A first hearing on H.F. 1849, a bill filed in the Minnesota House of Representatives last month which, if enacted, would enact affiliate nexus as the law in Minnesota, was held in the House Tax Committee last week. Two prominent retailers headquartered in Minnesota—Best Buy and Target—took the lead in testifying before the House Subcommittee.

What Does the Legislation Say?

The current legislation is the latest attempt to enact an affiliate nexus law in Minnesota. Under H.F. 1849, a remote seller making sales into Minnesota would be presumed to have sales tax nexus with the state if it enters into an agreement with a Minnesota resident whereby that resident—for a commission or other consideration—directly or indirectly refers customers to the remote seller. Such referrals would include those made through a link to a website of the remote seller. The legislation does contain a rebuttable presumption. That is, the presumption that a resident placing a link to the remote seller’s retail site on its Website would create Minnesota sales tax nexus for the remote seller could be rebutted if there is proof that the resident did not engage in solicitation on behalf of the remote seller exceeding the scope of the Constitutional protections afforded under Quill.

In addition to the rebuttable presumption, the bill currently contains a so-called “small seller” exception. Specifically, in order for a remote seller to be subject to the legislation, its gross receipts from sales resulting from its agreement with a Minnesota resident must total $10,000 in a preceding 12-month period.

Winners and Losers?

The only parties who got to testify at last week’s hearing—Best Buy and Target—strongly support the passage of an affiliate nexus bill. Both companies fall within the top five retailers in the state. These retailers argue that the legislation would level the playing field between brick and mortar sellers in the state who must collect sales tax and remote sellers that are not presently under the obligation to do so.

Although the hearing only included the testimony of these retailers, Rep. Greg Davids (R), the Committee’s Chair, announced that a later hearing would be scheduled for others, including those in opposition to the bill, to testify. While there is no known number of Minnesota residents that would be affected by the legislation, those residents—or, affiliates—could certainly face the threat of termination if the legislation were to pass.


Will 2012—the third year that an affiliate nexus bill has been introduced in the chamber—be the “third-times-the-charm” for passage of an affiliate nexus law? Possibly. There does appear to be an interesting split in the chamber on this issue. Through last year, the chamber—controlled by Republicans—opposed the legislation, and even Senate Tax Committee Chair Julianne Ortman (R), who sponsored last year’s companion affiliate bill in the Senate (in Minnesota, a bill can go from House to Senate without a Senate companion bill; this House version does not presently have a Senate companion) became instrumental in bringing opposition to the table—a move that may have killed the bill.

Last week’s hearing, however, may have provided a critical preview as to where the battle is heading in Minnesota—an all-too familiar theme: Brick-and-mortars versus Internet mega-sellers like Amazon.com. Notably, Amazon does not have a physical presence in Minnesota as it does in other states where the affiliate nexus battle has been previously fought (ex. CA, NY). For example, there are no Amazon distribution centers in Minnesota. Accordingly, it would appear that unlike in other states, this battle is not meant to—and will not—bring about an “Amazon-deal” of the likes we saw in California last year.

Another interesting point: Minnesota’s personal income tax form, which now has a line for use tax reporting. While the brick and mortars argue that the imposition of this tax is simply a shift on a tax that residents are presently required to pay, remote sellers are crying foul, arguing that the legislation is nothing more than passage of a new tax.

Lastly, the threat of affiliate legislation becoming law might cause real change in the business activities in parts of the state—a scenario that may, or may not, be tenable for state legislators. As the New York Times reported last month, some affiliates in Illinois, which—like Minnesota, is within a short drive to Wisconsin—fled the state upon passage of Illinois’ affiliate nexus law. Will the exodus of a hundred or more affiliates to nearby (and, as of now, affiliate-nexus free) Wisconsin pause the current efforts in Minnesota? It may be cold in the land of 10,000 lakes but the affiliate nexus battle is red hot…