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How Many Ways Can a State Tax a Remote Seller?

Editor’s Note: This guest blog post comes courtesy of Gail Cole with Avalara.

There’s been a lot of focus in recent months about economic nexus, but there are many ways for a state to tax a remote sale.

Economic nexus is the preferred method du jour because of South Dakota v. Wayfair, Inc. (June 21, 2018). In Wayfair, the Supreme Court of the United States found in favor of the state and overruled a physical presence rule that long kept states from taxing remote sales. The case was triggered by South Dakota’s economic nexus law, which holds that a remote seller can establish a sales tax collection obligation solely through economic activity in the state, or economic nexus.

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More than 30 states have adopted economic nexus since Wayfair, and others are looking to do so this year. Yet although economic nexus has been in the spotlight, it’s important for businesses to remember that there are other ways to trigger nexus in distant states.

First and foremost, of course, is physical presence. The emphasis on economic activity has overshadowed the fact that a temporary physical presence — such as participation in a trade show or conference — can trigger sales tax nexus.

One of the more creative ways some states are taxing remote sales is via cookie or software nexus, which is often confused with economic nexus. Yet unlike economic nexus, which can be applied to businesses that sell strictly via mail, cookie nexus only applies to businesses that make sales over the internet. Such laws presume ecommerce vendors establish a physical presence in the state through the apps or software they place on in-state devices to enhance or facilitate sales.

A relationship with in-state affiliates (affiliate nexus) can establish a sales tax collection obligation for a remote seller, as can referrals from non-affiliated in-state businesses (click-through nexus). You can learn more about these and other ways states tax remote sales in this Avalara blog.

Perficient and Avalara drive business optimization through automating tax management for Oracle E-Business Suite customers.

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Gail Cole

Gail Cole is a guest blogger for Perficient on behalf of Avalara. She began researching and writing about sales tax in 2012 and has been fascinated with it ever since. Gail has a penchant for uncovering unusual tax facts and endeavors to make complex sales tax laws more digestible for experts and laypeople alike.

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