What Is Click Through Nexus?

In the complex landscape of sales tax compliance, businesses must navigate a maze of rules and regulations that vary significantly by jurisdiction. One critical concept in this domain is "nexus." Understanding nexus is essential for businesses to ensure they are in compliance with sales tax rules across different states.

Among the various types of nexus, click through nexus is particularly relevant in today's digital economy. This blog post will explore nexus in more detail, and delve into the specifics of click through nexus.

Definition of Nexus

Nexus, in the context of sales tax, refers to the connection between a business and a state that obligates the business to collect and remit sales tax on sales made to customers within that state. This connection can arise in several ways, such as having a physical presence (like a store or warehouse), employees, or significant economic activity in the state.

Nexus establishes the legal basis for a state to impose its sales tax collection responsibilities on a business. Without nexus, a business has no obligation to collect sales tax for that state. However, the definition of what constitutes nexus has evolved over time, especially with the advent of e-commerce.

Nexus rules

Nexus rules vary by state, but they generally fall into two categories: physical nexus and economic nexus. Physical nexus is established through a tangible presence, such as an office, warehouse, or employees in the state. Economic nexus, on the other hand, is based on the volume of sales or number of transactions a business conducts within a state, even without a physical presence.

Economic nexus gained prominence following the U.S. Supreme Court's decision in South Dakota v. Wayfair, Inc. (2018). The ruling allowed states to require out-of-state sellers to collect and remit sales tax if they exceed certain sales thresholds, regardless of physical presence. This decision significantly broadened the scope of sales tax collection responsibilities for many businesses.

Click through nexus

Click through nexus is a specific type of nexus that arises from affiliate relationships. It occurs when a business uses in-state affiliates to refer customers to its website in exchange for a commission or other form of compensation. This relationship creates a sufficient connection between the business and the state, requiring the business to collect and remit sales tax on sales made through these referrals.

The concept of click through nexus gained prominence with the rise of e-commerce and online marketing, with 16% of online sales now generated via affiliate marketing. States began to recognize that businesses could generate substantial sales through online affiliates without having a physical presence in the state. To capture the lost sales tax revenue, states implemented click through nexus laws.

For example, if an out-of-state online retailer has an agreement with a blogger in New York who earns a commission for every customer that clicks on a link to the retailer's website and makes a purchase, the retailer may have established nexus in New York. This means the retailer must collect and remit New York sales tax on those sales.

Affiliate nexus

Affiliate nexus, which is closely related to click through nexus, extends the concept further. It encompasses any situation where a business has affiliates in a state who help promote or facilitate sales. These affiliates can be individuals or businesses that perform activities on behalf of the seller, such as advertising, referring customers, or providing services.

Affiliate nexus can be established through a variety of relationships. For instance, if a company uses a local business to install or service its products, it may establish nexus in that state. This broader interpretation ensures that states can capture sales tax from businesses that benefit from in-state activities, even if those activities are not directly sales-related.

Click through nexus sales tax by state

Sales tax rules vary widely from state to state, making compliance a challenging task for businesses engaged in interstate commerce. States with click through nexus laws require out-of-state sellers to collect sales tax if their in-state affiliates generate a certain threshold of sales or transactions. These thresholds vary, but common criteria include a minimum number of sales transactions or a specified dollar amount of sales within a year.

Here is a comprehensive list of states that have enacted click through nexus laws, along with their specific thresholds:

• Arkansas: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• California: Requires out-of-state sellers to collect sales tax if their in-state affiliates generate more than $10,000 in sales and the total sales in California exceed $1 million in the preceding 12 months.

• Colorado: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.

• Connecticut: Requires sales tax collection if sales through in-state affiliates exceed $250,000 and constitute more than 200 transactions annually.

• Georgia: Requires sales tax collection if sales through in-state affiliates exceed $50,000 annually.

• Hawaii: Imposes sales tax collection obligations if total sales in the state exceed $100,000 or 200 transactions, including sales through in-state affiliates.

• Illinois: Has a click through nexus threshold of $10,000 in annual sales through in-state affiliates.

• Iowa: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.

• Kansas: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Kentucky: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Louisiana: Imposes sales tax collection obligations if total sales in the state exceed $100,000 or 200 transactions, including sales through in-state affiliates.

• Maine: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Maryland: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Massachusetts: Imposes sales tax collection obligations if total sales in the state exceed $500,000 and 100 transactions, including sales through in-state affiliates.

• Michigan: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Minnesota: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Missouri: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Nevada: Imposes sales tax collection obligations if total sales in the state exceed $100,000 or 200 transactions, including sales through in-state affiliates.

• New Jersey: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• New York: Requires businesses to collect sales tax if their New York affiliates generated over $10,000 in sales.

• North Carolina: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Ohio: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Oklahoma: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.

• Pennsylvania: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Rhode Island: Requires sales tax collection if sales through in-state affiliates exceed $5,000 annually.

• South Carolina: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.

• South Dakota: Imposes sales tax collection obligations if total sales in the state exceed $100,000 or 200 transactions, including sales through in-state affiliates.

• Tennessee: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Texas: Similar to California, Texas mandates sales tax collection if in-state sales through affiliates exceed $10,000 annually.

• Utah: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Vermont: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Virginia: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Washington: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• West Virginia: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

• Wisconsin: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.

Conclusion

Click through nexus represents a critical concept in the realm of sales tax compliance, reflecting the evolving nature of commerce in the digital age. By understanding the definition of nexus, the specifics of click through nexus, and the varying sales tax rules by state, businesses can better navigate their tax obligations and avoid potential pitfalls. Staying informed and proactive in managing sales tax compliance is essential for any business engaged in interstate commerce, ensuring they meet their legal obligations and maintain smooth operations.

By effectively managing nexus and sales tax compliance, businesses can focus on what they do best: growing and serving their customers. As the digital economy continues to expand, the importance of understanding and adhering to nexus rules, including click through nexus, will only increase, making it a vital area of knowledge for all businesses.

Do you need help with your sales tax compliance? Book a free call with one of our sales tax experts to find bespoke solutions for your business, optimize your tax costs, and reach millions of new potential customers.

Frequently Asked Questions

What is click through nexus?

Click through nexus occurs when an out-of-state business uses in-state affiliates to refer customers, requiring the business to collect and remit sales tax on those sales.

How does click through nexus differ from physical and economic nexus?

Physical nexus involves a tangible presence in a state, economic nexus is based on sales volume, and click through nexus is related to affiliate marketing.

How can a business determine if it has click through nexus in a particular state?

A business should review the state-specific thresholds for sales or transactions generated by in-state affiliates.

What are the consequences of not complying with click through nexus laws?

Non-compliance can lead to penalties, fines, and potential audits by the state.

How can businesses manage their sales tax obligations related to click through nexus?

Businesses can stay compliant by using tax software, consulting tax professionals, and regularly reviewing their sales data against state nexus laws.

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