As businesses continue to expand their online presence, understanding the implications of economic nexus has become increasingly important. Economic nexus is a tax principle that necessitates companies to assemble and transmit sales taxes in states where they possess an essential economic presence, even if they have no physical presence within those regions.
In this guide, we will cover the fundamentals of economic nexus legislation and its implications for online retailers, examine how it varies across states, discuss strategies to determine whether your business meets a state's threshold for compliance, provide guidance on managing sales tax obligations in light of changing rules, and explore potential future developments such as trailing nexus. We'll also discuss strategies for determining whether your business meets a state's economic nexus threshold and provide guidance on managing sales tax compliance in light of these evolving rules.
Additionally, we will examine the future landscape of economic nexus laws as well as related concepts such as trailing nexus. By leveraging our expertise in this complex area, you can ensure your business remains compliant with ever-changing tax obligations across multiple jurisdictions.
Economic nexus is a tax concept that establishes a business's obligation to collect and remit sales taxes in states where it has significant economic activity, even if the company doesn't have a physical presence there. This principle gained widespread attention after the South Dakota v. Wayfair case in 2018, when the U.S. Supreme Court ruled that states could require online retailers to collect sales taxes based on their economic presence.
This means businesses must keep track of their sales revenue and transaction thresholds across different states to determine whether they've established an economic nexus. The criteria for establishing an economic nexus vary by state but typically include factors such as:
Total annual gross revenue from customers within the state
The number of transactions completed with customers within the state
Economic nexus is a critical notion for companies to comprehend, as it can produce notable effects on their activities and finances. With this background in mind, let's take a look at the history of economic nexus and how it has evolved over time.
The concept of economic nexus has its roots in the 2018 South Dakota v. Wayfair, Inc. Supreme Court decision. Prior to this ruling, states could only impose sales tax collection responsibilities on businesses with a physical presence within their borders (Quill Corp. v. North Dakota, 1992). As e-commerce skyrocketed, states found themselves missing out on revenue from untaxed internet sales.
In response, South Dakota enacted legislation that established an economic nexus standard based on both annual gross revenue and transaction volume thresholds for out-of-state sellers. The Wayfair case upheld this law and opened the door for other states to follow suit by passing economic nexus legislation of their own.
Today, economic nexus standards vary by state, with each state setting its own economic nexus threshold. These thresholds can be based on gross sales, gross receipts, or business activity within the state. The purpose of these thresholds is to determine when a business has established sales tax nexus, or a significant enough presence within a state to trigger tax compliance obligations.
For income tax purposes, economic presence can also create nexus, with some states using a factor presence test to determine if a business has established nexus within the state.
Overall, the Wayfair decision has had a significant impact on tax compliance for businesses operating in multiple jurisdictions or selling products online. It is important for businesses to understand the economic nexus thresholds in each state where they make sales transactions, as well as any exemptions or special rules that may apply to their specific industry or type of sales.
The background and history of economic nexus has been an important topic for many years, as it affects the way businesses are taxed. With this in mind, let us now take a look at how economic nexus can affect online retailers.
As a result of the South Dakota v. Wayfair decision, economic nexus has significantly impacted online retailers across the United States. This ruling expanded sales tax obligations for businesses, even if they don't have a physical presence in a state.
Increased compliance burden: With varying thresholds and requirements among states, online retailers must closely monitor their sales to ensure they are meeting each state's specific criteria for economic nexus.
Audits and penalties: Failure to comply with these new laws can lead to costly audits and fines from various taxing jurisdictions.
Growth challenges: Expanding into new markets now requires careful consideration of potential tax liabilities associated with increased revenue or transaction volume in different states.
To navigate this complex landscape, it is crucial for business that may need to conform with economic nexus rules to partner with experts such as Accountingprose who specialize in managing multi-state sales tax compliance. By staying informed about evolving legislation and implementing effective strategies, your business can continue thriving despite these regulatory changes.
