Although nexus sounds like a terrible disease, it is just a fancy word meaning a connection or link. If a company has enough of a connection or link to a state, then the state can impose its power of the company. With nexus, a state can impose its laws on the business including sales tax laws. From a sales tax perspective it can require the business to charge, collect, and remit state taxes such as sales tax. In 1992, Quill v. North Dakota was decided, which announced that having a physical presence in a state was sufficient nexus to require a company to follow a state’s state and local tax laws. In other words if your business has an office, a warehouse, some inventory, or a person (employee and yes, an independent contractor) then it likely has nexus under the physical presence test in Quill.
For life in the 1990’s this was big news to businesses who engaged in innovative marketing. Businesses that were on the cutting edge that sent things like mail order catalogs and floppy disks to solicit customers were being harassed by states alleging they had nexus. Today, with the internet as the backbone to the modern economy, states are trying the same tactics by creating laws to get more companies under its rule.
In 2008, New York led the innovative charge for click through nexus legislation. Also known as the “Amazon law,” due to its perceived targeting of Amazon, New York created a law that if a New York residents website generated over a certain number of sales in a 12 month period for a particular company, then there was a presumption that such company had nexus in New York. Amazon and Overstock took exception with this law, but ultimately lost at New York’s highest court. Unfortunately, the Supreme Court of the United States declined to hear the case.