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How Does Sales Tax Work For eCommerce?

How Does Sales Tax Work For eCommerce?

Until June 2018, remote online sellers selling goods and services out of state did not have to bother about collecting taxes on sales made to out-of-state residents. That’s because the Supreme Court prohibited states from taxing sellers without a physical presence in the state.

Accordingly, the states could not ask e-commerce sellers and other businesses operating out of the state to collect sales tax on sales made to residents of their states unless the business had a physical presence, such as a brick-and-mortar store or a warehouse in the state.

Furthermore, buyers were required to report online and other remote purchases on their annual state tax returns, but without sales tax being collected at the point of sale.

This changed post-June 2018 when the Supreme Court took a landmark decision in the South Dakota v. Wayfair case, holding that states could require remote sellers to collect and remit sales taxes even in the absence of a physical presence in the state.

Once the Wayfair decision allowed the states to require remote sellers to collect and remit sales tax even in the absence of a physical presence in the state, these states responded quickly by putting in place new legal requirements for remote sellers.

As of June 2021, all 45 states with a statewide sales tax and the District of Columbia had adopted requirements governing sales tax collection and remittance by remote sellers based on an economic nexus as opposed to a physical nexus.

In addition to this, all 45 states except Oklahoma adopted the marketplace facilitator laws. These laws shift the primary tax collection obligations from sellers in an online marketplace to the companies facilitating the sale, such as Amazon, eBay, and Etsy.

Thus, if you are an eCommerce seller and want to know how eCommerce sales tax works, then read our article. In this article, we are going to explain what is eCommerce sales tax, when eCommerce businesses need to charge sales tax, and how sales tax works for eCommerce.

What Is Sales Tax?

Sales tax is a consumption-based tax charged on retail sales that a merchant or a business makes to end consumers. This means that the sales a merchant or a business makes along the supply chain, often called resales, to parties other than the end consumers are generally not taxable.

Furthermore, sales tax is typically charged on all sales of tangible personal property, but usually only on certain enumerated services depending on the state. The sale of intangibles and real property is generally not taxable.

Since sales tax is a consumption tax, its economic burden is typically borne by the consumer. Merchants or businesses selling goods to the end users are required by law to only collect and remit the sales tax to the state tax authorities where the sale has occurred.

Sellers may be required to remit the tax to the state on a monthly, quarterly, or annual basis. In case a seller does not collect sales tax from the consumer, the consumer owes use tax which is complementary to the sales tax.

Use tax is a tax that is imposed on purchases made by a state’s residents from remote sellers. This is unlike the sales tax that is imposed on the sale of goods and services that occur within the borders of a state.

Thus, if a remote seller does not collect sales tax from the consumer, then the consumer is generally responsible for paying a use tax at the same rate. Though a use tax is functionally similar to a sales tax, the use tax is a tax levied on the consumer for the privilege of use, ownership, or possession of taxable goods and services.

Note that in the US, 45 states implement a state-wide sales tax. Of these, 37 states also have local sales taxes. Additionally, Alaska does not have a state-wide sales tax, though it does have local sales taxes. Only 5 states do not impose sales tax. These include New Hampshire, Oregon, Montana, Alaska, and Delaware.

Remember, that the authority that collects local sales tax varies widely across states. For instance, in certain states, only selected jurisdictions may impose a sales tax. In other states, a broad range of jurisdictions such as counties, municipalities, and various local authorities may opt to impose a sales tax either by ordinance or local referendum.

According to the estimates, around 30,000 local jurisdictions in the U.S. have the authority to impose sales taxes. Of these, between 10,000 and 12,000 local jurisdictions impose sales taxes.

Also, note that sales tax serves as the major source of funding for many government programs and services at the state and local levels. However, with the rapid growth of eCommerce, the state and the local governments were losing out on sales tax revenue until June 2018.

That’s because the US Constitution prohibited states from taxing sellers without a physical presence in the state. This meant that states could not require remote sellers (eCommerce businesses) operating out of state to collect taxes on the sales made to the residents of their state unless such sellers or businesses had a physical presence in the state, such as a brick-and-mortar store or a warehouse.

