As predicted, the Governor of North Carolina signed the budget. At about 4:30 on August 7, Governor Beverly Perdue signed the North Carolina budget, a budget that included the modernization of the nexus laws. As a result, out of state retailers who meet the sales threshold will be required to collect sales tax on sales to North Carolina residents just as if they had a brick and mortar store located in North Carolina. The sales threshold is $10,000 in total sales from all North Carolina affiliates or publishers to all North Carolina residents in the combined previous four quarters.

North Carolina has now become the third state to enact this legislation. As we wait to see the interpretation of this law I urge everyone to make educated business decisions. Contact and retain the services of a sales and use tax attorney in North Carolina. Does the law even impact you – do you meet the sales threshold? Contact the North Carolina Department of Revenue and ask for clarification on interpretation. Ask about the procedure for rebutting the presumption of nexus. Will the NY Two Step Solution work? (Remember the NY Two Step Solution includes including restrictions against soliciting for a merchant in terms and a yearly affidavit.) Or will North Carolina have an interpretation similar to Rhode Island which currently says you cannot rebut the presumption of nexus if you have affiliates/publishers in the state and meet the sales threshold.

I also urge everyone to keep professional and courteous. Merchants will need to make the decision that is right for their business and for that they cannot be faulted. The manner in which terminations happen will show if we have learned from the events and mistakes with New York affiliates. In some cases, these mistakes were repeated with Rhode Island affiliates.

Merchants, if you must terminate your relationship with North Carolina affiliates, please treat them with respect; give them as much notice as possible. Please make educated and informed decisions and don’t just react. Keep the lines of communication open.

Affiliates, if you receive termination letters please understand that merchants are making business decisions. You may not be happy with or agree with their decision but they are doing what they feel is best; hopefully it is an educated decision. Your responsibility will be to adapt. Identify replacement merchants and replace links; hopefully you are prepared and have replacements lined up and can just replace links. Remember, recovery is possible, it takes work, but there are thousands of merchants to choose from.

If we all work together and continue to communicate we can adapt and move forward.

The North Carolina Department of Revenue website is located here: http://www.dornc.com/index.html

The budget bill in North Carolina was just approved by the House of Representatives. Senate passed it a few moments earlier. The votes were as follows:  House 66-51  Senate 27-18.

The budget bill now moves on to the Governor for signing.  If signed the Internet sales tax will take effect immediately. The sales threshold is $10,000 in sales from NC affiliates to NC residents in previous four quarters.

Please see my post from this morning,  NC Moments Away from Internet Sales Tax  for more information.

Yesterday while I traveling back from Albany there were the anticipated actions in North Carolina regarding the Internet sales tax. As I expected, both the Senate and the House of Representatives accepted the report from the joint budget conference. The Budget will now come up for vote in both houses. It is expected to pass. The budget includes the Internet sales tax or advertising tax. The tax provision also has the overwhelming support of the Governor and the Secretary of Revenue. As a result of all the support, the law will be in effect very soon; the budget is overdue and the Governor will likely sign immediately.

It is expected that North Carolina, like Rhode Island, will also have a strict interpretation of the nexus definition. North Carolina can expect terminations from more merchants as word of  new nexus definition spreads. As I understand it, the law will become effective immediately upon signing. Merchants will need to take immediate action for it to have any effect. The sales threshold is $10,000 in total sales from all North Carolina affiliates to North Carolina residents in the previous four quarters. There seems to be no apparent ability to rebut; if you have NC affiliates and the sales threshold is met nexus is established.  Remember, as I have always said,  please seek professional advice, I am not a lawyer or accountant and only provide my opinions and thoughts. 

The pending legislation from the budget ( NC Budget look around page 219)

The retailer has representatives in this State who solicit business or transact business on behalf of the retailer, solicits or transacts business in this State by employees, independent contractors, agents, or other representatives, whether the mail order remote sales thus subject to taxation by this State result from or are related in any other way to such the solicitation or transaction of business. A retailer is presumed to be soliciting or transacting business by an independent contractor, agent, or other representative if the retailer enters into an agreement with a resident of this State under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet Web site or otherwise, to the retailer. This presumption applies only if the cumulative gross receipts from sales by the retailer to purchasers in this State who are referred to the retailer by all residents with this type of agreement with the retailer is in excess of ten thousand dollars ($10,000) during the preceding four quarterly periods. This presumption may be rebutted by proof that the resident with whom the retailer has an agreement did not engage in any solicitation in the State on behalf of the seller that would satisfy the nexus requirement of the

Affiliate Voice has been following and working on the North Carolina issue since early March and our work does not end with passage. Our work is far from over, in fact now comes the tough part – adapting.