Zamp Learnings:
- An e-commerce seller has economic nexus for sales tax when they exceed a state’s nexus threshold. This threshold is generally $100,000 or 200 transactions annually but varies by state.
- Economic nexus is relatively new. The 2018 South Dakota v. Wayfair U.S. Supreme Court ruling allowed states to enforce economic nexus laws.
- Economic nexus does not replace other forms of sales tax nexus. If you have an office, store, employee, etc., in a state, you still have nexus in that state even if you don’t meet that state’s economic nexus threshold.
E-commerce sellers selling in the United States must collect sales tax in states where they have sales tax nexus. Sales tax nexus occurs when a retailer has a connection to a state, such as an office, warehouse, or other business activity. However, it can also be established simply by making a certain number or amount of sales in a state, referred to as economic nexus.
This article will explain everything you need to know about economic nexus. We’ll cover what it is, when it became legal, and look at the nexus threshold requirements by state.
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Economic nexus is defined as a connection between a state and a business that allows the state to require companies to register to collect and remit sales tax. As mentioned above, it’s established when a business reaches a threshold for transactions or sales revenue.
In many states, this threshold is $100,000 in gross sales or 200 separate sales transactions in a year. Some states may even require a sales threshold and a certain number of transactions for businesses to register and file state sales tax returns.
Economic nexus impacts companies that don’t have a physical presence in a state, such as e-commerce or other online sellers. These companies may sell goods and services in that state and meet or exceed its economic nexus threshold.
Zamp Tip
Economic Nexus Example
Earnie’s E-Commerce Emporium is based in California but sells to customers nationwide. Earnie’s has sales tax nexus in California because they are based there. But they also sell to many customers in Colorado. Last year, they sold over $300,000 annually to Colorado customers.
Colorado’s economic nexus sales tax threshold is either $100,000 in annual sales or 200 transactions. This means that even though Earnie’s E-Commerce Emporium isn’t based in Colorado and has no employees, stores, or warehouses there, it has economic nexus in Colorado and is required to collect Colorado sales tax.
Here’s a quick guide to the other types of nexus you may encounter:
- Physical Nexus: The old-school kind. If you’ve got offices, warehouses, or even a few employees in a state, congrats, you’ve got nexus!
- Affiliate Nexus: Do you have partners or affiliates in a state who promote your products? Their activities might just bring you into nexus territory.
- Click-Through Nexus: This happens when someone clicks on a website link, which leads them to your products. If enough clicks turn into sales, you’re looking at nexus.
- Marketplace Nexus: Selling on platforms like Amazon or Etsy? These big players can rope you into nexus based on their own ties to various states.
Before the Supreme Court’s June 21, 2018, decision in South Dakota v. Wayfair, e-commerce sellers were only required to collect sales tax in states where they had a physical presence, such as a store, employee, or inventory.
However, states complained. States use sales tax collected to fund budget items like schools and roads, and they realized that e-commerce sellers' failure to collect sales tax was disadvantageing them. Technically, if a consumer buys a product tax-free, they must pay a “use tax” on that item to their state. However, this is nearly impossible to enforce on consumers, especially on small purchases.
The way states saw it, large online retailers like Wayfair, Overstock, or NewEgg were making millions of dollars in sales to buyers in their states but had an unfair advantage in that they weren’t required to collect sales tax from these buyers and remit it back to the state's treasury.
Operating on that assumption, states like South Dakota decided to legally test the idea that e-commerce sellers were not required to collect sales tax from buyers in their state. They sued retailers like Wayfair et al., and the case went to the Supreme Court. The Supreme Court agreed with the states. The Wayfair ruling allows states to pass economic nexus sales tax laws.
Pre-Wayfair, retailers were generally only required to collect sales tax in states where they had a physical presence. This physical presence could be anything from having an office or store in a state to some forms of advertising or having a third-party affiliate in a state.
