SALE AND TAXATION OF GOODS OVER THE INTERNET

Attributional Nexus

Scripto v. Carson, 362 U.S. 207 (1960)

Scripto, a Georgia corporation, had established an advertising division in Florida under another company name that was separate of Scripto.  The division consisted of ten salesmen that marketed and sold products in Florida.  The contract between Scripto and the salesman made clear that the salesmen’s relationship was that of an independent contractor.  The court felt that the salesman were “actively engaged in Florida as a representative of Scripto for the purpose of attracting, soliciting, and obtaining Florida customers."  Thus, a substantial nexus existed.

Tyler Pipe Indus., Inc. v. Wash. State Dep’t of Revenue, 483 U.S. 232 (1987)

Similar to the Scripto case in that Tyler Pipe had agents, who they deemed independent contractors, in Washington doing various tasks.  Here, the sales representatives acted on behalf of Tyler Pipe in calling on its customers and soliciting orders, often establishing relationships with Tyler Pipe's customers.  Likewise, the representatives provided Tyler Pipe with much of their information “regarding the Washington market, including: product performance; competing products; pricing, market conditions and trends; existing and upcoming construction products; customer financial liability; and other critical information of a local nature concerning Tyler Pipe's Washington market.” Therefore, the court felt the activity of the agents was substantial, and contributed to maintaining a market for Tyler Pipe in Washington. 

Implications

An out-of-state seller will have nexus by attribution of a third party's in-state activities when:
  • The third party is acting "on behalf of" the out-of-state seller, and
  • The third party's activities are "significantly associated with the taxpayer's ability to establish and maintain a market in this state for the sales."
A company who doesn’t have a physical presence in a state may still be found to have a substantial nexus if its connection with an in-state third party meets the requirements.