However, post the South Dakota Vs Wayfair decision, the Supreme Court held that states could require remote sellers to collect and remit sales taxes even in the absence of a physical presence in the state based on the economic nexus with that state.

Accordingly, as of June 2021, all 45 states with a statewide sales tax and the District of Columbia had adopted requirements governing sales tax collection and remittance by remote sellers based on an economic, as opposed to physical nexus.

Read: 4 Tips for eCommerce Sales Tax Compliance

What Do You Mean By Sales Tax Nexus?

“Nexus” in the context of taxation refers to a connection or link between you as a business and a particular taxing jurisdiction that establishes your business’s obligation to collect and remit taxes in that jurisdiction. Accordingly, the taxing jurisdiction cannot impose its sales taxes on you as a business unless this connection is established.

Note that the US Constitution predominantly controls the determination of nexus.

The Due Process Clause and the Commerce Clause are two constitutional principles in the United States that play a crucial role in determining the constitutionality of state laws affecting interstate commerce, including those related to sales tax nexus.

The Due Process Clause is found in both the Fifth and Fourteenth Amendments to the U.S. Constitution. In the context of state taxation, the Due Process Clause requires that there must be a minimum connection or “nexus” between a state and the entity it seeks to tax. This nexus ensures that the taxed entity has sufficient contacts or connections with the state, justifying the state’s imposition of tax obligations.

On the other hand, the Commerce Clause found in Article I, Section 8, Clause 3 of the United States Constitution, establishes criteria to determine the constitutionality of state taxes. Accordingly, tax can be applied to an activity only if has substantial nexus with a state, is fairly apportioned, does not discriminate against interstate commerce, and represents a fair relationship to the services provided by the state.

In the South Dakota v. Wayfair, Inc. case, the U.S. Supreme Court issued a landmark decision that significantly altered the landscape of sales tax collection for online retailers by addressing the Commerce Clause. Accordingly, the Supreme Court overturned the physical presence standard established by Quill and ruled that economic nexus could satisfy the substantial nexus requirement for sales tax purposes. This meant that states could now require businesses to collect and remit sales tax based on their economic activity in the state, even without a physical presence.

Following the Wayfair decision, many states implemented economic nexus laws that set thresholds (such as sales or transaction thresholds) to determine when a business has a sufficient connection with the state to trigger sales tax collection obligations.

However, different states in the United States have adopted different types of sales tax nexus standards to determine when a business has a sufficient connection with the state to be required to collect and remit sales tax. These standards have evolved, especially in the wake of the South Dakota v. Wayfair, Inc. Supreme Court decision.

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Some common types of sales tax nexus standards adopted by states include:

1. Physical Nexus

A Physical Nexus, in the context of sales tax, refers to a sufficient physical presence or connection between a business and a particular taxing jurisdiction (such as a state or locality). Historically, the concept of physical nexus has been a key factor in determining whether you as a business must collect and remit sales tax in a specific jurisdiction.

However, the landscape of the sales tax nexus changed significantly with the South Dakota v. Wayfair, Inc. Supreme Court decision in 2018. In the Wayfair decision, the Court ruled that a physical presence is not the sole criterion for establishing nexus, and economic activity within a state (economic nexus) can also be a valid basis for imposing sales tax obligations on a business.

While physical presence remains a relevant factor in determining nexus, you as an eCommerce business must now consider a broader range of activities and connections with a state, including economic factors, to assess your sales tax obligations accurately. Since the specific rules and thresholds for establishing nexus vary by jurisdiction, you should be aware of the applicable laws in each state where you operate.

2. Economic Nexus

Economic nexus, in the context of sales tax, refers to the establishment of a tax obligation based on your business’s economic activity in a particular jurisdiction, rather than solely relying on a physical presence. This concept became a significant factor in determining sales tax obligations following the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018).

The Wayfair decision overturned the previous physical presence standard set by Quill Corp. v. North Dakota (1992). Furthermore, the Court ruled that economic activity, such as reaching certain sales or transaction thresholds within a state, could create a substantial nexus and justify the imposition of sales tax obligations.

Accordingly, many states adopted the economic nexus rule after the Wayfair decision and put in place specific thresholds, such as a minimum level of sales revenue or a certain number of transactions within the state. Once a business exceeds these thresholds, it is considered to have an economic nexus with the state, triggering sales tax collection and remittance responsibilities.

