Tax Nexus with Paul Rafelson of eCommerce Attorneys - a podcast by Michael Veazey

Tax Nexus with Paul Rafelson

What is “Tax nexus”? And is this relevant?

Tax Nexus is a question of whether a government has jurisdiction over you, ie, can they make you do things?



Eg The State of Alabama has little jurisdiction over you if you live in UK.



If you engage in certain activities, you may get “nexus”.

Does Tax nexus matter?

It depends! States that don’t have “marketplace facilitator laws” including Maine, Vermont, Louisiana, Mississippi, Florida might chase up individual Amazon sellers, or their companies.



There are 2 types of Tax Nexus



“Tax Nexus under existing laws”



In order to have tax nexus - pre wayfarer law required physical presence.



Tax Nexus under “due process”



This might happen, for example, if the business is not present in the state, but is availing itself of that state’s jurisdiction, and is attempting to capture the Alabama market (as distinct from US market)



If you don’t have due process nexus, tax nexus should not even come into play!



Eg your company didn’t put a product in Alabama - Amazon put it there.



You didn’t put it there for a strategic reason eg to get into the Alabama state.



This removes the due process nexus!



Tax Nexus Case 2011 J Macintyre 



J Macintyre had consigned inventory in a state (NJ). The supreme court found that wasn’t enough to create tax nexus. Company inventory was placed there by another company. It was put into the “stream of commerce”.



Wayfair decision - what was it, what did it mean for Amazon sellers?



This was a landmark case of summer 2018. The upshot was that Physical presence was no longer a requirement for sales tax.  Physical presence was a “bright line” law 1992-2018. There was a previous history.



The wayfarer decision said: In today’s economy,  we are no longer going to require physical presence. However...There is a 4-part test to see if a state has the right to tax a company:







* Complete nexus

* Fairly divided

* Not overly burdensome (shouldn’t favour one state over another)

* Rationally related to services and benefits you receive from the state.







Wayfair only gets to ONE of the 4 tests.



Wayfair is also a massive company - which is why when the company claimed it was an “undue burden”, the court didn’t believe them!



However, this was a case about a big company.



The court was clear that if there will be a physical nexus case, the jury is still out.



Its decision does NOT mean that small businesses don’t have the right to challenge it as overly burdensome.



Undue burden defence



The court did say “in dicto” (i.e., it’s not setting a precedent) - the way it’s going: the states are going to have to make it easy for small businesses to comply with the law.



A small business can bring a case and challenge the law; however, IF there is software out there that makes tax compliance easy,  then it’s unlikely that small business can overcome it (eg the streamlined business software). However, it’s unlikely to be solved soon!



The question is: How do you find a company that can do the 50 states compliance for a small business?



The big 4 KPMG, Deloitte, EY, PWG - too expensive!



A local accountant cannot do this!



Does tax nexus matter?



No! If you just sell on Amazon, Amazon will collect most of the tax.



Summary for US Amazon sellers



Why would now be the time to get registered for sales tax? In a few months, it won’t be your responsibility in the majority of states because Amazon will not



Yes,

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