Nexus By Proxy

For years, you needed physical presence inside a state in order to have nexus in that state. If your business wasn’t inside a state, then you didn’t have a nexus issue.

But lately a number of states have attempted to expand by applying a ‘nexus by proxy’ theory. The term is actually attributional nexus and refers to the state trying to claim that if you have an entity acting on behalf of a remote seller (e.g., an in-state agent, affiliate, or unrelated “promoter”) to “establish and maintain a market” for the remote seller’s goods, you’ve got the same as physical presence.

Significant factors to this nexus by proxus may include:

  1. The nature of the relationship between the in-state vendor/promoter/affiliate/etc and the out-of-state seller;
  2. The specific activities performed in the state “on behalf” of the out-of-state seller; and
  3. Whether the arrangement appears designed to avoid tax liability.

Since 2000, no fewer than five states have enacted or proposed legislation or issued directives implementing attributional nexus standards. Here are a few noteworthy ones:


In Idaho, a new law enacted in March 2008 specified that a retailer has “substantial nexus” with the state if:

  1. The retailer and an in-state business maintaining one or more locations within Idaho are related parties; and
  2. The retailer and the in-state business use an identical or substantially similar name, trade name, trademark, or goodwill to develop, promote, or maintain sales, or the in-state business provides services to, or that inure to the benefit of, the out-of-state business related to developing, promoting, or maintaining the in-state market.

What? If you and another business are using the same trade name or trademark, you might have nexus in another state?

New Jersey has a similar law, effective 2006.


Arizona issued a ruling that details when remote sellers will be viewed as having substantial nexus with the state for purposes of the Arizona transaction privilege and use taxes.

Some of the factors that Arizona is tracking are:

  • The ability to return and exchange merchandise acquired through different subsidiaries at in-state retail store locations and to receive credit for the return or exchange that can be applied to new transactions across subsidiaries;
  • The acceptance of remote subsidiary orders by a retail subsidiary at in-state locations when a product is unavailable at the in-state location;
  • The order fulfillment of merchandise ordered by customers from a remote subsidiary through in-state retail or marketing subsidiaries; and
  • Other in-state sales and marketing efforts that promote the operations of remote subsidiaries to in-state retail customers.

New York

In New York, a new law provides that persons making sales of taxable tangible personal property or services are presumed to be soliciting business through an independent contractor or other representative if they enter into an agreement with a New York resident under which the resident, for a commission or consideration, directly or indirectly, refers potential customers, via a link on an internet website or by other means, to the seller. This presumption applies if the cumulative gross receipts from sales by the seller to in-state customers that are referred to the seller by all residents under such agreements exceed $10,000 during the preceding four quarterly periods, ending on the last days of February, May, August, and November.

Under the new law, a seller will be deemed to have met the condition of having an agreement with a New York State resident when the seller enters into an agreement with a third party that has entered into an agreement with the New York resident to act as the seller’s representative. An agreement to place an advertisement will not give rise to the presumption. However, “placing an advertisement” does not include the placement, directly or indirectly, of a link on a website linking to the website of the seller, when the consideration for placing the link is based on the volume of completed sales generated by the link.

Confused? You have a firm grasp of the situation. Nexus is confusing and you can expect a lot more as 50 states grapple with their decreasing revenue streams.