Economic Nexus Explained: When Remote Sales Create a Sales Tax Duty

You do not need a store, an office, or an employee in a state to owe sales tax there. In many states, enough sales into the state is enough.

How we got here

In 2018, the U.S. Supreme Court ruled in South Dakota v. Wayfair that a state may require a business with no physical presence to collect sales tax, as long as the business has a substantial connection to the state. States then passed economic nexus laws that set a threshold, usually based on sales dollars, number of transactions, or both.

Thresholds differ by state

There is no single national number. Some states use a dollar amount, some use a number of transactions, and some use either. Some count only taxable sales, and others count all sales. The measuring period also differs.

Example: New York’s rule applies to a seller with no physical presence in the state whose taxable sales of tangible goods delivered into New York exceeded $500,000 in the preceding four sales tax quarters and who made more than 100 such sales. Both conditions have to be met.

Look up each state’s rule on its revenue department website before you rely on any number.

How to track your sales

Export your sales by shipping state each month.
Record total sales and the number of orders per state.
Compare each state’s totals to that state’s threshold.
Note which products are taxable. Some items are exempt in some states.
When you get close to a threshold, plan your registration.

What to do when you cross a threshold

Register with the state.
Start collecting tax from the date the state requires it. Some states require collection from the first sale after crossing the threshold, and others give a short window.
File returns on the state’s schedule.
Ask a professional about past sales if you may have crossed a threshold without registering.

Marketplaces

If you sell through a marketplace, the marketplace may collect tax on those sales. Your own website sales are generally your responsibility. See online seller basics.

Questions about your states? Book a call with FlowTex.

Sources

This article is general information, not tax or legal advice. Thresholds change. Confirm current rules with each state.