-state marketing affiliates. Incidentally, a recent trend in some states has been to focus only on the in-state activities of related entities creating nexus and forgoing a “click-through” nexus provision altogether.

Notification and/or Reporting

Then, there’s an entirely different approach that a few other states have taken. Instead of trying to assert nexus, these states have focused on imposing a transaction notice requirement. Essentially, although remote retailers aren't required to register to collect tax, states with notification laws require remote retailers to notify their in-state customers of their use tax remittance responsibilities. Thus, the goal of notification laws is to increase self-reporting and payment of use tax by in-state purchasers – although some would argue that the goal is to force mega on-line retailers, like Amazon, to register to collect the tax. And so, these notification and/or reporting laws are sometimes (but not always) lumped into the “Amazon law” category.

See what I mean about how Amazon laws can vary? Now that I’ve covered some basics – I’m sure you’re wondering which states have enacted an “Amazon” law and what type of provision the law includes. Here's a high-level chart summarizing this information.

State Year Enacted Type of "Amazon" Law Provision/Comments

Arkansas

2011 Click-through, Affiliate (related party)
California 2011 (see comment) Click-through, Affiliate (related party) (Note: California's law was original enacted in 2011, then temporarily repealed. It became effective on 9/15/12)
Colorado 2010 (N&R), Also 2014 (click-through and affiliate - See Note A below) Notification and Reporting (Note: On 8/28/13, a 10th Circuit Court of Appeals reinstated Colorado's notification and reporting law. This action reversed a lower District Court's prior injunction of Colorado's law.

Also see Note A below re: Colorado's New Amazon Law enacted 6/6/14

Connecticut 2011 Click-through
Georgia 2012 Click-through, Affiliate (related party)
Illinois 2011 Click-through (Note: Challenged. On 10/18/13, the Illinois Supreme Court held that Illinois’ click-through law was preempted by the Federal Internet Tax Freedom Act making Illinois' click-through nexus provision void and unenforceable.)
Kansas 2013 Click-through
Maine 2013 Click-through, Affiliate (related party)
Minnesota 2013 Click-through
Missouri 2013 Click-through
New York 2008 Click-through (Note: Challenged. New York's click-through nexus law was upheld by New York State Court of Appeals, the State's highest court. The case was petitioned to U.S. Supreme Court - Cert was denied on 12/2/13.)
North Carolina 2009 Click-through
Oklahoma 2010 Notification
Pennsylvania 2011, (See comment) No enacting legislation, PA DOR clarified in Bulletin 2011-01 that activities such as engaging in-state marketing affiliates create nexus, remote retailers with nexus required to register by 9/1/12
Rhode Island 2009 Click-through
South Carolina 2011 Notification
South Dakota 2011 Notification
Texas 2011 Click-through, Affiliate (related party)
Vermont 2011 Click-through, Notification(Note: Vermont's law not effective until 15 state pass similar legislation)
Virginia 2012 Affiliate (related party)

So there you have it – an "Amazon law" overview. By the way, you may want to bookmark this page for future reference. Also, even though this is high level information, I’d be happy answer your questions about any of the various states’ Amazon provisions, so please free to add your questions in the comment section below.

By the way, here's another point of confusion - all the recent flurry about Amazon.com now collecting tax in several new states has simply added to all of the “Amazon confusion” since it isn't always clear whether Amazon.com started to collect because of an "Amazon law" or because the retailer entered into an agreement with the state. I'll be covering this topic in another post - so stayed tuned!

With the future of the Marketplace Fairness Act being uncertain, and with more states introducing Amazon type legislation - understanding the various types of Amazon provisions will continue to be very important!

______

Note A re: Colorado UPDATE: On June 6, 2014 (after this post was published), Colorado Governor Hickenlooper signed the Colorado "Marketplace Fairness and Small Business Protection Act" into law. This new law contains both a 'click-through' and affiliate (related party) nexus provision. You can read more at fellow blogger, Keith Critchton's June 27th blog post, "Colorado Redefines Nexus: The Law of Unintended Consequences"

About the Author: Sylvia F. Dion, MPA, CPA, is the Founder and Managing Partner of SALT Consulting firm, PrietoDion Consulting Partners LLC. Sylvia has been covering Internet Sales Tax developments for SalesTaxSupport’s Issues blog since 2011. Sylvia is also the “U.S. Sales Tax for Foreign Sellers” contributor for SalesTaxSupport’s Industry blog and the “Massachusetts Sales Tax” contributor for SalesTaxSupport’s State blog. You can follow Sylvia on twitter and on Google+ and can contact Sylvia via e-mail at sylviadion@verizon.net or at 978-846-1641.

