Before I get into this post, I am not a Lawyer, a Tax Attorney and I cannot give advice on this. If you need legal advice, you need to contact someone who is licensed to handle your questions. This is just my opinion and in this case, just a question I cannot find an answer to so I am hoping other people jump into the conversation to help me find a more solid opinion. It is in no way meant to help or hurt any person or company and so I would like to ask that no company names are mentioned, etc…
Something that I have been looking for an answer to but cannot find anywhere, and for me it isn’t worth paying a lawyer or Tax Attornty to answer, is the question “Is adware able to create a Nexus in States that are passing advertising taxes based on Nexus because you Advertise in their State?”.
It sounds kind of ridiculous, but the thought in many states is that Nexus exists because you have someone who lives in that state showing ads to generate sales and are generating sales by showing these ads to other people who live in that State, at least from my understanding, and isn’t that sort of what Adware does? Newer tax laws also to me look like they are claiming a company has Nexus just because they show an ad, even if they don’t actually live there via Newspapers, Billboards, etc…
Adware companies rely on being able to install their software on people’s computers. Once that adware is installed on that persons computer in the form of toolbars, popups, slides, etc… it is now showing ads to all of those people in their own homes and in their own States. The thing is that the advertising could now be looked at as existing in that state because it is physically on a computer located in that state for the sole purpose of driving a sale. Affiliate’s can argue that their websites are not based in that state and that their servers are off seas so they are not advertising directly in the State to other residents of that State and the advertising medium (the website isn’t even located in the Country), but in this case the ads are physically existing in the state because the ad delivery mechanism (the adware) is actually on a computer based in that State. Some of the States are looking at any ad placed like a billboard or a newspaper as creating nexus (at least from how I understand the laws) so how would this be different? You are using an adspace in the State to show an ad and drive a sale and it can be measured.
This could have a serious impact not only on tax laws, but also a good and bad one for other industries like Affiliate Marketing, Adserving and Media Buying Agencies in both a good and bad way. The bad is that Merchants may start dropping entire programs because now they are held completely liable and cannot completely tell what came from where and may no longer want to deal with Nexus and Tax Laws. At the same time, maybe they would just drop Adware Affiliates and keep their programs live, cleaner and make it better for the non adware Affiliates? It could be good because these people would no longer be using adware that has the ability to steal from other Affiliates, other marketing channels and the Merchant themselves, but it would be bad because it would also confuse Merchants even more.
It would be bad because more people would loose their jobs, but at the same time it would add them and their deeper pockets to helping to fight the tax laws. It could be bad for many Agencies that really don’t know how sales are being driven through these vendors and Media Companies and now their Client’s could be in trouble for not collecting taxes. At the same time it could expose a ton of what I consider Unethical Practices and help put an end to adware theft and let legit companies who know what they are doing shine.
What do you all think? Is adware able to create a Nexus or is it exempt?