However, many online sellers found themselves with sales tax nexus in more states post-Wayfair. This means e-commerce companies are required to register for sales tax permits in their economic nexus states, set up sales tax collection on all e-commerce sales channels, and file and remit sales tax in multiple states.
Pre-and Post-Wayfair Sales Tax Collection Example
Before Wayfair, even a vast online store like Overstock.com was only required to collect sales tax in states where they had a physical presence.
So even though they might sell millions in sales per year into a lightly populated state like South Dakota, they were not required to collect sales tax on their sales. (Buyers who purchase an item and don’t pay sales tax are supposed to pay “use tax” to the state on that purchase, but most consumers don’t even know about this obligation.)
So, the way South Dakota saw it, they were missing out on vital sales tax revenue they used to pay for budget items like hospitals and roads.
Now, post-Wayfair, South Dakota requires large companies like Overstock.com to collect sales tax from buyers in their state. This is because Overstock (and many other e-commerce companies) meet South Dakota’s threshold of $100,000 in sales or 200 sales transactions in the current or last calendar year.
This chart shows each state’s economic nexus threshold. The threshold may be a dollar amount, such as $100,000 in sales, or it may also include a transaction amount, such as 200 or more separate transactions.
When reading economic nexus threshold information, be sure to look for tricky language. For example, some states only count retail sales, but others may count “gross receipts,” which include wholesale sales. Some states include sales made through third-party marketplaces when it comes to calculating economic nexus, while others do not.
| State | Economic Nexus Threshold | Date Implemented | Source |
|---|---|---|---|
| Alabama | Retail sales of more than $250,000 made directly by the seller during the previous calendar year. | October 1, 2018 | Alabama Department of Revenue |
| Alaska | While Alaska does not have a statewide sales tax, some municipalities have a local sales tax. In those cases, the nexus threshold is $100,000 in gross annual sales. | January 1, 2020 | Alaska Remote Sellers Sales Tax Commission |
| Arizona | Gross sales of $100,000 or more in the previous or current calendar year. | October 1, 2019 | Arizona Department of Revenue |
| Arkansas | Taxable sales of more than $100,000 or more than 200 transactions during the previous or current calendar year. | July 1, 2019 | Arkansas Department of Finance and Administration |
| California | Sales of tangible personal property exceed $500,000 during the preceding or current calendar year. | April 1, 2019 | California Department of Tax and Fee Administration |
| Colorado | More than $100,000 in retail sales in the preceding or current calendar year. | June 1, 2019 | Colorado Department of Revenue |
| Connecticut | Retail sales of at least $100,000 and 200 transactions during a 12-month period. | December 1, 2018 | Connecticut Department of Revenue Services (Conn. Gen. Stat. sec. 12-407(a)(15)(v) |
| Florida | Taxable retail sales of tangible personal property exceed $100,000 over the previous calendar year. | July 1, 2021 | Florida Department of Revenue |
| Georgia | Gross revenue from retail sales of tangible personal property exceeds $100,000, or the number of retail sales of tangible personal property is 200 or more in the previous or current calendar year. | January 1, 2020 | Georgia Department of Revenue |
| Hawaii | Gross proceeds of $100,000 or more, or 200 or more separate transactions in the preceding or current calendar year. | July 1, 2018 | Hawaii Department of Taxation |
| Idaho | Sales exceed $100,000 in the previous or current calendar year. | June 1, 2019 | Idaho State Tax Commission |
| Illinois | Gross receipts from sales of tangible personal property of $100,000 or more, or the seller makes 200 or more separate transactions during the previous 12-month period. | October 1, 2018 | Illinois Revenue |
| Indiana | Gross revenue exceeds $100,000 in the previous or current calendar year. | October 1, 2018 | Indiana Department of Revenue |
| Iowa | Gross revenue exceeded $100,000 in the previous or current calendar year. | January 1, 2019 | Iowa Department of Revenue |
