Facts about Tax Shark
April 13, 2021
An out-of-state retailer (translation: a retailer without nexus in the state) selling goods to a customer or company over the internet is not allowed to collect sales tax under our current tax system and the nexus rules described above. The customer is responsible for self-assessing the tax and remitting use tax to the state voluntarily. The majority of companies are aware of this difference, but many customers are unaware. Business audits are used by states to ensure compliance with these laws; however, states do not have the bandwidth, nor is it realistic, to audit every user. Rather than going for the consumer, states are attempting to enforce taxation laws that force out-of-state corporations to raise the tax.Have a look at Tax Shark for more info on this.
This is why the terms “affiliate nexus” and “Amazon Rule” (also known as “click through nexus”) have emerged. There are examples of how states have sought to use current nexus requirements to force out-of-state retailers to collect taxes that would otherwise go uncollected. The typical scenario is when an out-of-state company forms a partnership with an in-state company (often referred to as an affiliate) solely for the purpose of generating consumer referrals via a link to the out-of-state company’s website. The in-state company earns a commission or other benefit in exchange for the referral. The partnership built through affiliate programmes establishes nexus for the out-of-state company, requiring it to collect and remit local sales tax. Several states, like Illinois and California, have recently introduced associated nexus legislation aimed primarily at major internet retailers like Amazon, hence the name “Amazon Law.” As a result of the law, Amazon has terminated its partner programmes in the majority of these states. The organisation plans to terminate its nexus with the state and escape future sales tax collection liability by discontinuing the affiliate programmes. However, since most states consider nexus to occur for at least twelve months after the behaviour that caused it, this may be an issue.