3. Transaction Nexus

The Transaction Nexus in the context of sales tax refers to the establishment of a tax obligation for a business based on the number of transactions it conducts in a particular jurisdiction, regardless of the total dollar amount of those transactions. This concept is one of the criteria that some states use to determine whether a business has a sufficient connection with the state to be required to collect and remit sales tax.

States that implement transaction nexus typically set specific numerical thresholds. Once a business exceeds the specified number of transactions within the state, it is considered to have a transactional nexus, triggering sales tax collection and remittance obligations.

Furthermore, state thresholds for transaction nexus can vary. For instance, a state may require a business to collect and remit sales tax if it conducts 200 or more transactions within the state during a calendar year, irrespective of the total sales revenue generated from those transactions.

Remember, that the Transaction Nexus is a supplement to the sales threshold. This means that Transaction Nexus is often used in conjunction with sales thresholds or other criteria for establishing a broader economic nexus. In some cases, a state may require a combination of a certain number of transactions and a minimum sales amount to create a nexus.

4. Click-Through Nexus

Click-through Nexus is a concept in sales tax that arises when a business establishes a tax obligation in a particular jurisdiction based on its relationship with in-state affiliates or entities that refer customers to the business through online links or advertisements.

The term “click-through” refers to the action of a potential customer clicking on an affiliate’s link, which directs them to the out-of-state business’s website. If this action results in a sale, it may create a sufficient connection (nexus) between the business and the state in which the affiliate is located.

Affiliates are individuals or entities that have a contractual arrangement with an out-of-state business to advertise or promote its products or services in exchange for a commission on sales generated through their referrals. The presence of an affiliate relationship triggers click-through nexus.

States with click-through nexus laws may set specific thresholds or criteria that trigger the tax obligation. These thresholds can vary by state and may include factors such as the amount of sales generated through affiliate referrals or the overall sales volume of the business.

Since 2008, several states have adopted click-through nexus statutes, including Arkansas, California, Connecticut, Georgia, Illinois, Kansas, Louisiana, Maine, Michigan, Minnesota, Missouri, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Vermont, and Washington.

Thus, Click-Through Nexus is a response to the changing landscape of e-commerce and digital advertising.

5. Affiliate Nexus

Affiliate Nexus in sales tax refers to the establishment of a tax obligation for a business based on its relationship with affiliates or entities located within a particular jurisdiction. This concept is used by states to determine when an out-of-state business has a sufficient connection (nexus) with the state, triggering the requirement to collect and remit sales tax.

Note that affiliate nexus is established when an out-of-state business has agreements or relationships with affiliates located within a specific jurisdiction. These affiliates, often individuals or entities, promote the business’s products or services in exchange for a commission or other compensation.

An affiliate, in the context of sales tax laws, is typically an entity or individual that has a contractual arrangement with the out-of-state business to engage in activities that facilitate sales, such as advertising, marketing, or referring customers.

The presence of affiliates in a state can trigger affiliate nexus. If an out-of-state business has a sufficient number of affiliates operating within a state, it may be considered to have a nexus with that state for sales tax purposes.

States that adopt affiliate nexus laws often set specific thresholds that determine when an out-of-state business has a tax obligation. These thresholds may include factors such as the number of affiliates in the state, the volume of sales generated through affiliate referrals, or a combination of both.

6. Marketplace Facilitator Nexus

The Marketplace facilitator Nexus refers to the establishment of a tax obligation on an online marketplace that facilitates transactions between buyers and third-party sellers. In this context, the marketplace facilitator is responsible for collecting and remitting sales tax on behalf of the third-party sellers who use the platform.

A marketplace facilitator is an online platform or marketplace that facilitates retail sales by providing a marketplace for third-party sellers to list and sell their products or services to customers.

Note that marketplace facilitator nexus laws typically impose the responsibility of collecting and remitting sales tax on the facilitator rather than individual sellers. This means that the marketplace is treated as the seller for transactions made through its platform. Whereas, sales made by third-party sellers on the platform are considered transactions of the marketplace facilitator. Thus, the facilitator is required to collect and remit sales tax on these transactions, ensuring compliance with state and local tax laws.

