With the development of the e-commerce industries, remote sellers like you might come across the term “economic nexus” and wonder how it impacts your business. Determining whether you are obligation for filing and/or paying sales tax or not can be overwhelming, but don’t worry; we’re more than happy to help. In this article, we will help you to understand the concept of economic nexus, its implications for your business, and each state’s economic nexus threshold you need to be complied with.
WHAT IS “ECONOMIC NEXUS”?
Economic nexus is a connection between a state and a business that establishes a basis for businesses to collect and remit sales tax when the total sales revenue or the total transactions reach a threshold set by the state requiring your business to register tax ID for sales tax, even if they don’t have a physical presence in a specific state. This concept follows the 2018 South Dakota v. Wayfair, Inc. decision.
Reference: https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf
WHY IS IT IMPORTANT?
If you’re an e-commerce company selling to customers in multiple states in the United States, it is very important to you and your business to acknowledge and understand the definition and requirements of economic nexus. Following the Wayfair decision, most states have implemented their own economic nexus laws with varying thresholds. As a remote seller especially in the e-commerce industry, it’s your responsibility to keep track of the total revenue and number of transactions in each state to be in compliance with the economic nexus law in each state.
WHEN DO WE START TO FILE SALES TAX?
When your business reaches a state’s economic threshold, your business is responsible for filing and remitting sales tax from the moment your business exceeded that threshold.
WHAT ARE THE CONSEQUENCES FOR NOT COMPLYING WITH THE LAW?
Penalties, interests, and audit risks are the most common consequences for failing to comply with economic nexus laws.
HOW CAN WE HELP?
We have a team specialized in e-commerce and we are confident to help you with sales tax compliance in each state you are reaching the economic nexus threshold. By monthly or quarterly, we help our e-commerce clients to keep track of total revenue of all e-commerce platforms (Amazon, eBay, Etsy, Shopify, etc.), determine tax obligations in the state the clients reach the threshold, and file sales tax accordingly.
ECONOMIC NEXUS THRESHOLD BY STATE
| No. | State | Nexus Threshold | |
| 1 | ALABAMA | AL | $250,000/year based on the previous calendar year’s sales. |
| 2 | ALASKA | AK | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 3 | ARIZONA | AZ | $100,000/year in gross revenue in current or previous calendar year’s sales. |
| 4 | ARKANSAS | AR | 200 transactions or $100,000 within the previous or current year. |
| 5 | CALIFORNIA | CA | $500,000/year in gross revenue on the previous or current calendar year’s sales. |
| 6 | COLORADO | CO | $100,000/year in gross revenue on the previous or current calendar year’s sales. |
| 7 | CONNECTICUT | CT | $100,000 in gross receipts during the 12-month period;/year in gross revenue AND 200 or more separate transactions on the previous calendar year’s sales. |
| 8 | DELAWARE | DE | NO SALES TAX. |
| 9 | DISTRICT OF COLUMBIA | DC | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 10 | FLORIDA | FL | $100,000 in revenue from buyers in the state in the previous calendar year (excluding marketplace sales for individual sellers). |
| 11 | GEORGIA | GA | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 12 | HAWAII | HI | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 13 | IDAHO | ID | $100,000 of sales made into Idaho in the previous or current calendar year. |
| 14 | ILLINOIS | IL | $100,000 or 200 sales transactions in the previous 12 months. |
| 15 | INDIANA | IN | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 16 | IOWA | IA | $100,000/year in gross revenue in the previous or current calendar year. |
| 17 | KANSAS | KS | More than $100,000 of cumulative gross receipts from sales to customers in the state during the current or immediately preceding calendar year. |
| 18 | KENTUCKY | KY | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 19 | LOUISIANA | LA | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 20 | MAINE | ME | $100,000 in gross revenue in the previous calendar year or current calendar year. |
| 21 | MARYLAND | MD | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 22 | MASSACHUSETTS | MA | $100,000 in sales over the preceding calendar year. |
| 23 | MICHIGAN | MI | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 24 | MINNESOTA | MN | $100,000 or 200 sales transactions in the previous 12 months. |
| 25 | MISSISSIPPI | MS | $250,000 in the previous 12 months. |
| 26 | MISSOURI | MO | $100,000 in the previous 12 months. |
| 27 | MONTANA | MT | NO SALES TAX. |
| 28 | NEBRASKA | NE | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 29 | NEVADA | NV | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 30 | NEW HAMPSHIRE | NH | NO SALES TAX. |
| 31 | NEW JERSEY | NJ | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 32 | NEW MEXICO | NM | $100,000 in the last calendar year. |
| 33 | NEW YORK | NY | $500,000 per year in gross revenue AND sales made into New York in more than 100 separate transactions in the last four quarters. |
| 34 | NORTH CAROLINA | NC | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 35 | NORTH DAKOTA | ND | $100,000 in the current or previous calendar year. |
| 36 | OHIO | OH | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 37 | OKLAHOMA | OK | $100,000 in the previous 12 months. |
| 38 | OREGON | OR | NO SALES TAX. |
| 39 | PENNSYLVANIA | PA | $100,000 in the previous 12 months. |
| 40 | PUERTO RICO | PR | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 41 | RHODE ISLAND | RI | $100,000 or 200 sales transactions in the current calendar year. |
| 42 | SOUTH CAROLINA | SC | $100,000 in the current or previous calendar year. |
| 43 | SOUTH DAKOTA | SD | $100,000 in the current or previous calendar year. |
| 44 | TENNESSEE | TN | $100,000 in the previous 12 months. |
| 45 | TEXAS | TX | $500,000 in the previous 12 months. |
| 46 | UTAH | UT | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 47 | VERMONT | VT | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 48 | VIRGINIA | VA | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 49 | WASHINGTON | WA | $100,000 in the current or previous calendar year. |
| 50 | WEST VIRGINIA | WV | $100,000 or 200 sales transactions in the current or previous calendar year. |
| 51 | WISCONSIN | WI | $100,000 in the current or previous calendar year. |
| 52 | WYOMING | WY | $100,000 or 200 sales transactions in the current or previous calendar year. |
Leave a Reply