California's click-through nexus law.

• Author: Burgos, Christian J.

On June 28, 2011, California Governor Jerry Brown signed a "click-through nexus" law requiring out-of-state online retailers to collect sales tax on all taxable sales of tangible personal property made through internet-based referrals (CA AB 28, Laws 2011). In response, Amazon.com and other online retail giants advised their California associates of the termination of their contracts. Such a move not only could have circumvented application of the new law to Amazon (and other online retail companies), it also threatened to negatively affect many California businesses that relied on the commissions and fees generated from Amazon's associates program during these tough economic times.

Under an agreement reached September 9, the California legislature delayed for one year the requirement that online retailers collect use tax from their customers in the state (CA AB 155, Laws 2011). Amazon in turn relented in its drive to put the issue before state voters in a repeal referendum. But the war is far from over, as Amazon lobbies for a federal law allowed for under California's postponement act.

The Amazon Law

CA Rev 6c Tax. Code Section 6203(c) (5) imposes a sales tax collection obligation on out-of-state retailers that contract with California persons to receive referrals for potential purchasers of tangible personal property in exchange for a commission or other consideration. This was originally effective June 29, 2011, and is now delayed until September 2012. The new law presumes out-of-state retailers to be engaged in business in California (i.e., have nexus) under such contractual arrangements if:

1. The total cumulative sales price from all of the retailer's sales, within the preceding 12 months, of tangible personal property to purchasers in this state that are referred pursuant to all of the agreements with a person or persons in this state, is in excess of ten thousand dollars ($10,000).

2. The retailer, within the preceding 12 months, has total cumulative sales of tangible personal property to purchasers in this state in excess of five hundred thousand dollars ($500,000). [CA Rev. & Tax. Code [section]6203(c)(5)(A)|

California's law is modeled closely after N.Y. Tax Law Section 1101(b)(8) (vi), which was enacted in 2008 and was the first attempt at a click-through nexus law. The only significant difference between the two laws is that the California law also requires an out-of-state retailer to have over $500,000 in total sales of...