| Kansas | Gross sales exceeded $100,000 in the previous or current calendar year. | July 1, 2021 | Kansas Department of Revenue |
| Kentucky | Gross receipts from sales exceed $100,000, or the seller makes 200 or more separate transactions in the previous or current calendar year. | July 1, 2018 | Kentucky Department of Revenue |
| Louisiana | Gross revenue from sales exceeds $100,000 in the previous or current calendar year. | July 1, 2020 | Louisiana Department of Revenue (La. Revenue and Taxation sec. 47:30(4)(m)(i) |
| Maine | Total gross sales of tangible personal property or taxable services in the previous or current year exceed $100,000. | July 1, 2018 | Maine Revenue Services |
| Maryland | Gross revenue from sales exceeds $100,000, or the number of transactions is 200 or more during the previous or current calendar year. | October 1, 2018 | Comptroller of Maryland |
| Massachusetts | Sales exceed $100,000 in the previous or current taxable year. | October 1, 2019 | Massachusetts Department of Revenue |
| Michigan | Gross sales (taxable and nontaxable) in the prior year exceed $100,000, or the number of transactions exceeds 200. | October 1, 2018 | Michigan Department of Treasury |
| Minnesota | Retail sales exceed $100,000, or the seller made 200 or more retail sales in the previous 12 months. | October 1, 2019 | Minnesota Department of Revenue |
| Mississippi | Sales of more than $250,000 in the previous 12 months. | September 1, 2018 | Mississippi Department of Revenue |
| Missouri | Gross receipts from taxable sales of tangible personal property exceed $100,000 annually. | January 1, 2023 | Missouri Department of Revenue |
| Nebraska | Retail sales of more than $100,000, or the number of separate transactions is 200 or more during the previous or current calendar year. | April 1, 2019 | Nebraska Department of Revenue |
| Nevada | Retail sales of more than $100,000, or the number of separate retail transactions is 200 or more in the previous or current calendar year. | October 1, 2018 | Nevada Department of Taxation |
| New Jersey | Gross revenue from sales of tangible personal property, specified digital products, or taxable services exceeds $100,000, or the number of separate transactions is 200 or more in the previous or current calendar year. | November 1, 2018 | New Jersey Division of Taxation |
| New Mexico | Taxable gross receipts of at least $100,000 in the previous calendar year. | July 1, 2019 | New Mexico Taxation and Revenue Department |
| New York | Gross receipts from sales of tangible personal property exceed $500,000, and the seller made more than 100 sales of tangible personal property in the previous four sales tax quarters. | June 21, 2018 | New York Department of Taxation and Finance |
| North Carolina | Gross sales exceed $100,000 in the previous or current calendar year. | November 1, 2018 | North Carolina Department of Revenue |
| North Dakota | Taxable sales exceed $100,000 in the previous or current calendar year. | October 1, 2018 | North Dakota Office of State Tax Commissioner |
| Ohio | Gross receipts exceed $100,000, or the seller makes 200 or more separate transactions in the previous or current calendar year. | August 1, 2019 | Ohio Department of Taxation |
| Oklahoma | Taxable merchandise sales exceed $100,000 in the previous or current calendar year. | November 1, 2019 | Oklahoma Tax Commission |
| Pennsylvania | Gross sales exceeding $100,000 in the previous calendar year. | July 1, 2019 | Pennsylvania Department of Revenue |
| Rhode Island | Gross revenue from sales of $100,000 or more, or the number of separate transactions is 200 or more in the previous calendar year. | July 1, 2019 | Rhode Island Division of Taxation |
| South Carolina | Gross revenue from sales of tangible personal property, products transferred electronically, and services delivered into the state exceed $100,000 in the previous or current calendar year. | November 1, 2018 | South Carolina Department of Revenue |
| South Dakota | Gross revenue from sales exceeds $100,000 in the previous or current calendar year. | November 1, 2018 | South Dakota Department of Revenue |
| Tennessee | Retail sales of $100,000 or more in the previous 12-month period. | October 1, 2019 | Tennessee Department of Revenue |
| Texas | Total revenue of $500,000 or more during the preceding 12 calendar months. | January 1, 2019 | Texas Comptroller |
