Hawaii ~ Sales and Use Tax: House Passes Click-Through, Affiliate Nexus Bill

Legislation passed by the Hawaii House of Representatives includes use tax click-through nexus and affiliate nexus provisions that would, if enacted, take effect on July 1, 2112, if the state does not, by June 30, 2013, enact a law in accordance with any federal law authorizing the states to require a seller to collect taxes on sales of goods to in-state purchasers without regard to the location of the seller. Under the legislation passed by the House, a person “engaged in business in the state” would include a seller, including an entity affiliated with a seller within the meaning of IRC §1504, that has substantial nexus with Hawaii for purposes of the Commerce Clause of the U.S. Constitution and upon whom federal law permits the state to impose use tax.

Click-Through Nexus

Under the legislation as prefiled, a seller engaged in business in Hawaii would include any seller entering into an agreement or agreements under which a person or persons in Hawaii, for a commission or other consideration, directly or indirectly refer potential purchasers of tangible personal property to the seller, whether by an Internet-based link or an Internet Web site, or otherwise, provided that:

— the total cumulative sales price from all of the seller’s sales within the preceding 12 months of tangible personal property to purchasers in Hawaii that are referred pursuant to all of those agreements with a person or persons in the state is in excess of $10,000; and

— the seller within the preceding 12 months has total cumulative sales of tangible personal property to purchasers in Hawaii in excess of $10,000.

Affiliate Nexus

Under the legislation passed by the House, a seller engaged in business in Hawaii would include:

— any seller that is a member of a commonly controlled group that includes an entity that has a substantial nexus with Hawaii and (a) sells a similar line of products as the seller and does so under the same or similar business name; or (b) uses trademarks, service marks, or trade names in Hawaii that are the same or substantially similar to those used by the seller; and

— any seller that is a member of a commonly controlled group that includes another member that, pursuant to an agreement with or in cooperation with the seller, performs services in Hawaii in connection with tangible personal property to be sold by the seller, including the design and development of tangible personal property sold by the seller, or the solicitation of sales of tangible personal property on behalf of the seller.

“Commonly controlled group” is defined in the legislation.

Changes to Prefiled Version

As previously reported, similar legislation was prefiled in the Hawaii House of Representatives on January 12, 2012. (TAXDAY, 2012/01/16, S.5) As passed by the House, changes to the prefiled version include delaying the effective date from July 1, 2013, to July 1, 2112, to facilitate further discussion; reducing the threshold for total cumulative sales of tangible personal property to purchasers in Hawaii from $1 million to $10,000 in the click-through nexus provision; and including in the affiliate nexus provision sellers that sell a similar line of products under a similar business name or use the same or similar trademarks, service marks, or trade names.

H.B. 1694, as passed by the Hawaii House of Representatives on March 6, 2012

AUTHOR

Wolters Kluwer Tax and Accounting

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