Other recent “Internet Tax / E-Commerce” posts by Sylvia F. Dion, CPA:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

8 Responses to Amazon Laws Are Not All Created Equal

  • Posted by Ohio on June 12, 2015 3:51am:

    […] previously explained in a recent post by Sylvia Dion, click-through nexus is triggered when a resident of a state agrees to place a link to an online […]

  • Posted by Massachusetts on October 31, 2014 2:37am:

    […] While it may seem surprising to some (given the “Taxachusetts” perception), Massachusetts has not enacted a “click-through” nexus provision. That is, Massachusetts does not have a provision in its law which attributes nexus to an out-of-state seller that contracts with an in-state marketing affiliate that refers customers to the out-of-state seller’s site via a web-link. Yes, there have been “click-through” nexus proposals introduced in Massachusetts, including several a few years back, which along with Amazon’s “expansion” in Massachusetts had many confused about whether a ”click-through” nexus provision had been or would be enacted in Massachusetts. (For a little more background on this, see my prior post, “Amazon Sales Tax Nexus in Massachusetts? (Absolutely Not!)”) That’s not to say that Massachusetts does not have an aggressive nexus policy, it’s just to say that are far as a “click-through” nexus provision goes – there isn’t one on the Massachusetts books as of yet! (For more on “click-through nexus and Amazon Laws, see my prior post, “Amazon Laws Are Not All Created Equal”) […]

  • Posted by Jason on June 25, 2014 6:44pm:

    Hello Sylvia
    We will be fulfilling our products at FBA centres in Tennessee, Virginia & Arizona.
    Do we only pay sales tax in those 3 states?
    How do we actually declare and pay the sales tax?

    • Posted by Author photo of Sylvia F. DionSylvia F. Dion on June 27, 2014 8:05am:

      Jason, Thank you so much for reading my blog article and your follow-up comment. (I trust you saw my response to your first question where I mentioned that I also cover U.S. Sales Tax for Foreign Sellers for SalesTaxSupport.com's Industry blog and directed you to my blog article about how bi-lateral tax treaties do not protect foreign sellers from the individual state sales tax laws. http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/tax-treaties-us-sales-tax-nexus-foreign-sellers/
      As I mentioned previously, having inventory in a state (as well as using a third party fulfillment service, like Amazon's FBA service) will create nexus for a foreign seller and the requirement to register, collect, file and remit the taxes that are collected to the individual state and local governments to which that money is owed. To answer your question about Tennessee, Virginia and Arizona. Yes, if your inventory is stored and fulfilled out of an Amazon warehouse in these states - you will need to register, collect, file and remit taxes to these states. I work with other European Amazon FBA sellers and assist them in getting registered and in compliance - and it is definitely a process, requires the filing of paperwork, follow-up, etc. Actually - because there are many foreign sellers with these same questions, I am planning on writing a future post on this topic for the U.S. Sales Tax for Foreign Sellers category - see please check back. Again, I advise clients in your same situation - so please feel free to contact me directly.

  • Posted by Jason on June 23, 2014 1:42am:

    We are a UK based company that has no presence in the USA.
    However, we will be selling on Amazon fulfilment in the USA from various fulfilment centers.
    Are we liable to pay sales tax?
    We are a registered company in the UK only.

    • Posted by Author photo of Sylvia F. DionSylvia F. Dion on June 23, 2014 4:08am:

      Jason,
      Thank you for reading my post and submitting your comment.
      To answer your question, using Amazon’s FBA service and having your inventory stored in an Amazon warehouse will absolutely create "nexus" in the states where your product will be is stored. So, yes, even though you are a UK registered company, this will not exempt your company from collecting sales tax from your U.S. purchasers in certain states.
      By the way, I also blog on the SalesTaxSupport Industry blog specifically on "Sales Tax for Foreign Sellers". Take a look at this post I wrote a while back as well as the many comments on that post: http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/tax-treaties-us-sales-tax-nexus-foreign-sellers/
      As you will see, I receive many inquiries from foreign sellers with similar questions. As I explain in that particular post, even though the U.S. and a foreign country (such as the U.K.) have a tax treaty in effect, our states are not a party to bi-later tax treaties. Thus, a foreign seller with "nexus" to the various states is subject to the state rules despite a treaty. I have helped other foreign Amazon FBA sellers get into compliance with the U.S. sales tax rules, so please do not hesitate to let me know if you have any further questions. You can find my contact information at my author bio page here at SalesTaxSupport: http://www.salestaxsupport.com/blogs/sales-use-tax/author/sylviadion/

  • Posted by A on May 27, 2014 9:28pm:

    thanks for the updates. Much needed :)

    • Posted by Author photo of Sylvia F. DionSylvia F. Dion on June 3, 2014 6:09am:

      And THANK YOU for the comment!! Lot's of confusion when it comes to what exactly and "Amazon Law" is - so I'm happy to update and share my thoughts. Thanks again!

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