The recent debate over the so-called “Amazon tax”, while obviously about what its name would suggest, mainly the power of states to tax online retailers like Amazon, is really a debate about nexus. Nexus means all the connections between a taxpayer, whether a person or a corporation, and a political jurisdiction–a state in this case. Those connections can be affiliate marketing contracts, sales to state residents, physical presences within the state, and so on. The key point is this: once your nexus passes a certain point, a certain threshold, you will be deemed to be “doing business” in that state and that means the state has the power to tax your sales.
The most clear cut case of nexus is when you have a physical presence in a state. It should be noted that while a brick and mortar presence is the gold standard as it were of nexus, employees and contractors within a state can also count. The recent Amazon tax debate is really over extending, or perhaps clarifying, the definition of nexus. It seems fairly obvious that having affiliate marketers in a state constitutes a nexus, but is that enough to qualify as doing business in that state and thus open the company up to that’s states sales taxes? The answer of the new laws passed in Illinois and other states has been, simply enough, yes.
In many cases, nexus can be a nebulous concept. It can be difficult to tell if a particular company or other taxpayer’s presence within a state is sufficient to make them liable to that state’s taxes.
For more information on nexus or other sales tax and use tax concerns, contact the Chicago tax lawyers at Horowitz & Weinstein.