Friday, December 7, 2012

Florida Introduces Affiliate Nexus Legislation

For the sixth year in a row, Florida legislators introduced a bill that (like many states before it) would create a rebuttable presumption that any out-of-state Internet retailer or mail order seller which enters into an agreement with a Florida resident (an “affiliate”) for paid referrals is subject to the State’s sales and use tax.  Referrals which subject out-of-state sellers to Florida tax are broadly defined and can be via “a link on an Internet website, an in-person oral presentation, telemarketing, or otherwise.”  Out-of-state sellers who have cumulative gross receipts of $10,000 or less from the referrals would not be subject to Florida tax.  As in several other states, the bill would allow sellers to rebut the presumption that they are subject to tax by submitting evidence that the affiliates “did not engage in any activity within [Florida] which was significantly associated with the dealer’s ability to establish or maintain the dealer’s market…during the 12 months immediately before the rebuttable presumption arose.”

As we have written previously, in response to a challenge by to a similar law enacted in 2008 in New York, a New York State appeals court held that the law was not unconstitutional on its face because it allows a retailer to rebut the presumption of solicitation.  The court remanded the case to the lower court to determine whether the law violated the Constitution’s Commerce and Due Process Clauses as applied to  In the meantime, as similar affiliate nexus laws have been passed in a handful of other states, many retailers have terminated their affiliate relationships.  Also, last spring, in a case argued by George Isaacson and Matt Schaefer of Brann & Isaacson, an Illinois court found that Illinois’ affiliate nexus law, which does not allow an affected retailer to rebut the statute’s conclusive determination that having affiliates in the state creates nexus, violates the Commerce Clause as well as the Internet Tax Freedom Act.

On the federal front, where Congress is considering legislation which would authorize states to impose use tax collection obligations on remote sellers and ecommerce vendors with no physical presence in the states, each of the three bills introduced remain in committee at this time.  But, none of the bills requires significant simplification of state tax systems.  In any event, with the end of the year fast approaching and Congress facing arguably more pressing matters such as the so-called “Fiscal Cliff,” it is unclear whether any of the remote collection bills will move forward.  A proposal to add one of the bills to a defense appropriations bill was recently defeated in the Senate.
We will continue to keep our readers informed of state and federal developments in this area as they arise.

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