Affiliate Nexus: Trademarks, Trade Names, And Substantial Ownership
Many affiliate nexus statutes recently passed have cast their nets exceptionally wide by adding “pure affiliation” nexus rules similar to those that have previously been stricken down by the courts. In some states, nexus can now be based solely on the use of similar names and product lines, even if the in-state retailer does nothing on behalf of its out-of-state affiliate. This is the agency component relied on in so many cases. Every state court that has considered nexus based solely on affiliation (without that corresponding agency component) has been rejected. As a result, these expansive new statutes conflict with the established body of case law specific to this subject.
Increased enforcement and a new wave of wide-ranging statutes, combined with creating statutory presumptions based on common ownership, is an aggressive attempt at seeking nexus where nexus does not exist.
The following list is a sample of some of the more far-reaching affiliate nexus laws:
Among other things, the state statute declares nexus by affiliation exists when an in-state retailer uses “identical or substantially similar” names, trade names, trademarks or goodwill to promote or enhance sales.
Sellers are subject to sales and use tax obligations in the state if an affiliated person sells a similar line of products under the same business name as the seller.
An out-of-state seller is affiliated with an in-state retailer, and will have nexus, if they both use identical or substantially similar names, trade names, etc. and the in-state business provides services to, or that inure to the benefit of, the out-of-state affiliate related to developing, promoting or maintaining the in-state market.
A retailer is considered to have nexus if the retailer has a contract with a person located in Illinois under which the retailer sells the same or substantially similar product line as the person located in the state and uses an identical or substantially similar name, trade name, or trademarks as the person within Illinois.
A retailer is presumed to be doing business in the state, and will have nexus, if it is affiliated with an in-state retailer and the retailer sells the same or a substantially similar line of products under the same or a substantially similar business name.
Similar to the state of Alabama, in that the use of common trademarks, trade names, etc., common business plan, and/or services that inure to the benefit of the seller related to developing, promoting, or maintaining the market in the state will create affiliate nexus.
The presence of an affiliate in the state creates nexus where the in-state affiliate uses a trademark, trade name, service mark etc. similar to that of the remote affiliate, or where the in-state affiliate engages in activities that help the remote affiliate develop or maintain a market for its goods or services. Common ownership as low as 5% has been enough to cause affiliate nexus.
A retailer has nexus for sales and use tax purposes if the retailer holds a substantial ownership interest in, or is owned by, a retailer that has a place of business in Oklahoma and the retailer sells the same or substantially similar products under the same or a substantially similar name as the Oklahoma retailer.
An out-of-state seller will meet the state’s definition of a “retailer” required to collect and remit sales tax if: (a) The retailer holds a substantial ownership interest in, or is owned in whole or substantial part by (10%), a retailer maintaining a place of business within South Dakota and the retailer sells the same or substantially similar line of products as the related retailer in South Dakota and does so under the same or substantially similar business name.
The definition of a “retailer engaged in business” includes a retailer that holds a substantial ownership interest in, or is owned in whole or substantial part by, a person who maintains a location in Texas from which business is conducted, if the retailer sells the same or a substantially similar line of products and sells those products under a business name that is the same or substantially similar to the business name of the person with the location in the state.
In short, separately run Internet or mail order entities that are part of a larger retail family are likely to face increasing scrutiny by state nexus officials. Although expansive nexus statutes like those described above are constitutionally suspect, states are renewing attempts to enforce them against companies that would otherwise withstand nexus attacks under traditional alter ego and agency nexus theories.
Have some more questions? Let us know! We’re happy to help, and we love talking taxes.
Are you an Amazon seller? Check out our Amazon site!