A business establishes sales tax nexus with a state when its activities within that state require it to collect and remit sales tax. Before the Supreme Court’s Wayfair decision, businesses typically needed physical presence in a state—such as an office or warehouse—to establish nexus. Post-Wayfair, businesses can create nexus based on their economic activity in a state, which is determined by sales revenue and/or transaction count—a concept known as economic nexus.

Economic Nexus Thresholds

Every state that imposes sales tax has adopted an economic nexus threshold, though thresholds vary by state.

• The minimum sales threshold is $100,000 and may or may not include a transaction count such as 200 transactions.
• Some states, such as Texas, have a higher threshold of $500,000 in sales.
• States also vary on how the threshold is met. Some states include gross sales, while others include taxable sales in determining economic nexus.
• There is also a variance on whether to include sales through a marketplace facilitator such as Amazon or Walmart Marketplace.
• We are seeing a trend of states dropping transaction counts.

How Should a Business Comply with the Changing Landscape of Nexus?

Businesses should review their state footprints and track when they reach economic thresholds as well as monitor activities that create physical nexus in a state. Remember that if your business has a physical nexus in a state, the sales thresholds do not apply, and nexus is created on day one sales. Consider engaging us to conduct a nexus study to determine if nexus has been reached. A tax professional can also assist in evaluating which sales need to be included in the nexus threshold and whether a state taxes the product you are selling.

What to do if you create nexus in a new state?

Considerations need to be made before completing a registration. For instance, an evaluation of past exposure should be conducted. If past exposure exists, you may want to consider a voluntary disclosure agreement (VDA) with the state. A VDA allows a business to come forward often anonymously to disclose past liabilities on all tax types administered by the state, including sales, income & franchise, etc. States usually limit the look back period and waive potential penalties. It is essential to ensure all remediation has been pursued, such as gathering potential customer exemptions to reduce exposure.

Compliance Considerations

Businesses must have a plan to comply with multistate sales tax filing obligations. It can be cumbersome to file in multiple states and know the correct tax rate to charge, as many states have varying rates based on local jurisdictions. Depending on the complexity, you may need to consider compliance options such as tax compliance software. We can help with that too.