States have established specific thresholds that determine when a marketplace facilitator has a tax obligation. Once the facilitator’s sales or transaction volume exceeds the specified threshold within a state, it is required to collect and remit sales tax in that jurisdiction.

7. Factor Presence Nexus

The Factor Presence Nexus is a concept in sales tax that considers the level of a business’s economic activities within a state based on various factors, such as sales, property, and payroll. This type of nexus determination takes into account a combination of factors beyond just sales volume or transaction count. The idea is to establish a tax obligation for a business based on a presence or connection created by a combination of economic factors.

Factor presence nexus is part of the broader trend toward economic nexus standards, where a business’s economic activities within a state determine its obligation to collect and remit sales tax. This approach goes beyond the traditional physical presence standard.

The advantage of adopting factor presence nexus is that the concept of factor presence nexus often involves apportionment, which aims to fairly distribute the tax burden among states where a business operates. Thus, this can be especially relevant for businesses with a multistate presence.

States that adopt factor presence nexus typically set specific thresholds for each factor. For example, a state may require businesses to collect and remit sales tax if they meet a certain level of sales revenue, own or lease property above a specified value, or have a significant payroll presence in the state.

8. Cookie Nexus

The Cookie Nexus refers to the idea that the use of internet cookies to track website visits could create a virtual or digital presence for a business, potentially triggering sales tax obligations in a particular jurisdiction. Though, it was not widely adopted as a standard by U.S. states.

Cookie nexus is based on the use of internet cookies, which are small pieces of data stored on a user’s device by a website. The presence of cookies can be tracked to determine whether a user has visited a particular website, and this information could be used to establish a digital or virtual presence for a business.

However, the idea of cookie nexus has been met with controversy and skepticism. Critics argued that it may be challenging to establish a clear and reliable connection between the use of cookies and a substantial economic presence, as opposed to physical presence or traditional economic factors.

eCommerce sales tax refers to the tax applied to the sale of goods or services in the context of electronic commerce or online transactions.

When customers make purchases from online retailers, these transactions may be subject to sales tax, similar to transactions that occur in physical stores.

The regulations and requirements for eCommerce sales tax can vary widely based on the location of the buyer, the seller, and the specific products or services involved.

Just like traditional sales tax, eCommerce sales tax is often governed by the concept of “nexus” – a connection between a business and a taxing jurisdiction. This connection could be established through physical presence, economic activity, or other factors as mentioned above.

Read:

How Does Sales Tax Work For eCommerce?

The states and local jurisdictions in the US have put in place a complex set of requirements that govern the taxation of remote sales. These requirements differ in various aspects. Therefore, as a remote seller selling goods and services in multiple states, you need to be aware of all these requirements and must comply with them.

The following section describes some of the important aspects wherein the taxation of remote sales differs across states and local jurisdictions.

1. Effective Dates

After the Supreme Court implemented the Wayfair decision, the remote sellers had to comply with the requirements governing the taxation of remote sales set out by states and local jurisdictions by certain due dates. These due dates varied across the 45 states with state-wide sales tax and the District of Columbia ranging from the day the Wayfair case was decided, that is, June 21, 2018, to January 1, 2023.

As a result, remote sellers had to be aware of the different due dates on which one or more state’s requirements for taxation of remote sales became effective. The remote sellers had to comply with the requirements put forth by certain states within a very short period, many within about 3 months of Wayfair.

For instance, New York announced that its remote seller requirements for sales tax became immediately effective once the Wayfair case was decided on June 21, 2018. Likewise, states like Maine and Vermont established the remote seller requirements regarding sales tax with effective dates that were less than 2 weeks after the Wayfair decision, that is, on July 1, 2018.

Furthermore, Mississippi declared that it would impose the sales tax remote seller requirements 2 months after the Wayfair decision, that is, on September 1, 2018. Then states like Alabama, Illinois, Maryland, Michigan, and Washington enforced their remote seller requirements about 3 months after the Wayfair decision, that is, on October 1, 2018.

Note that most of the states had the effective dates of enforcing their remote seller requirements for sales tax within the first year of the Wayfair decision. Other states like Missouri had the effective dates as late as January 1, 2023.

