How can these online retailers get away with not collecting tax on purchases made in states where they have affiliations?
The relative newness of the Internet as a shopping medium and the rise of affiliate marketing has in some ways clouded the issue. Many online retailers will point to a 1992 Supreme Court judgment, Quill Corp. v. North Dakota, to justify why they are not collecting sales tax in states where they have affiliates. The Quill decision does underscore the need for “nexus” — that without nexus it would be too burdensome for a company to collect sales tax in every state due to the complexity of various state and local sales tax systems. However, Quill — which was written before the advent of online affiliates — does not change the meaning of nexus. A company has nexus in a state through a retail store, warehouse, office, or sales agent. Though the definition of nexus varies slightly from state to state, on balance, ABA believes an affiliate in a state constitutes nexus since the affiliate clearly acts as an office and/or sales agent for the company.
