Click-Through Nexus, often associated with the Amazon sales tax case that challenged it, is still confusing taxpayers almost a decade after the landmark case. Unfortunately, the new landmark case of South Dakota v. Wayfair that came down from the Supreme Court of the United States in mid-2018 has overshadowed this under-discussed nexus standard while simultaneously emboldening more states to aggressively enact more click-through nexus laws. Taxpayers who forget or disregard click-through nexus may be exposing themselves to a sales tax assessment down the road.

The effective dates of most economic nexus statutes are in the latter part of 2018 and early 2019 as opposed to many of the click-through nexus standards, which can go back more than a decade. The older the statute, the larger the potential tax liability looming over an unregistered business. It is more important than ever for business owners to fully understand click-through nexus.

But what exactly does click-through nexus mean? Let’s start with an example.

John’s Business is located in State A.
John’s Business makes sales through John’s website.
Terry’s Business is located in State B.
Terry’s Business makes sales through Terry’s website.
John’s website is advertised on Terry’s website.
Terry receives 5% of every sale made from the link to John’s website on Terry’s website.

This is the relationship that click-through nexus statutes target. Because you “click-through” Terry’s State B website to access John’s website, State B nexus attaches to John’s business. In other words, Terry is treated as though he is a salesman for John’s business in state B. At least, this is the position of states that have enacted click-through nexus.

The effective date of a click-through nexus statute is only one element to consider in an evaluation of whether your business should register with a state. It is vital for taxpayers to be aware of the differences in click-through nexus thresholds. The most popular threshold is more than $10,000 in the preceding 12 months. If you have received more than $10,000 of revenue in the preceding 12 months from a website that “clicks-through” to yours, you may have nexus with that state. However, $10,000 is not the only standard. Some states have more than $50,000 and at least one state has adjusted their click-through nexus threshold to mirror more of an economic nexus threshold. Connecticut for example, imposes nexus when there has been more than $250,000 in sales AND 200 retail sales in the state within the preceding 12-month period.

That begs the question: is economic nexus replacing click-through nexus? As simple as it would make it, unfortunately, it is not the case. In fact, some states are passing new click-through nexus laws simultaneously with their economic nexus laws. The message from states is clear: one way or another, they want you to register to collect sales tax.

It is difficult enough to come to the decision to register. Nevertheless, once you’ve decided to become compliant with a state, it may be more complicated than you originally thought. You may want to register to collect and remit going forward. Some states are allowing remote sellers to do this through their traditional registration program. Meanwhile, more aggressive states will want back taxes to the effective date of their click-through nexus statute. As mentioned previously, that could be over a decade of back taxes owed. There is hope in these scenarios and it comes in the form of a voluntary disclosure program. Most states have a voluntary disclosure program which allows taxpayers to register and pay back taxes for a limited period of time, such as three years, and in return the state will wipe out any further past liability. However, to qualify for these programs, a taxpayer cannot have been reached out to by the Department first.

A competent state and local tax lawyer can perform a nexus study for your business to identify which states you have click-through, or any other type of, nexus with. Once that is identified, they can work with you to limit your exposure and make the best decisions for your business as you navigate the compliance process in each state. It is often a challenging road to bring an out-of-date business up to compliance with the various nexus standards that now exist across the country. But time spent up front will feel well worth it when Departments of Revenue across the country begin issuing audit notices and tax assessments to businesses that failed to plan ahead.

Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is an executive council member of the American Bar Association Tax Section State and Local Tax Committee and the Florida Bar Tax Section. Ms. Moffa is an author of both the CCH’s Expert Treatise Library: Sales and Use Tax as well the ABA’s Sales and Use Tax Deskbook. In addition, her regular columns on state and local tax issues can be found in State Tax Notes and Actionline, a publication from the Florida Bar’s Real Property, Probate, and Trust Law Section. She also serves as assistant editor to the Sales and Use Tax Deskbook and Actionline. Ms. Moffa is a regular speaker at the American Bar Association Tax Section conferences, the Institute of Professionals in Taxation, the Florida Bar Tax Section, the Florida Bar Real Property, Probate, and Trust Law Section, and the FICPA. In her free time, she teaches as an adjunct professor at Broward College.

Additional Resources:

What is the Definition of Nexus? by Jeanette Moffa
What is Affiliate Nexus? by Jeanette Moffa
What is Economic Nexus? by Jeanette Moffa
What is Use Tax Reporting? by Jeanette Moffa

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