25 Jan 2008
2 min read

If You Use an "Agent" in Another State, You Might Have Nexus

Explore a how seemingly unrelated agents can trigger state nexus. Discover more about another nexus factor based on physical presence.
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Graduate Supply House Inc. v. Alabama Department of Revenue

Here's another example of a situation where non-related people acting as your "agent" can give you nexus with another state.

This was an administrative decision recently issued in Alabama. It involves an out-of-state company that rented graduation caps and gowns to students in Alabama.

This rental company used non-related individuals working on commission to measure the students for the caps and gowns. These "agents" also provided the students (or the schools) with the taxpayer's order forms. They collected the completed order forms and submitted them to the rental company. Although there was no written agency agreement between the rental company and the people doing the measurements, the facts established that the in-state representatives were de facto or implied agents of the taxpayer. The judge ruled that the in-state representatives were clearly acting on behalf of the taxpayer when performing those duties.  The in-state representatives were also compensated for their activities or services on behalf of the taxpayer in the form of a commission. Ultimately, the in-state representatives were acting as agents of the taxpayer, and their actions on behalf of the taxpayer in Alabama allowed the taxpayer to establish and maintain its business of renting caps and gowns in Alabama. Thus, the taxpayer had nexus with Alabama.

But wait there's more: Even if the in-state company's representatives were not deemed to be de facto or implied agents of the taxpayer, the taxpayer still had nexus with Alabama because it owned caps and gowns that were being rented in Alabama, and it derived substantial income from the presence of the caps and gowns in Alabama. The physical presence of the taxpayer's income-producing property in Alabama established substantial nexus. Thus, the taxpayer was doing business in and was subject to Alabama's taxing jurisdiction.

Graduate Supply House, Inc. v. Alabama Department of Revenue, Alabama Department of Revenue, Administrative Law Division, No. S. 05-751, November 20, 2007. Let us know if you'd like a copy of this case and we'll get it to you.


We've delved into a compelling case that demonstrates the intricate nature of state nexus. Through the involvement of non-related agents, this out-of-state rental company found itself unexpectedly tied to Alabama's jurisdiction. Even without a formal agency agreement, the actions of these agents, who measured students and facilitated transactions, created a substantial presence for the taxpayer in the state.
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