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Washington Finds Nexus in Advertising

If states could impose tax on every company that makes a sale within its borders, they would. Luckily, the Commerce Clause of the Constitution requires something known as “nexus,” or a connection, between a company and state in order for that company to be subject to state and local taxes. The standards for nexus can be ambiguous, particularly in recent years as a result of the radical changes to traditional business models that have occurred with the internet.

While nexus may seem easy to determine using the physical presence test, the definition of physical presence has in fact been something that courts across the country have struggled with since the beginning. That struggle has only become increasingly complicated with the internet and virtual marketplaces that no longer require a company to open a brick and mortar shop everywhere it wants to sell its products.

Recently, Washington state has found nexus with a company that made wholesale sales through infomercials. This particular company sent employees to Washington to participate in trade shows and other promotional events. However, they did not have a physical business location within the state.

The court found that the physical presence of employees within the state coupled with the fact that the company used several marketing firms to market its products within Washington, created the nexus required to subject this company not only to the retail sales tax, but also to business and occupational tax as well.

This holding is in stark contrast to a similar case in Florida, a state with a very similar tax scheme to Washington. In Department of Revenue vs. Share International, Inc., the Supreme Court of Florida held that a foreign corporation that sold chiropractic supplies and attended seminars in Florida for approximately three days of each year, at which it made its products available for sale, did not have nexus and therefore was not subject to Florida sales tax. This company similarly solicited customers from out-of-state through direct mail solicitation.

With all the complicated nuances and variances between states, it is obviously in the best interest of a business to limit nexus. Not having to charge sales tax makes companies more competitive, particularly against local businesses that are more established within their communities. In addition, it is a lot of work to comply with different state tax laws while maintaining a universal website for all customers.

Regardless, it is important for Taxpayers to realize that the consequence of nexus can result from aggressive advertising within Washington state. To what extent other states will use advertising to find nexus is still to be determined.

About the Authors: Gerald “Jerry” Donnini II is a partner of the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Donnini concentrates in the area of Florida and Federal tax matters, with a heavy emphasis on the tobacco, convenience store and petroleum industries . He also handles a myriad of multi-state state and local tax issues. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Us Tax and writes extensively on multi-state tax issues for

Jeanette Moffa is an associate attorney with Moffa, Sutton, & Donnini, PA, joining the firm in 2015. Jeanette earned her law degree from Florida International University College of Law. Previously Jeanette was an adjunct professor at Palm Beach State College where she teaches a variety of English courses as well as at both Broward College and Miami-Dade College. Prior to law school, she received a Master of Fine Arts in Creative Writing with a specialization in creative nonfiction from Florida Atlantic University. Before that, she attended the University of Florida for her B.A. in English

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