The “See-Saw” Of Sales Tax Nexus

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The “See-Saw” Of Sales Tax Nexus


Recently, states have taken somewhat different approaches to the question of nexus for sales and use tax collection.

The Alabama Department of Revenue, for example, recently adopted Rule 810-6-2-.90.03, which is effective on January 1, 2016. It provides that a company with only an economic presence in Alabama—i.e., annual sales of more than $250,000 to Alabama residents—is required to collect the Alabama sales and use tax, even if it had no physical presence in Alabama. This, of course, is directly contrary to Quill v. North Dakota, 504 U.S. 298 (1992), which clearly provides that it violates the Commerce Clause for a state to impose sales and use tax obligations on a company without a physical presence. Without a doubt, the Alabama Department of Revenue is acting in defiance of the U.S. Supreme Court’s decision.

The Commissioner of the Virginia Department of Taxation, however, opined that even when an out-of-state retailer maintains an inventory of products at a fulfillment center in Virginia, it is not required to collect the sales and use tax. In Ruling of Commissioner, P.D. 15-194, Virginia Department of Taxation, October 16, 2015, the Commissioner interpreted the applicable Virginia statute, Virginia Code § 58.1-612(C), which sets forth the activities within the Commonwealth that require a retailer (“dealer”) to collect the Virginia retail sales and use tax. The Commissioner noted that Subsection 2 provides that if the dealer “solicits business in the Commonwealth by employees, independent contractors, agents or other representatives,” then the dealer is required to collect the tax. The Commissioner opined that because fulfillment centers do not act as independent contractors of the retailer and have not established an agency relationship, Subsection 2 does not apply. In addition, the Commissioner found that nowhere under Section 58.1-612(C) does maintaining an inventory in Virginia require collection of the Virginia retail sales and use tax, even though products in the inventory are used to be shipped to the Company’s customers.

Other states would likely take a different approach. For example, in PA Sales and Use Tax Bulletin 2011-01, issued December 1, 2011, the Pennsylvania Department of Revenue opined that a company has nexus with Pennsylvania if it is “storing its property . . . at a distribution or fulfillment center located within the Commonwealth.”

In 2011, Vermont adopted a statute that had a click-through nexus provision that would not go into effect until 15 other states had adopted similar click-through nexus statutes, as certified by the Vermont Attorney General. Last month, the Vermont Attorney General certified that there are 15 other states that have adopted such statutes. Thus, by an announcement dated November 9, 2015, the Vermont Commissioner of Revenue provided public notice that the click-through nexus provisions are effective as of December 1, 2015.

Vermont’s click-through nexus provision is in fact similar to the New York statute, which was the first state to adopt such a statute.   A rebuttable presumption of nexus is created for a seller if the seller enters into an agreement with a Vermont resident or residents under which the residents for a commission or other consideration refer potential customers to the seller by a link on their website or by other means and if the retailer’s annual gross receipts from such referrals exceed $10,000. See 32 V.S.A. § 9701(9)(l).

In short, while the world of nexus is not quite as dynamic as a see-saw on a playground, there continue to be ups and downs from state to state and from tax to tax. We will continue to report on these developments in the law.

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