Earlier this month, Maine Governor Paul LePage signed into law a new expanded sales tax nexus bill. Maine now becomes the 12th state to enact so called “click through” sales tax nexus. The bill was widely supported by traditional downtown merchants.
Sales tax nexus is anything but new. When most states enacted sales tax laws, there was no Internet commerce and mail order was still in its infancy. If you wanted to buy something, you got in your car and drove downtown. Of course, large retailers such as Sears maintained catalog sales for harder to find items. Because local businesses had a physical presence in the state, sales tax nexus wasn’t an issue. Virtually all retailers collected sales tax.
Even with the larger catalog retailers, most had a warehouse or retail store in state making nexus a non issue.
Sales tax nexus is the presence required before a state can require a seller to collect sales tax. Physical presence has always given rise to nexus. As explained above, if you have a facility within the state you are required to collect sales taxes on all sales within the state.
As commerce changed from Main street to mail order and eCommerce, many states expanded their sales tax nexus laws. The common definition today includes presence of property, employees, agents, delivery service or even sales people within the state.
Big Internet retailers such as Amazon.com still were beyond the reach of many states, however. While consumers often benefitted by not having to pay sales tax on Internet sales, local retailers claimed that the failure or inability to collect taxes from these out-of-state vendors was placing traditional stores at a competitive disadvantage.
In the newest wave of sales tax nexus legislation, states like Maine are adopting so-called affiliate and “click through” nexus laws. Under the recent Maine legislation, sellers with no physical presence will still be required to collect sales tax if they enter into commission based referral agreements or when they engage in relationships with other entities that have a presence in the state.
Under the click through provisions, sellers that merely pay in-state residents for placing links on their websites will be required to collect and remit sales tax.
While hailed by traditional main street businesses, Internet marketers have threatened to challenge these new laws nationwide. Whether simply affiliating with an in state business or having a click through link creates enough presence to meet the mandates of the U.S. Constitution remains to be seen.
The Maine Legislature’s budget analysts say the measure will bring in approximately $500,000 in new revenues annually. The bill’s sponsor and retail groups believe the legislation will bring in an extra $20 million in annual revenues.
As cash strapped legislatures struggle to close budge holes without raising taxes, expanded sales tax nexus bills and enforcement efforts are likely to emerge in many other states.
If you conduct Internet sales or ship products into other states, and aren’t already collecting sales tax, you may have a sales tax nexus problem. Our experienced state and local tax lawyers can help. We have decades of experience and knowledge that few others possess. (The author of this post, Brian Mahany was Maine’s state revenue commissioner and also served as an officer of the Multistate Tax Commission.)
Mahany & Ertl, LLC – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Minneapolis, Minnesota, Portland, Maine and San Francisco, California. IRS services nationwide.
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Written by Brian Mahany, Esq.