by Brian Mahany
Big mail order companies know all about “nexus.” Amazon has threatened to pull out of certain states and sever ties with some of their vendors over nexus. For those not familiar with the term, nexus means connection. For years this meant if you had a physical store or building in a given state, you were required to collect sales taxes for all sales made into that state, even sales by mail order. The same concept works for income taxes as well.
As states struggle to balance their books, many states are becoming increasingly aggressive in trying to impose tax obligations on out-of-state businesses. Often they do this with creative nexus theories. Why nexus?
The Supreme Court says that a state must have some connection with a business before it can collect taxes from them. Merely mailing an item to that state is not enough says the court. If you have sales people in the state, deliver the product yourself, offer installation services or the like you probably have sufficient nexus to be subject to that state’s tax.
Many of the old nexus laws relied on physical presence. That worked well when we were a Main Street, “bricks and sticks” economy. Technology, however, has made some of these laws obsolete. Some states now have nexus laws that simply say that the state can extend its taxing jurisdiction as far as the Constitution will allow. Great for the state but not much guidance for the business community.
We are aware of one state that forced a large retailer to begin collecting sales tax on mail order shipments to that state simply because that company choose to have a sales party there at a popular resort. So much for promoting tourism.
The latest salvo now comes with website links. Illinois just issued a revenue ruling (Informational Bulletin 2011-14) effective July 1st that says if a person in Illinois links to your website and you pay them a commission, you could be liable to Illinois taxes. No physical presence required at all.
While the Illinois practice has not yet been challenged, that state is not alone in trying to impose tax liability on companies merely because of a link or server that has some connection to their state.
Nexus has become a war zone for mail order businesses because of sales tax but remember, its not limited to sales tax. If you even send a sales rep to a trade show you could find yourself liable for all kinds of unanticipated taxes. Think I am kidding? My first week in office while Maine’s revenue commissioner I learned that while the governor was speaking at a convention to promote business investment, Maine tax auditors were combing the audience of that same event and collecting business cards of attendees. It happens all the time.
Ultimately, Congress must act but until they do, make sure you have a great CPA or tax attorney that understands tax nexus.
For more information and a confidential consultation, contact attorney Brian Mahany at (414) 704-6731 or by email at We help individuals and businesses with a wide variety of tax problems including audit defense, nexus issues and welfare benefit plan scams. Call us today and let us help.
Mahany & Ertl, LLC – America’s Tax Lawyers. Offices in Wisconsin, Michigan, Maine & California. Services available anywhere in the U.S.