Spotlight on Multistate Taxation: Does the Wider Adoption of "Affiliate Nexus" Statutes Expand State Sales and Use Taxing Jurisdiction Beyond Constitutional Boundaries?

by Baker Donelson

When it comes to state and local taxation, states regularly push the envelope when asserting taxing jurisdiction or "nexus" over out-of-state taxpayers. One such position that is becoming widespread in state statutes is that of "affiliate nexus," a branch of the "attributional nexus" concept. At its annual meeting this July, the Multistate Tax Commission announced the formation of a working group to draft a model affiliate nexus statute. 

Not only must internet and other remote/mail order sellers be cognizant of these state laws, this latest state tax trend also applies to franchisors, financial services businesses, health care and other service providers, lessors and affiliated manufacturing and distribution operations, among others.

What is "Attributional Nexus"?

"Attributional nexus" has long been a means by which states have asserted their taxing jurisdiction over an out-of-state company based on the physical presence of an in-state actor. Although similar, so-called "click-through nexus" is distinguishable as that nexus concept relies on an in-state person, related or unrelated to the seller, providing an internet hyperlink on the person's website to a remote seller's website. Attributional nexus can be traced to the 1961 U. S. Supreme Court decision in Scripto, Inc. v. Carson. Scripto sustained Florida's imposition of a use tax collection obligation over an out-of-state seller based on the presence in Florida of independent contractors soliciting sales for the seller. Although Scripto was characterized by the Supreme Court in Quill Corp. v. North Dakota as the "furthest extension" of state taxing power, the real test of whether the physical presence of one person could be attributed to an out-of-state company to compel a tax collection or payment was established by the Supreme Court in Tyler Pipe Industries, Inc. v. Washington . Again, the presence of independent contractors was at issue, and the court upheld the state of Washington's tax on an out-of-state company because the independent contractors' activities were "significantly associated with the taxpayer's ability to establish and maintain a market in this state for sales."

From independent contractors and school teachers to retailers, loan originators, distributors, installers and warranty service providers, states have routinely sought to establish the requisite relationship between in-state persons and entities with out-of-state taxpayers to confer or attribute the in-stater's physical presence to the out-of-state taxpayer. While the usual target of these state efforts is the out-of-state mail order or internet seller, any out-of-state taxpayer is susceptible depending on the nature of its arrangements and activities of in-state persons, whether or not they are related by common ownership.

Until more recently, most states have solely relied on their interpretations of case law when asserting attributional nexus over out-of-state taxpayers. Now, however, an increasing number of states have enacted "affiliate nexus" statutes that establish a presumption of nexus when an in-state entity and out-of-state entity are related or commonly owned or controlled (affiliated) and share certain business attributes. The attributes relied on by the affiliate nexus statutes aggressively push the envelope of attributional nexus and are constitutionally suspect -- but nevertheless present compliance dilemmas for taxpayers.

Affiliate Nexus: The Case Law

Historically, out-of-state taxpayers typically fared well when a state asserted taxing jurisdiction based on the presence in the state of an affiliated entity. Even when an in-state affiliated retailer carried on some activities that benefited an out-of-state mail order seller, states often met with limited success when attempting to assert attributional nexus over the mail order seller. However, states have recently secured some troubling victories. Although largely a sales and use tax trend, "affiliate nexus" also can impact corporate income taxes, as evidenced by the California Superior Court decision in Harley Davidson, Inc. v. Franchise Tax Board that upheld the assertion of income tax nexus over affiliated out-of-state securitization entities based on the in-state presence of a dealer network and affiliated member loan origination.

The New Mexico Supreme Court in N.M. Tax'n & Revenue Dep't v., LLC , and a California Court of Appeal in Borders Online, LLC v. State Bd. of Equalization , held that in-state affiliates operating retail stores aided affiliated internet sellers in establishing and maintaining markets in New Mexico and California. In, LLC, the affiliated retail entity sold gift cards that were also redeemable on the internet seller's website, the retailer had a policy of sharing customer e-mail addresses with the affiliated internet seller, both affiliated entities shared a customer loyalty program, the retailer had a policy of accepting returns of merchandise purchased by customers from the internet seller, and the retailer and internet seller used common logos and trademarks. The New Mexico Supreme Court found that these facts all contributed to the court's decision that the internet seller had nexus with New Mexico. Likewise, in Borders Online, LLC, the California Court of Appeal held that because the affiliated retailer had a policy of accepting returns of merchandise purchased from the affiliated internet seller, the internet seller had nexus with California for purposes of the sales and use tax.

