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Click Through Nexus – Online Retailers Beware

author photo of Jerry Donnini

Nexus, like it sounds, is a terrible disease from a sales tax perspective. Nexus is a fancy word meaning a connection or link. If a company has enough of a connection or link to a state, then the state can impose its laws on the business and require it to charge, collect, and remit state taxes such as sales tax. In 1992, Quill v. North Dakota was decided, which announced that having a physical presence in a state was sufficient nexus to require a company to follow a state’s state and local tax laws. In other words if your business has an office, a warehouse, some inventory, or a person (employee and yes, an independent contractor) then it likely has nexus under the physical presence test in Quill.

Now, fast forward from the early 90’s in which the economy operated using mail order catalogs and these things I’ve read about called floppy disks to today’s economy that uses the Internet as its backbone. What if instead of an employee, independent contractor, or sales rep, a company compensates a resident of a state for sales made as a result of that resident’s website? Is that person’s presence in a state the same physical presence Quill was talking about?

In 2008, New York thought this would be a good idea and decided to be the guinea pig for click through nexus legislation. Also known as the “Amazon law,” due to its perceived targeting of Amazon, New York created a law that if a New York residents website generated over a certain number of sales in a 12 month period for a particular company, then there was a presumption that such company had nexus in New York. Amazon and Overstock took exception with this law, but ultimately lost at New York’s highest court. Unfortunately, the Supreme Court of the United States declined to hear the case.

Being that the law was deemed to be constitutional in New York and the Supreme Court of the United States declined to hear the case, many other states said why not and enacted similar click through nexus legislation. According to a 2014 article in Bloomberg BNA, 12 states have enacted click through legislation. They are:

  1. Arkansas (2011)
  2. California (2012)
  3. Connecticut (2011)
  4. Georgia (2012)
  5. Kansas (2013)
  6. Maine (2013)
  7. Minnesota (2013)
  8. Missouri (2013)
  9. New York (2008)
  10. North Carolina (2009)
  11. Pennsylvania (2012)
  12. Rhode Island (2009)

Once the list above hits 15, then Vermont will also jump on board. Illinois tried for a more aggressive click through law that was repealed in court. Also of note, Connecticut’s click through nexus law does not even offer a rebuttable presumption for the business.

In addition, there are 12 states and the District of Colombia that have click through nexus policies. Those states are Arizona, D.C., Hawaii, Iowa, Louisiana, Maryland, Nevada, New Mexico, North Dakota, South Dakota, Tennessee, and Utah.

For the unsuspecting online retailer that may already have issues with servers and inventory in states that they don’t know about, click through nexus can be a ticking time bomb from a state tax perspective. Suppose a business is located in Florida and in order to generate sales, it purchases a click through marketing campaign. Under the terms of its campaign a website can direct viewers to the Florida retailer and get paid on sales generated as a result of that click. The Florida company may have no clue as to where the website owner is located. Despite not knowing, a state tax agency in one of the 24 states listed above can come knocking for a huge past liability. Even worse, because the company was only registered in Florida, there is no statute of limitations to cut the liability to 3 or 4 years. This can be crippling for many small and medium online retailers. If this sounds like you, then it is likely time to get an experienced sales and use tax attorney involved.

About the Author: Mr. Donnini is a multi-state sales and use tax attorney and a shareholder in the law firm Moffa, Sutton & Donnini, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini earned his LL.M. in Taxation at NYU. He is also a co-author of the CCH Expert Treatise Library: State Sales and Use Taxation. Please feel free to visit his firm’s web-site or his blog .

Questions? If you have any questions please do not hesitate to contact him via email at or call 954-642-9390.

Other recent “Sales Tax Nexus” posts by Jerry Donnini:

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


4 Responses to Click Through Nexus – Online Retailers Beware

  • Posted by Lisa on December 14, 2014 11:14am:

    It will be interesting to see what the Supreme Court decides in the Colorado use-tax case. Colorado wants to hold remote sellers responsible for informing Colorado buyers of their use tax responsibilities, and toting up how much tax is owed on each transaction. If this is found to be constitutional, then there's one more burden on small e-business. Guess the states just can't/won't go after individual taxpayers!

    • Posted by Author photo of Jerry DonniniJerry Donnini on December 15, 2014 2:08am:

      Thanks for the comment. It never ends well when states go after individual citizens. Couldn't agree more with you although I am not surprised.

  • Posted by Brahim on December 12, 2014 2:33am:

    I am Brahim Benchemmar manager of a Moroccan company specialized in manufacture & export of a wide range of Moroccan handcrafts. We plan to participate as exhibitor in JOGS Tucson Gem & Jewelry Show in Tucson, Arizona).
    I would like to have your kind support in what taxes should I pay for may sales in this trade show, and if are they paid before trade show (on importation invoice value of goods) of after the show or within the show.
    I will be very gratefull for you for any help, and any information from you will be highly appreciated
    Thank you very much.
    Brahim Benchemmar
    Agadir, Morocco

    • Posted by Author photo of Jerry DonniniJerry Donnini on December 15, 2014 2:07am:

      Thank you for the comment Brahim. You bring to light an interesting issue with trade shows and exhibition. Some states, like Florida, allow companies to particpate in trade shows without creating nexus, while others believe trade shows create nexus with their state. You need to look into this on a state by state basis. We would be happy to assist you with that endeavor if you deem it necessary.

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