The place to find business sales tax information

— as well as solutions, services and jobs!

Nexus for Manufacturers Part 2: Secrets About Sales Agents

author photo of Lauren Stinson

One of the most startling revelations a CEO, Controller or Tax Manager will make is discovering the company has established sales tax nexus in states but is not registered with those states. The oversight can often be a huge source of sales tax liability. This four-part sales tax nexus series will help you avoid these risks by providing a better understanding of what creates nexus as well as tips to proactively manage nexus compliance.

Part One of the series focused on employee activities beyond the plant’s four walls that create nexus. Now in Part Two we will explore nexus-creating activities by persons, mostly sales agents, who do not work for the company.

Many companies are turning to independent contractors or sales agents to sell their company’s products and services. This choice saves on payroll and insurance. Is it also a loop-hole to avoid sales tax collection responsibilities in another state?

Unfortunately, the answer is often no. In most states, employing an agent to represent your company to solicit sales on your behalf is a nexus-creating activity.

There have been many precedent-setting cases focusing on the concept of nexus, but the U.S. Supreme Court case of Scripto v Carson (362, U.S. 207, 1960) best exemplifies the concept of sales agents creating nexus. In this case, the Supreme Court had to decide whether a Georgia retailer with no offices in Florida could be required to collect tax on sales made in Florida by wholesale brokers of Scripto who were paid on commission. The Supreme Court decided that the neither the Commerce Clause of the Constitution (which prevented a burden on interstate commerce) nor the Due Process Clause of the Fourteenth Amendment(which states equal protection of the laws) was violated. The Court ruled that retailers could be physically present in a state through those acting on their behalf (i.e. sales agents). The Court held that the difference between regular employees and independent contractors was “without constitutional significance.” Permitting such distinctions would open up the states to a flood of tax avoidance techniques.

Although that case was decided more than 50 years ago, it has withstood the test of time and has been used as precedent in numerous other cases focusing on sales tax nexus.

So what does this mean for the average manufacturer? Companies need to investigate sales activities very carefully. Look beyond the activities of employees and peer outside the plant’s four walls.

As nexus requirements continue to become more stringent and states step up their enforcement techniques, it is imperative to look at all nexus-creating activities on a regular basis to locate red flags and address potential liabilities for your company.

Has your company encountered nexus problems because of sales agents?What do you think are other sales techniques that trigger nexus red flags?

About the Author: Lauren Stinson,CMI, is Principal and National Leader - Sales & Use Tax at Cherry Bekaert LLP; a national CPA and consulting firm ranked as one of the top 25 in the country. Previously, Lauren was Owner and President of Windward Tax, a sales and use tax consulting firm. She has more than 25 years experience working with manufacturers on sales and use tax issues. Lauren is pleased to share her expertise with SalesTaxSupport readers as the Manufacturing contributor in SalesTaxSupport’s Industry blog, as well as the Georgia Sales Tax contributor in the States blog.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. More specific questions or requests may be sent to Lauren directly using the orange "REQUEST" link on Lauren's Firm Profile page.

Other recent “Manufacturing & Distribution” posts by Lauren Stinson, CMI:

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


Submit a comment or question - only your first name will appear


Access to any portion of is contingent upon your acceptance of our Terms of Use. This Web Site and content provided by STS Publishing, LLC and its third party content providers, including, but not limited to information, documents, forms, comments, advice and opinions, is for informational purposes only, and is not a substitute for professional advice, nor does the use of this Web Site constitute a professional-client relationship. The Web-Site also includes advertisements, directory listings, job postings and links to third party web sites, all of which are provided for your convenience only and in no way constitute a referral, endorsement, or warranty by of any product or service provided by such third parties. All content is provided “as is” with no guarantee regarding accuracy, suitability, or timeliness. Your reliance on any content accessed on or through the Web Site, or on any product or service provider is strictly at your own risk.