Conversely, a federal district court in St. Tammany Parish Tax Collector v.  rejected shared customer loyalty programs, gift cards and in-state retailer acceptance of merchandise returns, among other factors, as sufficient to attribute an in-state affiliated retailer's Louisiana nexus to an out-of-state affiliated internet seller. The federal court rejected a finding of nexus because the in-state retailer did not act as a sales presence for the internet seller and, although the internet seller benefited from the retailer's activities, the activities and shared programs were not shown to generate revenue for the internet seller directly as a result of the in-state retailer's activities.

Affiliate Nexus: The Statutes

Affiliate nexus statutes are not a recent phenomenon. For example, California has long had an affiliate nexus statute, which  it expanded in 2012. New York, although perhaps better known for having ushered in "click-through nexus," in 2009 enacted an affiliate nexus statute asserting nexus based on the use of common trademarks and trade names by affiliates. Merely being a member of an affiliated group filing a federal consolidated return that includes a member that has nexus in the taxing state has been sufficient to impose sales and use taxes under some of the state statutes.

Beginning in 2012 and spreading considerably during the 2013 state legislative sessions, a number of states expanded existing affiliate nexus statutes or enacted new such statutes, including Alabama, California, Georgia, Iowa, Kansas, Maine, Missouri, Texas, Utah and West Virginia. Some of these statutes share two troubling similarities.

First, a number establish statutory nexus presumptions. That is, if the in-state affiliate performs certain services or activities, maintains certain facilities or the affiliates share certain common business attributes, then the out-of-state company is presumed to have nexus with the state. The burden is then on the out-of-state taxpayer to rebut the presumption by proving that the in-state affiliate's services, activities, facilities and/or common business attributes are not "significantly associated with establishing and maintaining a market in this state."

Second, the statutes employ controversial factors as presumptive alternative grounds to assert nexus. Some such controversial factors are:  

  1. the in-state and out-of-state affiliates share similar trademarks, trade names or logos; or
  2. the out-of-state company has a franchisee or licensee operating in the state; or
  3. the affiliates sell a similar line of products or have common business plans.

These presumptions are constitutionally suspect under various factual circumstances. For instance, if an in-state company displays a similar trademark or sells a similar line of products as an out-of-state affiliate, that fact, without more, should only show that the in-state company is promoting its business and not that of the out-of-state company. That in-state company is promoting its own market and selling its own products. It is not promoting the market of an out-of-state affiliate nor is it selling products for or on the account of the out-of-state affiliate simply because it displays a common trademark or sells the same products itself. Although the New Mexico Supreme Court in, LLC thought that it was a "reasonable inference" that affiliates sharing common trademarks made the in-state retailer and out-of-state internet seller indistinguishable, that similarity should not have nexus significance.

In addition, as substantive business entities carrying on economic activities, it is an axiom of the common law of taxation that the affiliates are entitled to be respected as separate entities. Thus, at a minimum, the test should be whether the use of an asset (such as a trademark) by one in-state company to promote and attract customers to its business intentionally serves as an activity that is "significantly associated with the [out-of-state company's] ability to establish and maintain a market in this state for sales." While consumers may find it difficult to distinguish between two business entities, that should be irrelevant to whether the out-of-state affiliate has nexus with the taxing state. Business activities and assets used by the in-state company to promote or enhance its business in the state should not have nexus significance for the out-of-state affiliate even if such activities or assets favorably impact the out-of-state affiliate's business.


The expansion of affiliate nexus statutes will likely increase state tax nexus controversies and increase compliance burdens for out-of-state businesses. Business planning, therefore, is essential to defending against attributional nexus challenges.

If you have any questions about how the expansion of affiliate nexus statutes may affect your business, or questions about other multistate taxation issues, please contact one of the following attorneys in the Firm's Tax Department.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.