On April 20, 2012, Georgia Governor Nathan Deal signed legislation revising the definition of “dealer” in the Georgia statute. Under Georgia law, a dealer is required to collect and remit sales/use tax on all taxable sales to Georgia residents.
The first change to the dealer definition is to adopt a so-called “click-through nexus” law (or “Internet affiliate nexus” law), along the lines of the New York statute enacted in 2008. Georgia is now the eighth state to adopt a click-through nexus law. As previously reported in this blog, New York was the first state to adopt a nexus click-through statute, followed by Rhode Island, North Carolina, Arkansas, Illinois, Connecticut, California and Pennsylvania. (The California statute is effective only if federal legislation is not adopted, and will go into effect on January 1, 2013). (The Pennsylvania “law,” which is an administrative rule, does not commence until September 1, 2012).
*As previously reported in our blog, on April 25, 2012, the Illinois Circuit Court ruled from the bench that the Illinois “click-though nexus” (or “Internet affiliate nexus”) statute is unconstitutional under the substantial nexus requirement of the Commerce Clause and also violates the federal Internet Tax Freedom Act’s moratorium against discriminatory state taxes on electronic commerce.* (As a ruling of a court in a different state, the Illinois court’s decision striking down the Illinois statute has no direct effect on the Georgia click-through nexus law, but certainly would have some relevance in any review of the statute. )
Much like the New York law, the Georgia statute, HB 386 (LC 34 3484S/AP), provides that a retailer that enters into an agreement with one or more persons who are residents of Georgia under which the resident, for a commission or other consideration based on completed sales, directly or indirectly refers potential customers to the retailer, if the retailer’s cumulative gross receipts from sales by such persons exceed more than $50,000 during the preceding twelve months. (Under the New York law, the threshold is $10,000.) If the retailer enters into such an agreement, a presumption is created that the retailer is a dealer required to collect the Georgia sales and use tax. However, the presumption may be rebutted by submitting proof that the residents with whom the person has an agreement do not engage in any activity within Georgia that is significantly associated with the person’s ability to establish or maintain a market in Georgia during the preceding twelve months. The proof may consist of sworn written statements with the residents attesting to the fact that they have not engaged in any solicitation in the state on behalf of the retailer. It is somewhat unclear when this portion of the statute goes into effect; the earliest date is July 18, 2012 but it may be as late as December 30, 2012.
In short, the Georgia statute is modeled after the New York statute. Like the New York statute, a retailer can overcome the presumption of nexus by a showing that the resident does not engage in any activity in the state to maintain a market in the state. (This is in contrast to the Connecticut and Illinois statutes, which create a per se finding of nexus if the requisite relationship is found to exist).
The new Georgia law also provides for “affiliate nexus,” similar to the recently adopted Utah statute concerning companies related through common ownership, as discussed in my article in this blog dated April 2, 2012. This part of the law goes into effect on October 1, 2012. In particular, if a retailer and any other company under common ownership or control that has substantial nexus in Georgia sells a similar line of products in the state under a similar business name or use substantially similar trademarks or service marks, then a presumption of nexus is created. Again, this presumption can be rebutted by a showing that the in-state affiliate does not engage in any in-state activities on behalf of the retailer that are significantly associated with the retailer’s ability to establish a market.
The new Georgia law does provide a safe harbor for participation in trade show activities of five days or less and if the retailer “did not derive more than $100,000 of net income from those activities during the prior calendar year.” It is unclear whether the term “deriv[ation] . . . of net income” means sales less expenses made at the trade show or whether it means sales remotely made.
In sum, online retailers and other direct marketers should carefully scrutinize their existing relationships to make sure that their companies are not vulnerable to a finding of nexus under the new Georgia law. While such review does not necessarily mean discontinuance of click-through relationships, it does require making sure that any agreement with affiliates is tailored to overcome the presumption if sales through such affiliates are greater than $50,000.
