Online Retailer Struggling with Sales Tax Nexus Issues?

June 21st, 2018 everything changed. On this day, the U.S. Supreme Court issued it's landmark ruling in the Wayfair v. South Dakota decision. The Supreme Court ruled that a business having physical presence in a state was no longer a prerequisite for a business to be required to collect and pay sales tax for sales made in that state. Previous to this ruling online retailers had been allowed to avoid having to collect sales tax.

Now an "economic nexus" is the prerequisite to collecting Sales Tax in states in which online sales are made. This can be Sales or Transaction threshold depending on the State. While some states were initially slow to act, after a number of years all states that collect sales tax now have some sort of economic nexus for online retailers on the books.

Currently 45 out of the 50 states collect Sales Tax only Alaska, Delaware, Oregon, Montana, and New Hampshire do not. Of the 45 states with Sales Tax, the economic nexus threshold ranges from Sales of $100,000 to $500,000. States such as South Dakota, Oklahoma, Alabama, Virginia, and Massachusetts have thresholds at $100,000. States such as Ohio, and Texas have thresholds of $500,000. States such as South Dakota, Massachusetts, Iowa, Connecticut, and Nebraska also count 200 transactions in the state as creating nexus regardless of the dollar figure. In Minnesota this is only 100 transactions.

States also vary in the timing of the threshold, and when the requirement to start collecting tax takes place. In many states you are required to start collecting Sales tax in the State as soon as you have passed the threshold, while in others it may be the following month, quarter, or year. States also require you get the proper licensing, registration, etc in the corresponding State before you start collecting Sales tax, further demonstrating the need for businesses to take proactive steps to stay on top of their Sales Tax Nexus situation.

State tax laws vary for in state and out of businesses, and many localities may also have additional laws. Additionally State tax laws change frequently, as such any specific information in this article may be out of date and for the most up to date sales tax nexus information consult your tax professional.