Connecticut joins the ever growing list of states passing affiliate nexus law. On Wednesday, May 4, Governor Dannel P. Malloy signed the 2011-2012 Connecticut State Budget. Part of the budget includes a modernization of the nexus laws to include affiliates (or publishers). Effective July 1, the new law is similar to the laws passed in other states including Illinois, Rhode Island, North Carolina, Arkansas and New York but it has a much lower threshold. Connecticut online sales tax has been signed into law.
Dozens of other states are also seeking to modernize their nexus definition by enacting an Internet sales tax also known the Amazon tax. These new laws are part of a Main Street Fairness movement that attempts to level the playing field between online stores and brick and mortar stores.
I have included an excerpt from the budget showing the new provisions but do so only as a starting point for information. Merchants are urged to retain professional legal and accounting advice to ensure compliance with the new standards.
From the Connecticut Budget 2011-2012 (Section 128):
and (L) every person making sales of tangible personal property or services through an independent contractor or other representative who is a resident of this state, if the retailer enters into an agreement with the resident, under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet web site or otherwise, to the retailer, provided the cumulative gross receipts from sales by the retailer to customers in the state who are referred to the retailer by all residents with this type of an agreement with the retailer, is in excess of two thousand dollars during the preceding four quarterly periods ending on the last day of March, June, September and December. Such retailer shall be presumed to be soliciting business through such resident independent contractor or other representative, which presumption may be rebutted by proof that the resident with whom the retailer has an agreement did not engage in any solicitation in the state on behalf of the retailer that would satisfy the nexus requirement of the United States Constitution during such four quarterly periods.
As the above indicates, the threshold is only $2,000 (during the preceding four quarters) in sales through Connecticut affiliates to Connecticut residents. Although it is a smaller state, with fewer affiliates, it is still likely that quite a few merchants may reach this threshold. Some merchants may decide to terminate Connecticut Affiliates but they are urged to seek counsel before hand to ensure that taking such action has any effect on the existence of nexus.
There appears to be an ability to rebut the presumption of nexus but merchants and affiliates will need to consult a sales and use tax attorney to identify the procedures.
Fortunately, most of the Connecticut Affiliates I have been working with on this issue are prepared. In the event that a merchant terminates their relationship, affiliates need to have replacement merchants. Being prepared lessens the financial impact.
Affiliates may need to adapt, but survival is possible; just ask a New York Affiliate.
As always, seek qualified professional legal and accounting advice on this and other issues.