Did Kansas eliminate click-through nexus for out-of-state retailers, and what replaced it?

Plain-English summary

Kansas Notice 21-23 explains that 2021 Senate Bill 50 (Section 14) amended K.S.A. 79-3702 -- the definitional section of the Kansas compensating use tax act -- to eliminate the "click-through" nexus provisions for affiliated persons related to sales and use tax collection.

What click-through nexus was. Before the amendment, K.S.A. 79-3702(h)(2) set out a presumption that a retailer was "doing business in this state" if certain in-state connections existed. One of those, the click-through provision, presumed nexus when a retailer entered into an agreement with one or more Kansas residents under which the resident, for a commission or other consideration, directly or indirectly referred potential customers (for example, by a link on a website, by telemarketing, or by an in-person presentation) to the retailer, if the referred sales exceeded $10,000 during the preceding 12 months. The presumption could be rebutted with proof (such as sworn statements) that the residents did not engage in solicitation on the retailer's behalf.

What changed. With enactment of the new "remote seller" economic-nexus provisions (see Notice 21-17 Remote Sellers), the click-through nexus presumption previously found in K.S.A. 79-3702(h)(2) and the related "affiliated person" definition in former K.S.A. 79-3702(j) -- which tied to the federal "controlled group of corporations" definition in section 1563(a) of the Internal Revenue Code -- have been eliminated. The notice reproduces the amended statutory text showing the surviving and repealed presumptions.

The practical effect. Out-of-state retailers are no longer presumed to have Kansas nexus merely because of Kansas referral (affiliate) arrangements. Instead, whether a remote or affiliated seller must collect Kansas tax now turns on the $100,000 economic-nexus threshold established for remote sellers by Senate Bill 50.

What this means for you

Out-of-state retailers with Kansas referral affiliates

• You are no longer presumed to have Kansas nexus just because Kansas residents refer customers to you for a commission.
• Whether you must collect Kansas tax now depends on the $100,000 economic-nexus (remote-seller) threshold, not on referral agreements.

Kansas referral affiliates and marketers

• Your referral arrangement no longer, by itself, triggers a collection duty for the out-of-state retailer you refer to.

All remote sellers

• Read this notice together with Notice 21-17, which sets the new $100,000 remote-seller nexus standard that replaced the click-through rule.

Common questions

What was click-through nexus? A presumption that a remote retailer was doing business in Kansas if in-state residents referred customers to it for a commission and those referred sales topped $10,000 in the preceding 12 months.

What changed under Senate Bill 50? Section 14 repealed the click-through nexus presumption and the affiliated-person definition tied to it in K.S.A. 79-3702.

What replaced it? The economic-nexus "remote seller" rules with a $100,000 threshold, explained in Notice 21-17.

Which statute was amended? K.S.A. 79-3702, the definitional section of the Kansas compensating use tax act (former subsections (h)(2) and (j)).

Citations and references

• Senate Bill 50 (2021), Section 14 -- amended K.S.A. 79-3702 to eliminate the click-through nexus provisions for affiliated persons.
• K.S.A. 79-3702 -- definitional section of the Kansas compensating use tax act; former (h)(2) click-through presumption and (j) affiliated-person definition were repealed.
• Notice 21-17 (Remote Sellers) -- the companion notice establishing the $100,000 economic-nexus threshold that now governs remote and affiliated sellers.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 21-23

Original ruling text

Policy and Research
109 SW 9th Street Phone: 785-368-8222
PO Box 3506 Fax: 785-296-1279
Topeka KS 66601-3506 www.ksrevenue.org
Mark A. Burghart, Secretary Laura Kelly, Governor

                                         NOTICE 21-23

                          CLICK-THROUGH NEXUS ELIMINATED
                                     (NOVEMBER 1, 2021)

    During the 2021 Legislative Session Senate Bill 50 was passed and signed into law. Section

14 of the Bill amends K.S.A. 79-3702 to eliminate the "click-through" nexus provisions for
affiliated persons related to sales and use tax collections.

