Key takeaways
- Click through nexus is triggered when in-state affiliates refer customers to an out-of-state seller in exchange for a commission.
- Many states require sales tax collection once affiliate-referred sales exceed a specific threshold, such as $10,000 annually.
- Understanding nexus rules, including click through and affiliate nexus, is crucial for multi-state sales tax compliance in the digital economy.
In short: Click through nexus is a sales tax link created when in-state affiliates refer customers to an out-of-state seller for a commission. Once those referred sales pass a state threshold, often $10,000 a year, the seller must collect and remit that state's sales tax.
In the complex world of sales tax compliance, businesses face a maze of rules that vary widely by jurisdiction. One key concept is "nexus." You need to understand nexus to stay compliant with sales tax rules across different states.
Among the types of nexus, click through nexus is especially relevant in today's digital economy. This guide explains nexus in more detail and covers the specifics of click through nexus.
What is nexus?
Nexus is the connection between a business and a state that obliges the business to collect and remit sales tax on sales to customers in that state. This connection can arise in several ways. Examples include a physical presence (like a store or warehouse), employees, or significant economic activity in the state.
Nexus gives a state the legal basis to make a business collect its sales tax. Without nexus, a business has no duty to collect sales tax for that state. But the definition of nexus has changed over time, especially with the rise of e-commerce. You can also read What Is a Nexus Study and Does Your Business Need One?.
What are the nexus rules?
Nexus rules vary by state, but they generally fall into two categories: physical nexus and economic nexus. Physical nexus comes from a tangible presence, such as an office, warehouse, or employees in the state. Economic nexus is based on the value of sales or number of transactions in a state, even without a physical presence.
Economic nexus rose to prominence after the U.S. Supreme Court's decision in South Dakota v. Wayfair, Inc. (2018). The ruling let states require out-of-state sellers to collect and remit sales tax once they pass certain sales thresholds, regardless of physical presence. This greatly widened sales tax collection duties for many businesses.
What is click through nexus?
Click through nexus is a type of nexus that comes from affiliate relationships. It occurs when a business uses in-state affiliates to refer customers to its website for a commission or other payment. This link to the state is enough to require the business to collect and remit sales tax on sales from these referrals.
Click through nexus grew in importance with the rise of e-commerce and online marketing, with 16% of online sales now generated via affiliate marketing. States saw that businesses could make large sales through online affiliates without a physical presence. To capture the lost sales tax revenue, states passed click through nexus laws.
For example, say an out-of-state online retailer has a deal with a blogger in New York. The blogger earns a commission for every customer who clicks a link to the retailer's website and makes a purchase. The retailer may then have nexus in New York. This means the retailer must collect and remit New York sales tax on those sales.
What is affiliate nexus?
Affiliate nexus is a broader version of click through nexus. It covers any situation where a business has affiliates in a state who help promote or enable sales. These affiliates can be people or businesses acting for the seller, such as by advertising, referring customers, or providing services.
Many kinds of relationships can create affiliate nexus. For instance, if a company uses a local business to install or service its products, it may create nexus in that state. This broader view lets states collect sales tax from businesses that benefit from in-state activities, even if those activities are not directly sales-related.
Which states have click through nexus laws?
Many states have click through nexus laws, each with its own threshold. Sales tax rules vary widely from state to state, which makes compliance hard for businesses that sell across state lines.
States with click through nexus laws require out-of-state sellers to collect sales tax once their in-state affiliates generate a set level of sales or transactions. Thresholds vary. Common criteria include a minimum number of sales transactions or a set dollar amount of sales within a year.
Here is a comprehensive list of states that have enacted click through nexus laws, along with their specific thresholds:
- Arkansas: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- California: Requires out-of-state sellers to collect sales tax if their in-state affiliates generate more than $10,000 in sales. Total sales in California must also exceed $1 million in the preceding 12 months.
- Colorado: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.
- Connecticut: Requires sales tax collection if sales through in-state affiliates exceed $100,000 and constitute 200 or more transactions annually.
- Georgia: Requires sales tax collection if sales through in-state affiliates exceed $50,000 annually.
- Hawaii: Imposes sales tax collection obligations if total sales in the state exceed $100,000 or 200 transactions, including sales through in-state affiliates.
- Illinois: Has a click through nexus threshold of $10,000 in annual sales through in-state affiliates.
- Iowa: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.
- Kansas: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Kentucky: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Louisiana: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.
- Maine: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Maryland: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Massachusetts: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.
- Michigan: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Minnesota: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Missouri: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Nevada: Imposes sales tax collection obligations if total sales in the state exceed $100,000 or 200 transactions, including sales through in-state affiliates.
- New Jersey: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- New York: Requires businesses to collect sales tax if their New York affiliates generated over $10,000 in sales.
- North Carolina: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Ohio: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Oklahoma: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.
- Pennsylvania: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Rhode Island: Requires sales tax collection if sales through in-state affiliates exceed $5,000 annually.
- South Carolina: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.
- South Dakota: Imposes sales tax collection obligations if total sales in the state exceed $100,000, including sales through in-state affiliates.
- Tennessee: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Texas: Similar to California, Texas mandates sales tax collection if in-state sales through affiliates exceed $10,000 annually.
- Utah: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Vermont: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Virginia: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Washington: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- West Virginia: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
- Wisconsin: Requires sales tax collection if sales through in-state affiliates exceed $10,000 annually.
Why does click through nexus matter for your business?
Click through nexus matters because it can create sales tax duties in states where you have no physical presence. It reflects how commerce keeps changing in the digital age. If you understand nexus, click through nexus, and each state's rules, you can manage your tax duties and avoid pitfalls.
Staying informed and proactive about sales tax compliance is essential for any business that sells across state lines. It helps you meet your legal duties and keep operations running smoothly.
When you manage nexus and sales tax compliance well, you can focus on what you do best: growing and serving your customers. As the digital economy grows, nexus rules, including click through nexus, will only matter more. That makes them a vital area of knowledge for all businesses.
Do you need help with your sales tax compliance? Book a free call with one of our sales tax experts to find bespoke solutions for your business, optimize your tax costs, and reach millions of new potential customers.
How Taxually handles this
Taxually’s LumaTax runs a nexus analysis on your sales, helps you register in the states where you must collect, and prepares and files multi-state sales tax returns, including Canadian GST/HST. LumaTax is currently available to enterprises and accounting firms. For the full workflow, read how to automate US sales tax filing in every state.
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Frequently asked questions
What is click through nexus?
Click through nexus occurs when an out-of-state business uses in-state affiliates to refer customers, requiring the business to collect and remit sales tax on those sales.
How does click through nexus differ from physical and economic nexus?
Physical nexus involves a tangible presence in a state, economic nexus is based on sales volume, and click through nexus is related to affiliate marketing.
How can a business determine if it has click through nexus in a particular state?
A business should review the state-specific thresholds for sales or transactions generated by in-state affiliates.
What are the consequences of not complying with click through nexus laws?
Non-compliance can lead to penalties, fines, and potential audits by the state.
How can businesses manage their sales tax obligations related to click through nexus?
Businesses can stay compliant by using tax software, consulting tax professionals, and regularly reviewing their sales data against state nexus laws.