| Utah | Gross revenue from sales of tangible personal property, products transferred electronically, or services exceeds $100,000, or the seller makes 200 or more separate transactions in the previous or the current calendar year. | January 1, 2019 | Utah State Tax Commission |
| Vermont | A minimum of $100,000 in sales or at least 200 individual sales transactions during the preceding 12-month period. | July 1, 2018 | Vermont Department of Taxes |
| Virginia | Annual gross retail sales exceed $100,000, or the seller makes 200 or more sales transactions in the previous or current calendar year. | July 1, 2019 | Virginia Tax |
| Washington | More than $100,000 in cumulative gross receipts in the current or prior year. | October 1, 2018 | Washington Department of Revenue |
| Washington DC | Gross receipts of more than $100,000, or the number of separate retail transactions is 200 or more in the previous or current calendar year. | January 1, 2019 | Washington DC Office of Tax and Revenue |
| West Virginia | Gross sales of $100,000 or more, or the number of separate transactions for goods or services is 200 or more in the preceding or current calendar year. | January 1, 2019 | West Virginia Tax Division |
| Wisconsin | Gross sales exceed $100,000 in the previous or current calendar year. | October 1, 2018 | Wisconsin Department of Revenue |
| Wyoming | Gross revenue from the sale of tangible personal property, admissions, or services delivered exceeds $100,000 in the preceding or current calendar year. | February 1, 2019 | Wyoming Department of Revenue |
As always, we recommend contacting the state or a dedicated sales tax expert for questions specific to your business.
Once you’ve identified that your business has reached economic nexus thresholds in various states or jurisdictions, the next crucial step is registering for sales tax in each location. This phase, while essential, can be complex due to differing requirements across states— and it gets even more complex if you’re selling across multiple channels.
Fortunately, with the right tools, this is another aspect of sales tax management that can be streamlined and automated.
Utilizing a fully managed sales tax solution like Zamp can significantly simplify this process. Zamp does more than just help you determine when you've met economic nexus; it also guides you through each state’s unique registration process. Here’s how it works:
- Automated Nexus Identification: Zamp uses advanced algorithms to track your sales activity across all states and automatically alerts you when approaching or exceeding economic nexus thresholds. This proactive approach ensures that you never miss a registration deadline.
- Simplified Sales Tax Registration Process: Once nexus is established, Zamp provides a step-by-step guide tailored to each state’s registration requirements. This includes what documents you need to gather, how to fill out registration forms, and tips for ensuring a successful submission.
- Centralized Management: With Zamp, all your sales tax registrations can be managed from a single platform. This saves time and reduces the potential for errors that can occur when handling multiple registrations manually.
- Continual Monitoring and Updates: Sales tax laws are constantly evolving. Zamp stays on top of these changes for you, updating its systems to reflect the latest requirements and ensuring that your business remains compliant with minimal effort on your part.
- Expert Support: Should you have any questions or need assistance during the registration process, Zamp’s sales tax experts are always on hand to offer guidance and support.
By leveraging comprehensive sales tax software, you can confidently and easily navigate the complexities of multi-state sales tax registration. This allows you to focus more on growing your business and less on the nuances of tax compliance.
Facing a sales tax audit can feel like a pop quiz you didn’t study for. But no worries, we’ve got some actionable tips to help you prepare and handle any disputes like a pro:
- Be prepared: Keep your sales records, tax returns, and correspondence with tax authorities well-organized and easily accessible. Think of it as keeping your financial house in order, ready for unexpected guests.
- Understand the rules: Make sure you’re up to speed on the nexus criteria and tax obligations for each state you operate in. This knowledge can be your shield in any disputes.