    K.S.A. 79-3702 is the definitional section of the Kansas compensating use tax act. Prior to

amendment, K.S.A. 79-3702(h)(2) contained the "click-through" nexus provisions for affiliated
persons related to sales and use tax collections. With enactment of the new "remote seller"
provisions, [See Notice 21-17 Remote Sellers] the "click-through" nexus provisions previously
found in K.S.A 79-3702(h)(2) and (j) have now been eliminated. As amended, these provisions
state:

         (2) A retailer shall be presumed to be doing business in this state if any of the
   following occur:
         (A) Any person, other than a common carrier acting in its capacity as such, that
   has nexus with the state sufficient to require such person to collect and remit taxes
   under the provisions of the constitution and laws of the United States if such person
   were making taxable retail sales of tangible personal property or services in this state
   and such person:
         (i) (A) Sells the same or a substantially similar line of products as the retailer and
   does so under the same or a substantially similar business name;
         (ii) (B) maintains a distribution house, sales house, warehouse or similar place of
   business in Kansas that delivers or facilitates the sale or delivery of property sold by
   the retailer to consumers;
         (iii) (C) uses trademarks, service marks, or trade names in the state that are the
   same or substantially similar to those used by the retailer;
         (iv) (D) delivers, installs, assembles or performs maintenance services for the
   retailer's customers within the state;
         (v) (E) facilitates the retailer's delivery of property to customers in the state by
   allowing the retailer's customers to pick up property sold by the retailer at an office,
   distribution facility, warehouse, storage place or similar place of business maintained
   by the person in the state;
         (vi) (F) has a franchisee or licensee operating under its trade name if the
   franchisee or the licensee is required to collect the tax under the Kansas retailers' sales
   tax act; or

   (vii) (G) conducts any other activities in the state that are significantly associated

with the retailer's ability to establish and maintain a market in the state for the retailer's
sales.
(B) Any affiliated person conducting activities in this state described in
subparagraph (A) or (C) has nexus with this state sufficient to require such person to
collect and remit taxes under the provisions of the constitution and laws of the United
States if such person were making taxable retail sales of tangible personal property or
services in this state.
(C) The retailer enters into an agreement with one or more residents of this state
under which the resident, for a commission or other consideration, directly or indirectly
refers potential customers, whether by a link or an internet website, by telemarketing,
by an in-person oral presentation, or otherwise, to the retailer, if the cumulative gross
receipts from sales by the retailer to customers in the state who are referred to the
retailer by all residents with this type of an agreement with the retailer is in excess of
$10,000 during the preceding 12 months. This presumption may be rebutted by
submitting proof that the residents with whom the retailer has an agreement did not
engage in any activity within the state that was significantly associated with the
retailer's ability to establish or maintain the retailer's market in the state during the
preceding 12 months. Such proof may consist of sworn written statements from all of
the residents with whom the retailer has an agreement stating that they did not engage
in any solicitation in the state on behalf of the retailer during the preceding year,
provided that such statements were provided and obtained in good faith. This
subparagraph shall take effect 90 days after the enactment of this statute and shall apply
to sales made and uses occurring on or after the effective date of this subparagraph and
without regard to the date the retailer and the resident entered into the agreement
described in this subparagraph. The term "preceding 12 months" as used in this
subparagraph includes the 12 months commencing prior to the effective date of this
subparagraph.
(D) The presumptions in subparagraphs (A) and (B) may be rebutted by
demonstrating that the activities of the person or affiliated person in the state are not
significantly associated with the retailer's ability to establish or maintain a market in
this state for the retailer's sales.
(3) The processing of orders electronically, by fax, telephone, the internet or other
electronic ordering process, does not relieve a retailer of responsibility for collection
of the tax from the purchaser if the retailer is doing business in this state pursuant to
this section.
(i) "Director" means the director of taxation.
(j) As used in this section, "affiliated person" means any person that is a member
of the same "controlled group of corporations" as defined in section 1563(a) of the
federal internal revenue code as the retailer or any other entity that, notwithstanding its
form of organization, bears the same ownership relationship to the retailer as a
corporation that is a member of the same "controlled group of corporations" as defined
in section 1563(a) of the federal internal revenue code.

                               TAXPAYER ASSISTANCE

 Additional copies of this notice, forms or publications are available from our web site,

www.ksrevenue.org. If you have questions about this Notice, please contact:

                            Taxpayer Assistance Center
                           Kansas Department of Revenue
                           Scott Office Building, 1st Floor
                                  120 SE 10th Ave
                                   P. O. Box 3506
                              Topeka, KS 66601-3506
                                Phone: 785-368-8222
                                 Fax: 785-291-3614