Online Sales Tax: Defining the 'Nexus'

A 1992 federal law requires retailers to collect sales tax if the company has a physical location, or a "nexus," in the state. But even that law has become a battle of wills, with state governments attempting to define a nexus as broadly as possible and online retailers trying to eliminate any nexus.

For example, some states, including Arkansas, tried to collect sales taxes from Amazon.com because it has "affiliates" - private bloggers and website owners who accepted paid advertising from Amazon - in the state. Amazon responded by firing its affiliates in those states.

"In a handful of states, because Amazon has distribution facilities in those states, they tweaked their nexus laws," Jason Brewer, spokesman for the Retail Industry Leaders Association, said.

Texas, California, Pennsylvania, Virginia, New Jersey, Tennessee and Nevada have all adjusted "physical presence" laws to force Amazon to collect the tax where it has distribution centers, Brewer said.

"Some states have been successful in requiring Amazon to collect, but we still need federal action for all the sellers, not just Amazon," he added.