Sales Tax: Affiliate Nexus & Click-Through Nexus Explained

Feb 19, 2024 | E-Commerce, Sales Tax

In the days before South Dakota v. Wayfair became the law of the land, states sought to make sure that any business who benefitted from doing business in their state also collected sales tax from buyers in that state. 

One way they did this was with “affiliate nexus” or “click-through nexus.” Let’s dig into what these types of nexus are and if you still need to worry about them in this post-Wayfair day and age. (Short answer: yes.) 

What is affiliate nexus? What is click-through nexus?

Affiliate nexus is a form of physical presence that can cause a business to have sales tax nexus in a state even if they don’t have any other business presence in that state. It’s easiest to look at an example. 

Say Victor’s Vacuums sells super special vacuum cleaners that really suck (up all the dirt in your home.) Demonstrations of these vacuum cleaners are really fun and soon a legion of TikTokers are making videos of the vacuum in action. To capitalize on this, Victor offers an affiliate program. Anybody who makes a video or otherwise recommends Victor’s Vacuums, and that recommendation results in a sale, Victor gives that “affiliate” a small percentage of the sale price of the vacuum. 

This same concept became known as “click-through nexus” when states began specifically applying it to the world of e-commerce and online marketing. (Click-through nexus is always affiliate nexus. But affiliates aren’t always using the internet. For example, someone who demonstrates one of Victor’s vacuums in person could still be an affiliate.)

Back before Wayfair, states wanted to ensure that any business using affiliates in their state, even if that business had no other physical presence in the state, were collecting sales tax. The way the states saw it, a business’s in-state affiliates created physical presence. 

Once e-commerce became more prevalent, states saw things like online affiliate programs as just another way businesses were doing business in their state. 

Though economic nexus is now the much more well-known form of sales tax nexus, many states still have affiliate nexus laws on the books. And affiliate nexus can be much easier to achieve than economic nexus.

Where do I have affiliate nexus? 

These days, most online retailers are accustomed to hitting nexus thresholds before having to register and collect sales tax. In many states, these economic nexus thresholds are $100,000 or over 200 transactions. Sometimes they are even higher. 

But affiliate nexus is different. Some states have thresholds as low as $50,000 or even $10,000. The affiliate nexus threshold in Pennsylvania is $0. That means if you get even one affiliate sale from an affiliate in Pennsylvania, you are considered to have sales tax nexus in the state and are required to collect sales tax from all buyers in Pennsylvania on all of your sales channels. 

This is where Hands Off Sales Tax can help. If you use affiliates, we’ll double check that your business is in compliance with the affiliate nexus laws that are still on the books.

Contact HOST to get started!