Georgia Tax Tribunal Finds that In-State Party without Contractual Relationship Creates Nexus for the Out-of-State Seller

March 29, 2017

Following other states who recently addressed the issue, Georgia determines that a contract isn’t required to establish nexus if the activities performed maintain a market in Georgia.

By Jeff Glickman, SALT partner

In 1992, the U.S. Supreme Court ruled in Quill that physical presence was required in order for a taxpayer to have nexus in a state for sales and use tax purposes. [1] Since then, through federal and state case law, as well as through legislative, regulatory and administrative enactments, states have considerably broadened the meaning of physical presence beyond simply having employees or property in the state.

Specifically, states have employed (and courts have accepted) the concept of “attributional nexus” whereby the physical presence and activities of a party are attributed to the taxpayer in certain circumstances. For example, it is now well-settled that the physical presence requirement may be satisfied by the physical presence of independent contractors or other representatives (related or unrelated) engaged by a company to perform activities in a state on the company’s behalf if those activities performed are “significantly associated with the company’s ability to establish and maintain a market in the state for sales of its goods and/or services.” [2]

Generally, in cases where nexus has been found based on “attributional nexus,” the out-of-state taxpayer and the in-state actor that created nexus for the taxpayer had a formal agreement that outlined the activities to be performed by the in-state actor and the compensation to be paid by the out-of-state taxpayer. However, on Feb. 14, 2017, the Georgia Tax Tribunal (the “Tribunal”) issued a decision in which it joined several other states holding that an out-of-state taxpayer can have sales and use tax nexus in Georgia even when the in-state actor is not under any formal arrangement with the taxpayer. [3]

The facts here will be very familiar to many of you. Scholastic Book Clubs, Inc. (“SBC”) distributes book catalogs to elementary school teachers who, if they choose, pass them along to their students. The students then provide their orders and money to the teacher who then submits a master order to SBC. SBC then sends the books to the teacher who distributes them to the students. Teacher and student participation is voluntary, and teachers do not receive any direct compensation (either as an employee or a contractor); however, teachers may receive bonus points in their accounts for which they can redeem books. One teacher testified that she never used bonus points for personal use, stating that “I am also not paid in any way by Scholastic for assisting my students in ordering. We do receive classroom bonus points based on my students’ order, but I would support Scholastic in the classroom even without the offer of bonus points.”

The Tribunal analyzed whether SBC was a “dealer” under O.C.G.A. § 48-8-2(8), which defines a dealer as every person who “[s]olicits business by an agent, employee, representative, or any other person…” The state argued that the teachers were, in fact, representatives of SBC. SBC argued that the teachers were not representatives since there did not exist any formal legal relationship via contract with the teachers, and thus, any teacher that facilitated an order did so voluntarily. Following the reasoning of the other states that recently addressed this issue, the Tribunal ruled in favor of the state, noting that a formal legal relationship is not required and that the teachers are the sole conduit through which SBC makes sales. In short, the Tribunal ruled that the activities performed by Georgia classroom teachers are “significantly associated with [SBC’s] ability to establish and maintain a market” in Georgia, which is the standard announced by the U.S. Supreme Court in Tyler Pipe.

States continue to be successful in expanding the concept of physical presence, or, stated another way, limiting the ruling in Quill so that nexus is not created when the only contact between an out-of-state taxpayer and the state is the delivery of goods into the state via common carrier. Regardless, taxpayers must be vigilant in understanding their contacts and activities in each state so that they can ensure compliance with sales and use tax rules.

Aprio’s SALT team can assist you by conducting a nexus study to help you better understand going forward where you should be collecting sales tax and filing sales tax returns, as well as how to mitigate any sales and use tax exposures that you may have from prior years. We constantly monitor these and other important state tax issues, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the March 2017 SALT Newsletter. To view the entire newsletter, click here.

[1] Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

[2] Tyler Pipe v. Wash. Dep’t of Rev., 483 U.S. 232 (1987).

[3] Scholastic Book Clubs, Inc. v. Riley, Comm’r of Revenue, 2017-2, Ga. Tax Tribunal, Feb. 14, 2017. Other states that have recently found Scholastic Book Clubs to have nexus include Connecticut (2012), Tennessee (2012) and Alabama (2016).

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Jeff Glickman

Jeff Glickman is the partner-in-charge of Aprio, LLP’s State and Local Tax (SALT) practice. He has over 18 years of SALT consulting experience, advising domestic and international companies in all industries on minimizing their multistate liabilities and risks. He puts cash back into his clients’ businesses by identifying their eligibility for and assisting them in claiming various tax credits, including jobs/investment, retraining, and film/entertainment tax credits. Jeff also maintains a multistate administrative tax dispute and negotiations practice, including obtaining private letter rulings, preparing and negotiating voluntary disclosure agreements, pursuing refund claims, and assisting clients during audits.