2. Economic Thresholds

Another aspect wherein the requirements for remote sellers regarding sales tax vary is the economic threshold. States have put in place varied monetary and transactional thresholds that trigger sales tax obligations for remote sellers and exempt some small businesses from the remote seller requirements.

Apart from imposing varied economic threshold values, states have established different methods for calculating the economic threshold. For instance, which type of sales must be included and which periods over which the sales occur must be considered for the calculation of the economic threshold.

a. Type Of Sales

For calculating the economic threshold, the type of sales that states considered varies across the states. Some states use total gross sales, while others use retail sales as a basis for determining whether economic thresholds have been achieved by the remote sellers.

For example, California’s economic threshold calculation considers total sales of Tangible Personal Property (TPP) for delivery into California. In comparison, Minnesota’s threshold calculation considers retail sales, made or facilitated, from outside Minnesota to destinations in the state.

b. Treatment Of Tax-Exempt Sales

Five states including Arkansas, Florida, New Mexico, North Dakota, and Oklahoma include only taxable sales in their threshold calculations, excluding all tax-exempt sales. In contrast, other states include some or all tax-exempt sales in their threshold calculations.

Furthermore, the types of sales states exempt from sales taxes differ considerably from state to state. For instance, in some states, only sales of tangible personal property are taxed while all other sales are tax-exempt. In other states, some or all services are also taxed. Additionally, some states charge taxes on the sale of certain digital products.

c. Treatment Of Marketplace Sale

In some states, sales made through a marketplace facilitator are excluded from the threshold calculation for remote sellers, while in others marketplace sales are included in that calculation.

d. Measurement Period

In some states, economic thresholds are calculated based on sales made during the prior or current calendar year. In other states, measurement periods differ. Examples include the prior 12 months, the prior four sales tax quarters, and the 12 months ending on the last day of the most recently completed calendar quarter.

3. Timing Of Registration

As mentioned earlier, to trigger sales tax obligation for remote sellers making sales to consumers in a state, they need to exceed the economic nexus threshold set by that state. Once they surpass the economic nexus threshold in a state, they need to register for sales tax in that state. The requirements regarding when the remote sellers need to register with the state for sales tax collection purposes vary across states.

For instance, as of August 2023, in states including Arkansas, California, the District Of Columbia, Idaho, Indiana, Kansas, New Jersey, and Wisconsin, a business must register as soon as it makes the next transaction into the state after exceeding the threshold. Some of the other periods within which the states must register for sales tax when the economic nexus threshold is exceeded include registering immediately (e.g. Alabama, Florida, etc.), within 30 days of exceeding the economic nexus threshold (e.g. Alaska, Washington, etc.), the first day of the first month commencing at least 90 days after the threshold is met, (e.g. Colorado), the month after exceeding the economic nexus threshold (e.g. Connecticut), etc.

Read: How To Apply For Sales Tax Permit?

4. Local Sales Tax

Local sales tax also adds to the complexity of sales tax compliance for remote sellers. As mentioned earlier, 45 states have a state-wide sales tax. Then, 38 states have local sales taxes.

According to estimates, there are 10,000 to 12,000 local jurisdictions in the country that impose local sales taxes each with its own tax rates, tax rules, and taxing authorities.

Thus, to reduce the complexity that sales tax laws impose, the Streamlined Sales and Use Tax Agreement (SSUTA) was introduced by many states to simplify and standardize sales tax laws and administration across states.

As per SSUTA, all member states must have:

  • state-level administration of state and local sales taxes,
  • uniformity across state and local tax bases, though with some exceptions, and
  • databases for businesses to identify local rates and boundaries

Of the 38 states that impose local sales taxes, 23 states are SSUTA members and have agreed to these simplification measures. The remaining states that impose local sales taxes have independently set up systems to impose taxes, both state and local, at the state level. These taxes are administered by a single state tax agency and use the same tax base.

However, in some states, local governments have the authority to establish and administer their own sales taxes, separate and apart from the state tax. These states have the most complicated local sales tax compliance rules.

For instance, in these states, tax bases and filing schedules can vary across the jurisdictions within a state. Accordingly, businesses must file separate tax returns and remittances with each jurisdiction. Since the Wayfair decision, many local jurisdictions have imposed sales tax requirements based on economic nexus on remote businesses.