The impact of economic nexus on small businesses is a complex issue that must be addressed in order to ensure compliance with state laws. By examining the state-by-state analysis of economic nexus laws, you can gain an understanding of how their operations may be affected by these regulations.
Economic nexus laws vary significantly from state to state, making it crucial for businesses to stay informed and compliant. Some states have passed economic nexus legislation based on gross sales or transaction thresholds, while others use a combination of both. All of this can lead to confusion and, if sales tax isn't properly handled, fines and penalties.
The state-by-state analysis of economic nexus laws should give you a better understanding of the implications and requirements for your business. Now, let's explore how to determine if you have an economic nexus in any particular state.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
October 01, 2018 |
|
$ Threshold |
Taxable Sales > $250,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous Calendar Year |
Read our complete Alabama Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
Varies depending on the jurisdiction. |
|
$ Threshold |
Gross Retail Sales Minus Wholesale Sales >=$100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous year or current calendar year. |
|
Has Nexus Laws? |
Yes |
|
Effective Date |
Marketplace Facilitators: October 01, 2019 Remote Sellers: October 01, 2019 |
|
$ Threshold |
Marketplace Facilitators: Gross Receipts From All Sales > $100,000 Remote Sellers: Gross Receipts From All Sales > $100,000 |
|
# Threshold |
Marketplace Facilitators: NA Remote Sellers: NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete Arizona Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 01, 2019 |
|
$ Threshold |
Taxable Sales > $100,000 |
|
# Threshold |
Or > 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Arkansas Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
April 01, 2019 |
|
$ Threshold |
Taxable Sales > $500,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete California Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
December 01, 2018 |
|
$ Threshold |
Gross Retail Sales Minus Wholesale Sales > $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete Colorado Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
December 01, 2018 |
|
$ Threshold |
Gross Receipts From All Sales> $100,000 |
|
# Threshold |
And >= 200 Transactions |
|
Measurement Date |
Previous Calendar Year |
Read our complete Connecticut Sales Tax Guide here.
Delaware does not have have sales tax, therefore doesn't have sales tax nexus laws.
|
Has Nexus Laws? |
No |
|
Effective Date |
NA |
|
$ Threshold |
NA |
|
# Threshold |
NA |
|
Measurement Date |
NA |
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 01, 2021 |
|
$ Threshold |
Gross Receipts From All Sales >= $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete Florida Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
January 01, 2020 |
|
$ Threshold |
Gross Receipts From All Sales> $100,000 |
|
# Threshold |
Or >=200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Georgia Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
September 30, 2020 |
|
$ Threshold |
Gross Receipts From All Sales >= $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Hawaii Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
June 01, 2019 |
|
$ Threshold |
Gross Receipts From All Sales >= $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete Idaho Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
January 01, 2020 |
|
$ Threshold |
Gross Receipts From All Sales >= $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Preceding 4 quarterly periods |
Read our complete Illinois Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
October 01, 2018 |
|
$ Threshold |
Taxable Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Indiana Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
January 01, 2019 |
|
$ Threshold |
Gross Receipts From All Sales >= $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete Iowa Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
November 01, 2021 |
|
$ Threshold |
Gross Receipts From All Sales >= $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete Kansas Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
October 01, 2018 |
|
$ Threshold |
Gross Receipts From All Sales >= $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Kentucky Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 01, 2020 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Louisiana Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
January 01, 2022 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete Maine Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
October 01, 2018 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
Or > 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Maryland Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
October 1, 2019 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
In a calendar year |
Read our complete Massachusetts Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
December 21, 2021 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous Calendar Year |
Read our complete Michigan Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
October 01, 2018 |
|
$ Threshold |
Gross Retail Sales Minus Wholesale Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Preceding 12 calendar months |
Read our complete Minnesota Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 01, 2020 |
|
$ Threshold |
$250,000 |
|
# Threshold |
NA |
|
Measurement Date |
Preceding 12 calendar months |
Read our complete Mississippi Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
January 01, 2023 |
|
$ Threshold |
$100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete Missouri Sales Tax Guide here.
