On May 27, Nevada Governor Brian Sandoval signed legislation which includes clickthrough nexus and affiliate nexus provisions for purposes of the state's sales and use tax.1 The click-through nexus provision, effective October 1, 2015, creates a presumption of nexus for out-of-state retailers that have an agreement to pay a Nevada resident for providing a link to the retailer's Web site.2 Effective July 1, 2015, the affiliate nexus provision creates a presumption of nexus for out-of-state retailers if a component member of a controlled group has physical presence in Nevada and performs certain activities.3
Click-Through Nexus
Beginning October 1, 2015, an out-of-state retailer is presumed to be doing business in Nevada and is required to impose, collect, and remit sales and use taxes if the retailer enters into an agreement with a resident of Nevada under which the resident receives consideration for referring potential customers to the retailer through a link on the resident's Internet website or otherwise.4
This provision only applies if the cumulative gross receipts from sales by the retailer to customers in Nevada through all such referrals exceed $10,000 during the preceding four quarterly periods ending on the last day of March, June, September and December.5
Rebuttable Presumption
The presumption may be rebutted by submitting proof that the residents with whom the retailer has an agreement did not engage in any activity in Nevada that was significantly associated with the retailer's ability to establish or maintain a market in Nevada for the retailer's products and services during the preceding four quarters ending on the last day of March, June, September and December.6 The retailer may prove this by submitting sworn written statements from all of the residents with whom the retailer has an agreement that they did not engage in any solicitation in Nevada on behalf of the retailer during that time frame.7
Affiliate Nexus
As of July 1, 2015, an out-of-state retailer is presumed to be doing business in Nevada if it is part of a controlled group of corporations that has a component member,8 other than a common carrier acting as a common carrier, that has physical presence in Nevada and such component member engages in any of the following activities:
- Sells a similar line of products or services as the retailers and does so under a business name that is the same or similar to that of the retailer;
- Maintains an office, distribution facility, warehouse or storage place or similar place of business in Nevada to facilitate the delivery of tangible personal property sold by the retailer to its customers;
- Uses trademarks, service marks or trade names in Nevada that are the same or substantially similar to those used by the retailer;
- Delivers, installs, assembles or performs maintenance services for the retailer's customers within Nevada;
- Facilitates the retailer's delivery of tangible personal property to customers in Nevada by allowing the retailer's customers to pick up tangible personal property sold by the retailer at an office, distribution facility, warehouse, storage place or similar place of business maintained by the component member in Nevada; or
- Conducts any other activities in Nevada that are significantly associated with the retailer's ability to establish and maintain a market in the state for the retailer's products or services.9
Rebuttable Presumption
The presumptions may be rebutted by providing proof satisfactory to the Department that, during the calendar year in question, the activities of the component member with physical presence in Nevada are not significantly associated with the retailer's ability to establish or maintain the retailer's market in Nevada.10
Department Reporting Requirement
The legislation also requires the Department to report to the Nevada legislature within 30 days all findings, rulings, or agreements made by the Department or the Nevada Tax Commission which exempt any retailer from the legal requirements to impose, collect, and remit sales and use taxes even though the retailer or an affiliate owns or operates a warehouse, distribution center, fulfillment center or other similar facility in Nevada.11
Commentary
By enacting click-through and affiliate nexus provisions designed to improve sales and use tax collections, Nevada joins the ranks of several other states.12 Although the intent behind the legislation which has been enacted by many states is similar, the enacted wording does have some differences, resulting in a potentially significant burden on companies that only maintain tangential contacts with these states through affiliates or associates.
As noted in the legislative summary, the click-through statute enacted by Nevada is similar to the New York statute while the affiliate nexus provision mirrors Colorado statutes. The New York State Court of Appeals, the state's highest court, has held that New York's click-through nexus statute does not facially violate the U.S. Constitution under either the Commerce or Due Process Clauses.13
Along with the various states that have proposed or enacted sales tax nexus laws, the Marketplace Fairness Act is currently being considered by the U.S. Senate.14 Although previous versions of this bill have failed to gain enough support for passage, it appears that there is renewed legislative interest. U.S. Representative Jason Chaffetz (R-Utah) has publicly referenced plans15 to introduce similar legislation for consideration. Generally, both bills would allow states meeting certain requirements to require remote sellers to collect and remit sales tax to jurisdictions in which their customers are located. Online retailers with out-of-state sales of no more than $1 million a year would be exempt. Presumably, if federal legislation addressing this issue is enacted, the need for the states to enact separate click-through nexus or affiliate nexus legislation will wane.
Footnotes
1 Ch. 219 (A.B. 380), Laws 2015.
2 Ch. 219 (A.B. 380), Laws 2015, §§ 3, 6, and 7.
3 Ch. 219 (A.B. 380), Laws 2015, §§ 2, 5, and 7.
4 Ch. 219 (A.B. 380), Laws 2015, §§ 3.1 and 6.1.
5 Id.
6 Ch. 219 (A.B. 380), Laws 2015, §§ 3.2 and 6.2.
7 Id. The statements must be provided and obtained in good faith.
8 Ch. 219 (A.B. 380), Laws 2015, §§ 2.1 and 5.1. Controlled group" and "component member" are defined as in the Internal Revenue Code of 1986, as amended, § 1563(a) and (b). The terms also include any entity, regardless of corporate form, that would meet these definitions based on ownership relationship alone.
9 Ch. 219 (A.B. 380), Laws 2015, §§ 2.1 and 5.1.
10 Ch. 219 (A.B. 380), Laws 2015, §§ 2.2 and 5.2.
11 Ch. 219 (A.B. 380), Laws 2015, § 1. If the Nevada legislature is not in session, the report must be provided to the Legislative Commission.
12 The following states have enacted click-through nexus laws: Arkansas, California, Colorado, Connecticut, Georgia, Illinois, Kansas, Maine, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Rhode Island and Vermont (contingent on 15 or more states enacting clickthrough nexus legislation). Similarly, the following states have enacted affiliate nexus laws: Arkansas, California, Colorado, Connecticut, Georgia, Illinois, Iowa, Kansas, Maine, Michigan, Missouri, New York, Oklahoma, South Dakota, Texas, Utah, Virginia, and West Virginia.
13 Overstock.com, Inc. v. New York State Department of Taxation and Finance, New York State Court of Appeals, Nos. 33 and 34, March 28, 2013 (cert. denied, U.S. Sup. Court, Dkt. 13-252, Dec. 2, 2013). For a discussion of this case, see GT SALT Alert: New York State Court of Appeals Holds Click- Through Nexus Statute Is Facially Constitutional and GT SALT Alert: U.S. Supreme Court Declines to Consider Whether New York's Click-Through Nexus Statute is Facially Constitutional .
14 S. 698, "Marketplace Fairness Act of 2015," introduced Mar. 10, 2015. A previous version of this bill, S. 743 (113th) passed the U.S. Senate in 2013 but failed to pass the U.S. House.
15 Rep. Chaffetz referenced the "Remote Transaction Parity Act" at the National Conference of State Legislatures meeting on Dec. 10, 2014. To date, the legislation has not been introduced.
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