State By State Nexus Rules

The following state-by-state nexus rules chart will help you understand the economic thresholds that have been currently imposed by each of the states. Furthermore, the chart also includes the monetary and transactional thresholds, effective dates, and important notes. Apart from this, the chart includes the items that are included and excluded in the economic thresholds by state.

Economic Nexus Threshold for Sales Tax as of 8/1/2023

State Effective Date Economic Nexus Threshold What Time Period Is the Threshold Based On What the State Says to Include/Exclude from the Remote Seller’s Threshold Calculation What Tax Type Should Remote Sellers Register for? Is registration required if all sales are marketplace sales? When is sales tax registration required after a threshold is passed? Notes
Alabama 10/1/2018 Monetary: $250,000 Transaction: N/A Previous calendar year Type of sales to include: Retail sales Sales through a marketplace: Exclude Sales for resale: Exclude

Exempt sales: Include

Simplified Sellers Use Tax No Register Immediately
Alaska 4/1/2020 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Remote Seller Sales Tax No Within 30 days There are many different jurisdictions in Alaska. Registration is through ARSSTC (Alaska Remote Seller Sales Tax Commission). One registration with the commission will cover all licensing requirements with jurisdictions that have adopted the updated code. There is a grace period to allow for an extension to the 1st of the month after the 30-day period. There is no retroactive collection of tax
Arizona 10/1/2019 Monetary:

10/1/2019 $200,000

1/1/2020 $150,000

1/1/2021 $100,000

Transaction: N/A

Previous or current calendar year Type of sales to include: Gross sales Sales through a marketplace: Exclude Sales for resale: Include

Exempt sales: Include

Transaction Privilege (TPT) No Within 30 days To determine if a person meets the economic nexus threshold, all affiliated persons will be aggregated. Although economic nexus may be established by combining the income of an affiliated party or parties, once established, each affiliated party must be licensed and may report individually or consolidated. Affiliated parties are not required to file consolidated returns.

Once the economic nexus threshold is met, the business must get a TPT

license from the Department of Revenue.

Arkansas 7/1/2019 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: The sale of TPP, taxable services, a digital code, or specified digital products

Sales through a marketplace: Exclude Sales for resale: Exclude Exempt sales: Exclude

Sales and Use Tax No The next sale Affiliate nexus and click-through nexus standards are eliminated.

Marketplace collection effective 7/1/2019. Thresholds are based on taxable sales only.

California 4/1/2019 Monetary:

4/1/2019 $100,000

4/26/2019 $500,000

Transaction: N/A

Previous or current calendar year Type of sales to include: Total combined sales of TPP

Sales through a marketplace: Include Sales for resale: Include Exempt sales: Include

Sales and Use Tax No The next sale As of 4/25/19 amendment that all retailers, inside or outside of CA collect district use tax on all sales made for delivery in any district that imposes a district tax (current or previous calendar year, total combined sales of TPP in CA or delivery in CA by the retailer exceed 500,000.
Colorado 6/1/2019 Monetary: $100,000 Transaction: N/A Previous or current calendar year Type of sales to include: Retail sales Sales through a marketplace: Include Sales for resale: Exclude

Exempt sales: Include

Sales Tax No The first day of the first month commencing at least 90 days after the threshold is met All state-administered local and special district taxes should be collected. Home rule jurisdictions are changing their ordinances to be included under the state’s economic nexus. This requires collection and remittance of tax in many home rule local jurisdictions  Destination sourcing would also be used for when a product or service has a lease/rental agreement with periodic recurring payments.
Connecticut 12/1/2018 Monetary:

12/1/2018 $250,000

7/1/2019 100,000

AND

Transaction: 200

12-month period ending on September 30th Type of sales to include:

The monetary portion of the threshold: gross sales AND

Transaction portion of the threshold: retail sales

Sales through a marketplace: Include both monetary and transaction portion

Sales for resale: Exclude for transaction portion, but include for monetary portion

Exempt sales: Include for both monetary and transaction portion

Sales and Use Tax Yes The month after In CT both the sales AND transactions thresholds must be met.
District of Columbia 1/1/2019 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Retail sales Sales through a marketplace: Include Sales for resale: Exclude