Montana does not have have sales tax, therefore doesn't have sales tax nexus laws.
|
Has Nexus Laws? |
No |
|
Effective Date |
NA |
|
$ Threshold |
NA |
|
# Threshold |
NA |
|
Measurement Date |
NA |
|
Has Nexus Laws? |
Yes |
|
Effective Date |
April 1, 2019 |
|
$ Threshold |
Gross Retail Sales Minus Wholesale Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Nebraska Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
October 01, 2018 |
|
$ Threshold |
Gross Retail Sales Minus Wholesale Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Nevada Sales Tax Guide here.
New Hampshire does not have have sales tax, therefore doesn't have sales tax nexus laws.
|
Has Nexus Laws? |
No |
|
Effective Date |
NA |
|
$ Threshold |
NA |
|
# Threshold |
NA |
|
Measurement Date |
NA |
|
Has Nexus Laws? |
Yes |
|
Effective Date |
November 01, 2018 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete New Jersey Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 1, 2019 |
|
$ Threshold |
Gross Retail Sales Minus Wholesale Sales >= $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous Calendar Year |
Read our complete New Mexico Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
June 21, 2018 |
|
$ Threshold |
Gross Receipts From All Sales > $500,000 |
|
# Threshold |
And > 100 Transactions |
|
Measurement Date |
Immediately preceding four sales quarters |
Read our complete New York Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
February 01, 2020 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete North Carolina Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
June 01, 2019 |
|
$ Threshold |
Gross Retail Sales Minus Wholesale Sales > $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete North Dakota Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
August 01, 2019 |
|
$ Threshold |
Gross Retail Sales Minus Wholesale Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Ohio Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
Marketplace Facilitators: July 10, 2018 Remote Sellers: November 01, 2019 |
|
$ Threshold |
Marketplace Facilitators: Gross Retail Sales Minus Wholesale Sales >= $10,000 Remote Sellers: Gross Retail Sales Minus Wholesale Sales >= $100,000 |
|
# Threshold |
Marketplace Facilitators: NA Remote Sellers: NA |
|
Measurement Date |
Marketplace Facilitators: Preceding 12 calendar months Remote Sellers: Previous or current calendar year |
Read our complete Oklahoma Sales Tax Guide here.
Oregon does not have have sales tax, therefore doesn't have sales tax nexus laws.
|
Has Nexus Laws? |
No |
|
Effective Date |
NA |
|
$ Threshold |
NA |
|
# Threshold |
NA |
|
Measurement Date |
NA |
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 01, 2019 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Preceding 12 calendar months |
Read our complete Pennsylvania Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 01, 2018 |
|
$ Threshold |
Gross Receipts From All Sales >= $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Rhode Island Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
November 01, 2019 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete South Carolina Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
September 01, 2019 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete South Dakota Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 01, 2019 |
|
$ Threshold |
Gross Retail Sales Minus Wholesale Sales >= $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Preceding 12 calendar months |
Read our complete Tennessee Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
October 1, 2019 |
|
$ Threshold |
Gross Receipts From All Sales >= $500,000 |
|
# Threshold |
NA |
|
Measurement Date |
Preceding 12 calendar months |
Read our complete Texas Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
January 1, 2019 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Utah Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 1, 2018 |
|
$ Threshold |
Gross Receipts From All Sales >= $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Preceding 12 calendar months |
Read our complete Vermont Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 1, 2019 |
|
$ Threshold |
Gross Retail Sales Minus Wholesale Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Virginia Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
January 01, 2020 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete Washington Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
January 1, 2019 |
|
$ Threshold |
Gross Receipts From All Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
In a calendar year |
Read our complete West Virginia Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
October 01, 2018 |
|
$ Threshold |
$100,000 |
|
# Threshold |
NA |
|
Measurement Date |
Previous or current calendar year |
Read our complete Wisconsin Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
July 1, 2019 |
|
$ Threshold |
Taxable Sales > $100,000 |
|
# Threshold |
Or >= 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Read our complete Wyoming Sales Tax Guide here.
