Economic Nexus by State

On June 21, 2018, the US Supreme Court overturned the 1992 Quill decision that required a company to have nexus that involved a physical presence within a state for that state to require them to withhold sales tax. The decision in South Dakota v. Wayfair will have a direct impact on how nexus is determined and how states collect sales tax in states throughout the country.

What Is an Economic Nexus Law?

The 1992 Quill decision was made before the rise of eCommerce, and was seen, by many states, as out of touch with current economic conditions. States started to see a decline in sales tax revenue in the early 2000s, which accelerated in the last decade. As a result many of them started to pass what are known as Economic Nexus laws.

These laws effectively tell online sellers that regardless of their physical presence, if they meet the minimum threshold for number of sales or total sales volume, they must collect and remit sales tax for sales that ship to residents in that state. The first of these laws was passed nearly 15 years ago in Ohio, but it wasn’t the last. There were more than 20 such laws on the books or under consideration when South Dakota passed Senate Bill 106, which not only established economic nexus, but was aggressive in pursuing those that did not comply. The result was a lawsuit by those vendors – Wayfair, Newegg, Overstock.com and Systemax. The lawsuit moved through the court systems until the Supreme Court weighed in and, in 2018, overturned the Quill decision, making economic nexus legal and constitutional.

Implications of Economic Nexus for Online Sellers

While not specifically noted in the Supreme Court’s decision, the language outlines the need for common sense thresholds to avoid excessive burden on small vendors. The result is that most states have adopted a threshold of $100,000+ in sales per year or 200+ separate sales transactions per year. In addition, many states are implementing Marketplace Facilitator laws that task marketplaces like Amazon and eBay to collect sales tax on behalf of the third-party vendors who use their sites, simplifying the process.

Most states that have laws on the books, bills pending, or potential new legislation have avoided attempting to collect sales tax retroactively. That means businesses that meet these thresholds will need to be compliant from the date they were enacted, or from the point in 2018 when they were upheld. It’s important to evaluate the specific rules for your state, however. While many states are attempting to keep it simple by participating in the Streamlined Sales and Use Tax Agreement or implementing Marketplace Facilitator laws, they aren’t all the same. Especially if you do a large volume of business across multiple states, it’s important to know exactly what is expected of you in each.

Small Business Exception

Most states have economic nexus laws as well as a small business exception, but the rules that govern these exceptions vary by state. If your sales meet or exceed the exception threshold for a given state, you are required to register, collect, and remit sales tax to your customers within that state. The following map shows the different exemption thresholds.

Current Economic Nexus Laws

In the chart below, you will find a reference to the implementation of the current nexus laws, links to the original source material from the state, and a summary of who qualifies and what is currently required. This is a high-level overview that’s meant to give you an idea of the breadth of the laws and any small seller exemptions; please refer to the actual law when making business decisions.

Notes

¹ In Arizona, the threshold was $200,000 in 2019, $150,000 in 2020, and is $100,000 beginning in 2021 and for all future years.

² In Connecticut, the threshold was $250,000 and 200 retail transactions until July 1, 2019. Beginning on July 1, 2019, the above-stated thresholds of $100,000 and 200 retail transactions are in effect.

³ In Georgia, the threshold was $250,000 or 200 retail transactions until January 1, 2020. Beginning on July 1, 2020, the above-stated thresholds of $100,000 or 200 retail transactions are in effect.

⁴ Illinois liability must be reviewed each quarter.

⁵ In Iowa, the threshold was $100,000 or 200 transactions until July 1, 2019, when the threshold listed above came into effect.

⁶ In Maine, the threshold was $100,000 or 200 transactions until December 31, 2021. On January 1, 2022, the threshold listed above came into effect, with only $100,000 and no number-of-transactions threshold.

⁷ In Tennessee, the threshold was $500,000 until October 1, 2020, when the threshold was changed to $100,000.

⁸ In Wisconsin, prior to February 20, 2021, the threshold also included 200 transactions.

⁹ In South Dakota, prior to July 1, 2023, the threshold also included 200 transactions.

¹⁰ In Louisiana, prior to August 1, 2023, the threshold also included 200 transactions.

¹¹ In Indiana, prior to January 1, 2024, the threshold also included 200 transactions.

Last updated April 30, 2024