State Takes Up Justice Kennedy’s Challenge to Rewrite Nexus [4]

With the outlook on federal sales tax fairness unclear, a Washington State lawmaker has introduced legislation that he believes could lead the U.S. Supreme Court to re-evaluate nexus in states. And in Nevada and Tennessee legislators have introduced new bills that would clarify or expand the definition of nexus to require online retailers to collect and remit sales tax to the state.

In Washington State, House Finance Committee Chairman Reuven Carlyle (D-Seattle) introduced H.B. 2224, legislation [6] that would expand the definition of what constitutes a physical presence in the state to include not only online affiliate nexus (where a remote retailer is considered to have a physical presence if it employs a broad network of affiliates doing more than $10,000 per year in the state) but also an “economic presence,” meaning a remote seller would have a physical presence if it does more than $250,000 per year in receipts from the state. Carlyle (D-Seattle) told the Olympian [7] that Supreme Court Justice Anthony Kennedy’s call to revisit what constitutes nexus [8] in a state was a “green light for action.”

Carlyle’s legislation specifically states that “the legislature intends by this act to address the significant harm and unfairness brought about by the physical presence nexus rule by testing the boundaries of the rule. This act also sets up a legal challenge to the physical presence nexus rule that could potentially lead to the United States Supreme Court reevaluating Bellas Hess and Quill, or to Congress enacting legislation authorizing and establishing the requirements for states to impose a sales tax collection duty on remote sellers.”

Under Carlyle’s proposal [6], which expands the definition of nexus over a five-year period, a remote retailer would be considered to have nexus in the state if, among other things:

  • The remote seller employs a broad network of online affiliates doing $10,000 or more in sales the preceding year.
  • The remote seller contracts with a payment processor or merchant bank, or accepts credit cards issued either by a financial institution under a license from a credit card association, that has a presence in Washington State.
  • The remote seller is a “marketplace facilitator,” such as eBay or Etsy, which have sellers in the state doing $10,000 or more in sales in the preceding year.
  • The remote seller owns more than $50,000 of property in the state and/or more than $50,000 of payroll in the state.
  • The remote seller has more than $250,000 of receipts from the state.
  • At least 25 percent of the remote sellers’ total property, total payroll, or total receipts are in the state.

Legislators in Washington’s Democratic-controlled House of Representatives hope that H.B. 2224, among other bills, will help pay for the Budget Plan, which it passed last week, as reported by the  News Tribune [9], but the House has yet to vote on it. Furthermore, on Tuesday, April 7, the state’s Republican-controlled Senate passed its own budget plan, so the two plans will have to be reconciled. At present, it is unclear as to when, and if, the House will vote on H.B. 2224.

The Olympian reported that, even with Amazon collecting sales tax in the state, Washington still loses out on about $400 million in state and local sales taxes from remote sellers.

“Just because the federal government is both impotent and incompetent in this area doesn’t mean that we in Washington, who are smart enough to know how to turn on a computer, shouldn’t move forward with this policy,” Carlyle told the Olympian.


In Tennessee, Gov. Bill Haslam has proposed The Revenue Modernization Act [10], a bill that looks to recoup lost sales tax while leveling the playing field for Tennessee businesses and retailers. Among the bill’s many facets is that it would clarify sales tax laws so that any out-of-state retailers with a broad network of online affiliates in the state doing $10,000 per year in sales would be required to collect and remit sales tax.

It would also create an “economic presence” that would require an out-of-state company to pay franchise and excise tax and the state business tax if the company has more than $500,000 in sales or $50,000 in property or payroll in the state.


In Nevada, Senators Aaron Ford (D-Las Vegas) and Ruben Kihuen (D-Las Vegas) introduced S.B. 382 [11], a bill that stipulates that a remote retailer has nexus in the state if it has a broad network of online affiliates doing business in the state or if it has a warehouse, office, subsidiary, or distribution facility in the state.

Ford told [12] that loopholes in current law put brick-and-mortar stores at a disadvantage compared with their online counterparts, especially as more consumers turn to online shopping.