- Seek professional advice: When in doubt, bring in the experts. A tax professional specializing in sales tax can offer invaluable help navigating audits and resolving issues.
Audits don't have to be scary if you're prepared. With the right practices in place, you can approach them confidently and resolve issues swiftly.
Zamp Tip
Economic nexus is relatively new to states and has only existed for a handful of years. However, its impact is felt nationwide by e-commerce and remote sellers who do business in states where they don’t have a physical location. Tracking nexus thresholds, keeping up on sales tax rate changes, and any other changes coming down from the states are vital for businesses to thrive and avoid paying out-of-pocket penalties.
Zamp always puts our customers first. And it shows — we’ve been named a Major Player in the Small, Mid, and Enterprise SUT markets in IDC’s 2024 IDC MarketScape for Worldwide SaaS and Cloud-enabled Tax Automation Software, along with being featured in the top ten best sales tax software companies by taxtech500.
Our full-service platform allows businesses to outsource their sales tax completely. Our platform manages the sales tax lifecycle by offering:
- Hands-off onboarding: We set up everything for you and ensure it’s done right.
- Full sales tax compliance service: We offer nexus tracking, registrations, roof-top accurate calculations, product taxability research, mapping, reporting, and filing. All this is included in our pricing model — one fee for everything.
- Proactive account support: We are always looking for any changes in requirements, and our team is happy to answer any questions you may have.
See how you can save time and stay sales tax compliant with Zamp. Book a call below!
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Zamp! Zamp’s Economic Nexus Calculator will alert you when you have economic nexus in a new state.
How does it work? We integrate with your online stores, ERPs and marketplaces and alert you when you are approaching or have crossed over a state’s economic nexus threshold. No more trying to count individual transactions into a state or dreading doing your business’s books each month.
Yes. Economic nexus did not override any other forms of sales tax nexus. If you have an office, store, employee, etc. in a state you still have nexus in that state even if you don’t meet that state’s economic nexus sales or transactions threshold.
In the US, Federal Public Law 86-272 prevents states from requiring that businesses who only solicit sales of tangible personal property pay income tax. However, this law is quietly being eroded. You can read more about economic nexus and income tax here. We recommend speaking with a sales tax expert should you have any questions about whether sales tax nexus also leads to an income tax obligation.
Sales tax nexus refers to the connection a business establishes with a state, which obligates it to collect and remit sales tax in that state. This connection can be triggered by various business activities, such as having a physical presence, reaching a set level of sales, or employing remote workers in the state.
Review your business activities against that state’s specific criteria to determine if you have nexus in a state. Common factors include physical presence, such as offices or warehouses, economic thresholds like total sales or transaction counts, and employing salespeople or agents.
No, merely having a website does not automatically establish nexus in all states. Nexus is typically triggered by specific interactions with a state, such as economic activity surpassing a certain threshold, physical presence, or advertising that targets customers in a particular state.
The South Dakota v. Wayfair, Inc. decision expanded the definition of sales tax nexus to include economic and virtual contacts with a state. This means businesses can have nexus in a state without physical presence if their sales or transactions exceed the state’s economic threshold.
If you find that your business has nexus in multiple states, it’s important to register for a sales tax permit in each of those states and start collecting and remitting sales tax according to each state’s laws. Consider consulting with a tax professional or using automated tax compliance software to manage these requirements efficiently.
Economic nexus is triggered when a business meets or exceeds a state-specific threshold of sales or transaction volumes. This can include total revenue from sales in the state or the number of transactions conducted.
Most businesses track their sales data through accounting or sales software. To determine if you’ve hit an economic nexus threshold, you’ll need to review your sales data for each state to see if your activities meet or exceed the thresholds set by that state.
Yes, there are several software solutions designed to help businesses manage sales tax compliance across multiple states. These tools can automatically monitor sales data, calculate tax obligations, and even file returns directly with state authorities.
