California ~ Sales and Use Tax: Legislature Passes Click-Through Nexus Bill

The California Legislature has passed a so-called “click-through nexus” bill that would, for sales and use tax purposes and if enacted, expand the definition of “retailer engaged in business in this state” to include any retailer who enters into an agreement under which a person in California, for a commission or other consideration, directly or indirectly refers potential purchasers of tangible personal property to the retailer, whether by an Internet-based link, a website, or otherwise, provided two conditions are met. Those conditions would be (1) that the total cumulative sales price from all of the retailer’s sales within the preceding 12 months of tangible personal property to purchasers in California that are referred pursuant to such an agreement is in excess of $10,000; and (2) the retailer has total cumulative sales of tangible personal property to California purchasers in excess of $500,000 within the preceding 12 months.

An “agreement,” for purposes of this provision, would not include any agreement under which a retailer:

— purchases advertisements from a person in California, to be delivered on television, radio, in print, on the Internet, or by any other medium, unless the advertisement revenue paid consists of commissions or other consideration that is based upon sales of tangible personal property; or

— engages a person in California to place an advertisement on a website operated by that person, or operated by another person in the state, unless the person entering the agreement with the retailer also directly or indirectly solicits potential customers in California through the use of flyers, newsletters, telephone calls, electronic mail, blogs, micro blogs, social networking sites, or other means of direct and indirect solicitation specifically targeted at potential customers in the state.

The provisions would be inapplicable if the retailer could demonstrate that the person in California with whom the retailer has an agreement did not engage in referrals in the state on behalf of the retailer that would satisfy the requirements of the Commerce Clause of the U.S. Constitution.

Subscribers can view the bill as amended.

A.B. 28 (First Extraordinary Session), passed by Assembly on June 3, 2011; passed by Senate, Assembly concurred in Senate amendments, and to enrollment on June 15, 2011

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