What are the state sales tax economic nexus requirements?
Since the Supreme Court decision in South Dakota v. Wayfair on June 21, states have moved with incredible speed to enact economic nexus requirements. To keep our customers and the taxpaying public informed, Sovos has put together a South Dakota v. Wayfair economic nexus state requirements table that details pending and effective remote sales tax collection rules across the country. As tracking economic nexus rules is a continually moving target, you may want to visit this table often as Sovos is committed to keeping the table as up to date as possible.
Sales tax nexus is created when your business has a sufficient connection to a state, allowing the state to impose a tax collection and remittance responsibility on you as long as it does not represent an undue burden. With the Supreme Court’s decision in South Dakota v. Wayfair, states are no longer limited by the “physical presence” standard, established in Quill Corp. v. North Dakota in 1992. This means states are no longer restricted to enact nexus rules that require a form of physical contact.
What is economic nexus?
The concept of economic nexus refers to nexus standards that look to criteria other than physical presence in evaluating a sellers connection to that state. For example, South Dakota’s standard looked to revenue earned by sales to in-state customers ($100,000) or the total number of in-state transactions (200).
Understanding which states have enacted (or are about to enact) economic nexus standards, and how those standards are articulated in each state, is the key to maintaining compliance in this turbulent time.
What states have enacted economic nexus requirements?
To date, over 30 states have enacted economic nexus state sales and use tax requirements. These include, Alabama, Colorado, Connecticut, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Washington, and Wyoming.
What states are already collecting tax on remote commerce?
The following states have already begun collecting sales tax on remote commerce:
- Alabama, effective October 1, 2018
- Hawaii, effective July 1, 2018
- Illinois, effective October 1, 2018
- Indiana, effective October 1, 2018
- Kentucky, effective October 1, 2018
- Maine, effective July 1, 2017
- Maryland, effective October 1, 2017
- Massachusetts, effective October 1, 2017 (cookie nexus)
- Michigan, effective October 1, 2018
- Minnesota, effective October 1, 2018
- Mississippi, effective September 1, 2018
- New Jersey, effective October 1, 2018
- Nevada, effective October 1, 2018
- North Dakota, effective October 1, 2018
- Ohio, effective January 1, 2018
- Oklahoma, effective April 10, 2018
- Pennsylvania, effective April 1, 2018
- Rhode Island, effective August 1, 2017
- Vermont, effective July 1, 2018
- Washington, effective October 1, 2018
- Wisconsin, effective October 1, 2018
While a number of states have economic nexus laws already on the books and ready to take effect once Wayfair was decided, October 1, 2018 was nonetheless a pretty big day, with 11 states beginning enforcement of new nexus standards.
Refer to the Sovos Economic Nexus State Thresholds Rules Table for up to date details.
Which states recently enacted economic nexus rules requiring remote sellers to collect sales tax?
- Alabama, effective October 1, 2018
- Illinois, effective October 1, 2018
- Indiana, effective October 1, 2018
- Kentucky, effective October 1, 2018
- Michigan, effective October 1, 2018
- Minnesota, effective October 1, 2018
- Nevada, effective October 1, 2018
- New Jersey, effective October 1, 2018
- North Dakota, effective October 1, 2018
- Washington, effective October 1, 2018
However, a few more big days are taking shape, with any number of states planning on having new rules take effect on November 1st and December 1, 2018, with others beginning January 1, 2019.
Which states are about to start requiring remote sellers to collect sales tax?
- Colorado, effective December 1, 2018
- Connecticut, effective December 1, 2018
- Georgia, effective January 1, 2019
- Iowa, effective, January 1, 2019
- Louisiana, effective January 1, 2019
- Nebraska, effective January 1, 2019
- North Carolina, effective November 1, 2018
- South Carolina, effective November 1, 2018
- South Dakota, effective November 1, 2018
- Utah, effective January 1, 2019
- West Virginia, effective January 1, 2019
How will sales tax nexus affect my business?
For many sellers, it’s likely already had a substantial effect. If you haven’t already, organizations need to start planning and preparing for their expanded sales tax determination, collection and reporting responsibilities. Sovos has some suggestions on how you might start to think about maintaining your compliance in this new world:
- Many states have already articulated transactional thresholds that they deem to create “substantial nexus” with their state. While most have copied the South Dakota standard of $100,000 in sales and 200 transactions, it’s not universal. Sovos has compiled the known threshold information for each state across the country. This information can be used to forecast your expanded nexus footprint over the next few months. However, there is one proviso – most states have not been particularly clear on how total sales and total transactions should be calculated. Over the next few months, we fully expect states to publish more and more guidance on this topic.
- Evaluate your current sales tax determination and filing approach in terms of cost-effectiveness and performance. Does your solution offer accurate rates in all the jurisdictions in which you may now be on the hook for filing? And does it have the scalability to keep up with any new obligations you may have?
- Get in contact with some third-party software providers and ask how their solutions can track to your specifications. Tax automation software solutions vary in functionality, capability, and, of course, in price. You will identify the right one for your business based on how large your company is, how quickly you are growing, your existing financial applications, ERP, shopping cart vendor, and the products you sell. If planned and executed well, implementing a tax automation solution can yield a number of benefits for your organization in both the short and long term.
By overturning Quill, the Supreme Court has unleashed a flurry of state activity that is unlike to abate any time soon. By creating a new standard that is far more “facts and circumstances” oriented, state litigation over the propriety of a particular standard in light of the general complexity of compliance is certainly possible. Congressional action at the federal level is also an outside possibility. Either way, we are clearly not done!
How to Protect Your Business From Economic Nexus State Requirements
Refer to our Economic Nexus State Requirements table to determine where your next filing obligation may require significant effort from your team.
