Affiliate nexus tax refers to a state Bill that requires out-of-state retailers that advertise through state-based “affiliates” to collect sales tax for the state which passed the law.
It is called nexus tax because, according to a 1992 U.S. Supreme Court ruling, retailers can be required to collect sales tax only in states where they operate physical facilities (nexus). States which have passed the tax law consider web site affiliates as constituting a physical presence requiring e-retailers to collect sales tax.
The affiliate nexus tax is also called Amazon tax because Amazon accounts for one quarter of overall affiliate revenues in US. In some states, Amazon has responded by shutting down its affiliate program and more recently agreements have been found between Amazon and states that require Amazon to collect sales on January 1, 2014 — or 90 days after any federal legislation on internet sales tax is enacted, whichever comes first.
A federal legislation is waited for to solve the online sales tax issue.
Performance Marketing Association (PMA) has been fighting affiliate nexus taxes and in 2012 an Illinois judge has declared the “Amazon tax” unconstitutional and premature because of the federal moratorium on Internet taxes that runs through 2014.