Nexus Around the Nation
With 2015 underway, here is a review of recent nexus developments around the nation.
- New Jersey – The New Jersey Division of Taxation issued a technical bulletin to expound the recent enactment of click-through nexus. J.S.A. 54:32B-2(i)(1) was amended to create a rebuttable presumption that remote sellers are engaged in solicitation in New Jersey, and thus must collect sales tax, if the remote seller enters into an agreement with a New Jersey independent contractor or other representative to refer sales via weblink or otherwise in exchange for commissions based upon completed sales. If the agreement between the two parties does not provide for the seller to compensate the representative for completed sales, the agreement is for advertising and does not constitute solicitation. Moreover, a remote seller can rebut the presumption if the agreement: (1) prohibits the in-state representative from engaging in any solicitation activities including distributing flyers; and (2) the remote seller receives an annual certification from the in-state representative that the in-state representative complied with the no solicitation rules. See New Jersey Division of Taxation Technical Bulletin No. TB-76, 12/12/2014.
- Michigan – On January 15, 2015, Michigan Governor Rick Snyder approved legislation that implements click-through nexus and affiliate nexus provisions for establishing substantial nexus for sales tax collection purposes. The click-through nexus provision creates a presumption of nexus for out-of-state sellers that have an agreement to pay Michigan residents commissions in exchange for referring customers via a link to the seller’s Web site. The affiliate nexus provision creates a presumption of nexus for out-of state sellers if an affiliate in Michigan performs certain activities which help the seller establish and maintain an in-state market. The legislation is effective October 1, 2015. See Act 553 (S.B. 658) and Act 554 (S.B. 659).
- Indiana – An Indiana corporate taxpayer’s sales in California were “thrown back” to Indiana because the taxpayer was not “doing business” in California. The Indiana Department of Revenue found the company was simply soliciting sales which did not constitute “doing business” in California. Although the taxpayer claimed it employed a salesperson living in California and working from home or at the customers’ locations to perform specialized business activities, including gathering information on the target market and analyzing that target market, the Department determined no nexus with California existed. The sales were therefore subject to Indiana’s “throwback” rule. See Letter of Findings No. 02-20140293, Indiana Department of Revenue, November 26, 2014, P. 402-191.
- Massachusetts – The Massachusetts Appellate Tax Board ruled that a California-based biotechnology company had substantial nexus with Massachusetts for corporate excise tax purposes. The taxpayer retained title to millions of dollars in bulk drug inventory during production at a third party’s facility in Massachusetts and retained title to drugs being used as part of clinical trials conducted by third parties in Massachusetts. The Board held that the company had substantial nexus because it held inventory and engaged in manufacturing activities in Massachusetts. See Genentech, Inc. v. Massachusetts Commissioner of Revenue, Massachusetts Appellate Tax Board, Nos. C282905, C293424, C298502, and C298891, November 17, 2014, P. 401-524.
- Texas – A Utah corporation’s sales of licensed software and digital content to Texas users established substantial nexus with Texas. The software and digital content was provided to Texas residents primarily through Internet downloads. Substantial nexus was found because the taxpayer retained title to tangible personal property (software) that was physically present and generating license revenue in Texas. However, the taxpayer’s temporary presence through employees attending two conferences in Texas was de minimis for nexus purposes because the employees did not solicit orders or engage in any sales activities at the conference and were only present to learn about developments in the industry. See Decision, Hearing No. 108,626, Texas Comptroller of Public Accounts, September 19, 2014, released November 2014, P. 403-996.
Nexus laws can be confusing and cumbersome to comply with for multistate businesses. If you have any questions about potential nexus with other states, please contact Steve Dimengo, Rich Fry, or Casey Davis.