Colorado Enacts Click-Through and Affiliate Nexus Legislation

Colorado Governor John Hickenlooper has signed legislation which creates a rebuttable presumption that an out-of-state retailer has substantial nexus, effective July 1, 2014. The legislation outlines the types of business activities that create taxable sales for not only a controlled group of corporations but also for unrelated persons who perform activities on behalf of an out of state seller.

The following activities apply regardless of whether the person who has physical presence in Colorado is part of a controlled group or not. A person is presumed to be doing business in Colorado if that person enters into an agreement or arrangement with a person who has physical presence in Colorado, other than a common carrier, and the person who has physical presence:

• sells under the same or a similar business name tangible personal property or taxable services similar to those sold by the person against whom the presumption of physical presence is asserted;
• maintains an office, distribution facility, salesroom, warehouse, storage place, or other similar place of business in the state to facilitate the delivery of tangible personal property or taxable services sold by the person against whom the presumption is asserted to such person’s in-state customers;
• delivers, installs, or assembles tangible personal property in the state, or performs maintenance or repair services on tangible personal property that is sold to in-state customers by the person against whom the presumption is asserted; or
• facilitates the delivery of tangible personal property to in-state customers of the person against whom the presumption is asserted by allowing such customers to pick up tangible personal property sold by such person at an office, distribution facility, salesroom, warehouse, storage place, or other similar place of business maintained in Colorado.

The presumption may be rebutted by proof that the person, during the calendar year in question, did not engage in any activities in Colorado that are sufficient under U.S. Constitutional standards to establish nexus. The presumption does not apply to certain agreements or arrangements concerning advertising, affiliate marketing, and small businesses. The small business exception applies if the cumulative gross receipts from sales by the person outside of Colorado to instate customers in the prior calendar year is less than $50,000.

A person is also presumed to be doing business in Colorado if that person is part of a controlled group of corporations, and that controlled group has a component member, other than a common carrier, that has physical presence in Colorado, and the person who has physical presenceperforms any of the above activities or:

• uses trademarks, service marks, or trade names in Colorado that are the same or substantially similar to those used by the person against whom the presumption is asserted;

The presumption may also be rebutted by proof that the component member with physical presence, during the calendar year in question, did not engage in any activities in Colorado that are sufficient under U.S. Constitutional standards to establish nexus. (H.B. 1269, Laws 2014, effective July 1, 2014)

UPDATE: Colorado has repealed its click-through and affiliate nexus legislation, effective June 1, 2019.