|
Has Nexus Laws? |
Yes |
|
Effective Date |
January 1, 2019 |
|
$ Threshold |
$100,000 |
|
# Threshold |
Or > 200 Transactions |
|
Measurement Date |
Previous or current calendar year |
Understanding whether your business has an economic nexus in a particular state can be complex. Each state sets its own thresholds for sales and transaction volume, which may require you to collect and remit sales tax if exceeded. To determine if you have economic nexus, follow these steps:
Analyze your sales data: Review your total revenue and number of transactions per state for the current and previous year.
Compare with thresholds: Check each state's specific threshold requirements. which vary.
Determine compliance obligations: If you meet or exceed a state's threshold, research their registration process and ensure timely collection and remittance of applicable taxes.
If this process seems overwhelming, consider partnering with experts like Accountingprose who specialize in navigating the complexities of economic nexus laws. Our team will help manage your sales tax compliance, allowing you to focus on growing your business.
It is important to understand the economic nexus laws of each state in order to properly manage your business's sales tax compliance. Managing Sales Tax Compliance with Economic Nexus requires knowledge and understanding of these laws, as well as a plan for staying up-to-date on any changes that may occur.
The landscape of economic nexus is continuously evolving, with more states adopting or modifying their laws to keep up with the rapid growth of e-commerce. Staying up-to-date on potential alterations is essential for businesses to remain compliant with the ever-changing economic nexus regulations.
Some experts predict that all 45 sales tax states will eventually adopt some form of economic nexus legislation. This means that businesses that meet the state's economic nexus threshold will be required to collect and remit sales tax on taxable sales made within the state.
Additionally, there may be increased scrutiny on how these laws are enforced. Some jurisdictions have begun implementing marketplace facilitator statutes, which would necessitate digital marketplaces such as Amazon and eBay to accumulate sales tax on behalf of third-party vendors. This could significantly impact small business owners who rely on these platforms for sales.
Trailing nexus is a concept that refers to the ongoing sales tax obligations of a business even after it has ceased operations or no longer meets the economic nexus threshold in a particular state. This can be particularly important for online retailers and SaaS companies that may have previously established an economic presence in multiple states.
To better understand trailing nexus, consider this example:
A SaaS company generates over $1 million in revenue from customers located across several states, thus establishing economic nexus with each of those jurisdictions. However, if their sales decline and they fall below the threshold for one or more states, they may still be required to collect and remit sales taxes due to trailing nexus provisions.
The duration of a sales tax nexus varies depending on the state and the specific circumstances that established it in the first place. Generally, once you have created an economic nexus in a state, you are required to collect sales tax until your business activities no longer meet the threshold requirements.
Economic nexus is a crucial concept that online retailers and businesses must understand to ensure compliance with state sales tax laws. It refers to the minimum threshold of business activity in a state that triggers sales tax obligations for out-of-state sellers. By reviewing the background and history of economic nexus, analyzing state-by-state laws, and managing sales tax compliance properly, businesses can avoid costly penalties and fines.
At Accountingprose, we specialize in helping SaaS founders, small business owners, marketing agency owners, or consulting companies navigate complex accounting issues such as economic nexus. Reach out now to uncover how we can help your business comply while concentrating on success!
Don't let Economic Nexus cause headaches for your company, contact us today so we can help you focus on what really matters - growing your business!
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Alaska Sales Tax Guide (N/A) |
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Montana Sales Tax Guide (NA) |
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Oregon Sales Tax Guide (N/A) |
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Delaware Sales Tax Guide (N/A) |
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New Hampshire Sales Tax Guide (NA) |
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