Two states, Louisiana and Alabama, recently passed legislation allowing them to tax companies making sales in the state via the Internet, even if the business doesn’t have a physical presence, or nexus. What do these laws entail, and how do they affect companies?
Louisiana’s Amazon Law
Referred to as the “Amazon Law,” Louisiana’s Act 22 allows the state to tax companies that don’t have nexus within the state.
As the Pelican Post explains, “Act 22 requires out-of-state retailers with in-state contract affiliates – individuals or businesses that refer potential customers to the seller – typically by linking to their website – to remit taxes on sales made to Louisianans.” Basically, this means the state is expanding the definition of nexus from being defined as an Internet link instead of a physical presence.
Alabama’s New Nexus Regulation
Alabama recently adopted a new regulation as well, which defines nexus within the state as exceeding $250,000 in retail sales of tangible personal property and certain additional activities, such as soliciting orders for tangible personal property through advertising.
What Does This Mean for Business Owners?
These two new laws expand the definition of nexus in an attempt to collect additional revenue. While Alabama’s regulation ties the sales back to tangible personal property, as opposed to Louisiana’s law, which only requires an Internet link, they’re both technically unconstitutional; the Quill Corp. v. North Dakota Supreme Court Case in 1992 defined nexus as an actual physical presence in the state.
These pieces of legislation also show the states’ frustration that Congress can’t move forward with the Marketplace Fairness Act (or similar legislation). Many state tax practitioners think that states will continue to pass this kind of legislation in hopes of shaking things up and perhaps finally force the hand of Congress (or even the Supreme Court) to rethink the current state tax landscape. In the meantime however, it presents challenges for small to medium sized out-of-state companies selling into these states. Should they begin collecting sales tax in these states if they meet the requirements of this unconstitutional legislation? Or should they refuse to comply on the grounds of that unconstitutionality? What about a future audit situation? Perhaps between now and an eventual audit, a large company will come forward and challenge and perhaps litigate the issue and smaller companies can rely on those challenges.
It will be interesting to see how states continue to redefine nexus, and what action Congress and/or the Supreme Court take. As always, stay tuned for more details! In the meantime, be sure to contact us if you have questions surrounding nexus in Louisiana and Alabama (or any other state) and other multi-state tax issues.
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects, including the new California Partial Manufacturer’s Exemption for Sales Tax. To learn more, contact us today at www.MilesConsultingGroup.com.