Connecticut Passes “Amazon” Internet Sales Tax

Last week the Connecticut legislature enacted Senate Bill 1239 into law. The new law establishes economic nexus for sales tax on Internet retailers who have in-state affiliates. The Bill was signed into law on May 6th.

Effective July 1, 2011, any Internet retailer who has an established affiliate program using Connectict residents, AND who earns more than $2,000 per year in CT-based sales would now become subject to the state’s rules on sales tax. That means registering to collect and remit sales tax.

Nexus for sales tax is one thing. However, there could be more than just sales tax to be concerned with.

Connecticut is also an “economic presence” state for income and other taxes. Under its current law, Connecticut attempts to establish corporate tax nexus for businesses that have either a “substantial economic presence” or that derive income from sources in the state. The state doesn’t have a bright-line test for what triggers economic nexus, by says that it depends on the frequency, quantity and system nature of a business’s activities towards the state. So, on the face of it, a business that has a continuing relationship with affiliate marketers in the state could find that relationship used against it in an economic nexus determination.

Bill proponents suggest that the state could raise over $9 million each year in sales taxes, assuming Internet companies don’t simply terminate their in-state affiliate relationships rather than get caught up in the state’s tax system.

Connecticut is one of 12 states that have introduced Internet sales tax legislation this year, and is one of 6 that has passed such a law. Currently there are bills pending in Arizona, California, Hawaii, Minnesota, Mississippi, New Mexico, Texas and Vermont. Arkansas, Illinois and South Dakota both introduced and passed legislation creating an affiliate nexus tax earlier this year. These 3 states join New York, North Carolina, Rhode Island and Colorado in passing legislation.