What Is Click-Through Nexus and How Does It Work?

Click-through nexus is a legal standard requiring out-of-state online retailers to collect and remit sales tax. This obligation arises when a remote seller generates sales from customers in a state through referral links on websites owned by in-state residents. In these arrangements, the in-state individual or business, called an affiliate, receives a commission or other consideration for directing traffic that results in a purchase. The use of an in-state affiliate to solicit sales establishes a sufficient connection, or nexus, with that state, giving it the authority to impose a sales tax collection duty.

Establishing Click-Through Nexus

The creation of click-through nexus involves a relationship between an out-of-state seller, an in-state affiliate, and a customer. The affiliate, who could be a blogger or local business, places a specialized hyperlink on their website. When a customer clicks that link and completes a purchase on the seller’s website, that sale is attributed to the affiliate’s referral. States with these laws set specific monetary thresholds for sales generated through such in-state referrals.

Many of these laws were built on a “rebuttable presumption.” This means that if a seller’s sales from in-state affiliate referrals exceeded a certain threshold, the law presumed that nexus had been created.

The seller can challenge, or rebut, this presumption by providing proof that the in-state affiliates did not engage in direct solicitation activities within the state on their behalf. This could involve showing that the affiliate’s activities were limited to placing a link on a website without additional promotion. If the seller cannot successfully rebut the presumption, the sales tax collection obligation stands.

The Impact of Economic Nexus

The landscape of sales tax nexus was altered by the 2018 Supreme Court decision in South Dakota v. Wayfair. This ruling eliminated the requirement that a business must have a physical presence in a state for that state to impose a sales tax collection duty. In its place, the court approved economic nexus, which allows states to require tax collection based on a remote seller’s economic activity, measured by the volume of sales or the number of transactions.

Following the Wayfair decision, nearly every state with a sales tax has adopted economic nexus laws. The most common thresholds are $100,000 in annual sales or 200 separate transactions into the state. Because these economic nexus thresholds apply to all of a business’s sales into a state, they are much broader than the older click-through nexus rules. As a result, economic nexus has become the primary standard for most online sellers, and many states have repealed their click-through nexus laws as they are now largely superseded by these broader standards.

Compliance Obligations

Once a business determines it has established nexus in a state, whether through click-through, economic, or other standards, it must register for a sales tax permit with that state’s department of revenue. This registration provides the business with the legal authority to collect sales tax from customers in that jurisdiction.

After registering, the business must begin collecting the correct amount of sales tax on all taxable sales. This requires configuring e-commerce platforms to accurately calculate the combined state and local tax rates, which can vary by address. Many online sellers use automated tax software to manage this complexity.

The final step is to file sales tax returns and remit the collected taxes to the state. The frequency of these filings—monthly, quarterly, or annually—is determined by the state and is often based on the volume of sales. Businesses must file a return in every state where they are registered, even for periods with no sales. Failure to collect and remit these taxes can result in the business being held liable for the uncollected amount, plus penalties and interest.