States Show Aggressiveness in Pursuing New Types of Sales Tax Nexus Theories Against Online Vendors, Says BNA Annual Survey

ARLINGTON, Va., May 3 /PRNewswire-USNewswire/ -- To date, only three states have enacted so-called "Amazon-laws" aimed at establishing sales tax nexus based on the activities of in-state affiliates. Yet, 17 states told BNA that an Amazon-type arrangement with an in-state affiliate would trigger nexus if the affiliate was paid less than $10,000 during the year.

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The 10th annual BNA Survey of State Tax Departments -- which includes responses from every state, New York City, and the District of Columbia -- also reveals a continuing lack of guidance on even the most basic income tax nexus policy issues. Most states say that they adhere to an "economic presence" standard. But few have specified the activities that constitute an economic presence sufficient to result in taxable nexus. Since the Multistate Tax Commission adopted its model law Factor Presence Nexus Standard for Business Activity Taxes in 2002, only California (beginning in 2011) and Ohio statutorily conform to it.  

"In many ways the survey results reflect what we've been seeing over the past year or so: cash-strapped states are aggressively pursuing new theories for establishing nexus and enforcing tax obligations against online vendors," said George Farrah, a senior tax analyst with BNA Tax & Accounting.

"While New York, North Carolina, and Rhode Island have each enacted laws explicitly stating their sales tax nexus policy with respect to online vendors, it seems other states may be taking a more subtle approach," he added. "The fact that 14 additional states said that they would find nexus for in-state affiliates, suggests that these jurisdictions may believe that the "Amazon-law" approach fits within their sales tax nexus policy."

While interpretations of the BNA Survey results can vary, it shows that there remains a considerable lack of consistency in state nexus policies.  While states might not be changing their nexus policies in their quest to balance their budgets in this difficult economy, it is clear that state nexus determinations have become increasingly important.

The BNA Survey, published earlier this month and based on results to a questionnaire sent to senior state tax officials in every state, the District of Columbia and New York City, aims to clarify each state's position on the gray areas of corporate income and sales and use tax administration.

This year, we substantially expanded the portion of the survey devoted to sales tax nexus. Queries were also added to ascertain each state's enforcement policies after nexus has been determined and approach to conforming to recently amendments to federal net operating loss provisions. Also included is each state's conformity to I.R.C. Section 338(h)(10), treatment of income arising from bankruptcy, position regarding intangible holding companies, and application of throwback and throwout rules.  

Highlights for this year include:

• Thirty states said after they find a company has income tax nexus, they impose tax for the entire year -- including amounts in the sales factor that occurred before nexus was established
• All but five states said an employee that telecommutes from a home located within their borders would create income tax nexus for the out-of-state employer
• Five states said remote sales of digital content such as music or videos would trigger sales tax nexus
• Fifteen states said sales tax nexus would arise from airing an "info-mercial on an in-state television station
• Only nine said nexus would arise from a "per-impression" advertising arrangement on an in-state website

Individual copies of the 2010 BNA Survey of State Tax Departments may be purchased for $185 (plus applicable state sales tax, shipping and handling) by going to http://www.bnatax.com/Survey-State-Tax-Departments-p3691//?open&cmpid=tmtxpr2010 or by calling 800.372.1033.

About BNA Tax & Accounting

BNA Tax & Accounting is the foremost source of news, analysis, and practice tools for tax attorneys, estate planners, accountants, and corporate tax and financial accounting professionals. For more than 50 years, BNA Tax & Accounting has offered practitioners expert insights and guidance on every significant issue in tax planning and financial accounting. Written by practitioners for practitioners, BNA's award-winning Portfolios offer topic-driven, in-depth guidance on transactions designed to help tax professionals achieve new levels of excellence and client service. For more information on the BNA Tax & Accounting Center featuring more than 70 State Portfolios, go to or http://www.bnatax.com/Survey-State-Tax-Departments-p3691//?open&cmpid=tmtxpr2010 call 800.372.1033.

SOURCE BNA Tax & Accounting

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