Exempt sales: Include

Sales and Use Tax No The next sale Applied prospectively only.
Florida 7/1/2021 Monetary: $100,000 Transaction: N/A Previous calendar year Type of sales to include: Retail sales of TPP Sales through a marketplace: Exclude Sales for resale: Exclude

Exempt sales: Exclude

Sales and Use Tax No Register Immediately Registration was to be complete by 10/1/2021. Sellers with economic nexus should collect the local discretionary sales taxes.
Georgia 1/1/2019 Monetary:

1/1/2019 $250,000

1/1/2020 $100,000

OR

Transaction: 200

Previous or current calendar year Type of sales to include: Retail sales of TPP

Sales through a marketplace: Include

Sales for resale: Exclude

Exempt sales: Include

Sales and Use Tax No Register immediately Starting 1/1/2020 Georgia no longer has an out for remote sellers. the sales number was also reduced to $100,000.
Hawaii 7/1/2018 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Gross sales of TPP, services, and intangibles

Sales through a marketplace: Include Sales for resale: Include Exempt sales: Include

GET (General Excise Tax) Yes Must file its first periodic return by the deadline for the periodic return following the period the threshold was met.* The general excise tax (GET) is imposed on the sale of of virtually all transactions, even sales for resale. HI has a catch-up payment. The department will allow taxpayers to report and pay GET on catchup income, without penalty, and interest.
Idaho 6/1/2019 Monetary: $100,000 Transaction: N/A Previous or current calendar year Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Sales and Use Tax No The next sale For sales made through a marketplace facilitator, Idaho requires the marketplace facilitator to collect and forward sales tax on third parties. Have the marketplace facilitator provide written verification of the sales they are reporting.
Illinois 10/1/2018 Monetary: $100,000 OR

Transaction: 200

Prior 12 months Type of sales to include: Gross sales of TPP Sales through a marketplace: Exclude  Sales for resale: Exclude

Exempt sales: Include

Retailers Occupation Tax – Destination-based Remote retailers shall determine on a quarterly basis if the economic nexus threshold has been crossed during the preceding 12-month period. Registered sellers do not need to check their data each quarter if they plan on staying registered. Illinois requires remote retailers that satisfy an economic nexus threshold to use destination sourcing rather than origin sourcing for local retailers’ occupation tax rate purposes. For remote retailers, satisfying an economic nexus threshold beginning July 1, 2020, no longer triggers a use tax collection obligation, but triggers the new retailers’ occupation tax collection obligation. July 1, 2020, effective dates

were delayed until 1/1/2021.

Indiana 10/1/2018 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Gross sales Sales through a marketplace: Exclude Sales for resale: Include

Exempt sales: Include

Sales Tax No The next sale
Iowa 1/1/2019 Monetary: $100,000 Transaction: 1/1/2019 200

7/1/2019 N/A

Previous or current calendar year Type of sales to include: Gross revenue from sales of TPP, services, or specified digital products

Sales through a marketplace: Include Sales for resale: Include Exempt sales: Include

Retailers Use Tax No The first day of the next calendar month that starts at least 30 days from the day the economic nexus threshold was met Iowa has also passed a marketplace facilitator law effective 1/1/2019.
Kansas 7/1/2021 Monetary: $100,000 Transaction: N/A Previous or current calendar year Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Sales Tax No The next sale Prior to the passage of this legislation, the KS DOR took the position that one sale could create a nexus. New Section 2 of the bill authorizes the Department of Revenue to waive the obligation of a marketplace facilitator to collect and remit taxes upon a showing by the marketplace facilitator that substantially all of its marketplace sellers are already collecting and remitting all applicable taxes. The bill also allows marketplace facilitators to contract with marketplace sellers that have at least $1.0 billion of annual gross sales in the United States to require the marketplace seller to collect and remit all applicable taxes and fees.
Kentucky 10/1/2018 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Sales and Use Tax No Register and begin collecting by the first day of the calendar month that begins no later than 60 days after threshold is met Limited to sales of TPP or digital property.
Louisiana 7/1/2020 Monetary: $100,000 Previous or current calendar year Type of sales to include: Gross sales of TPP Sales through a marketplace: Exclude  Sales for resale: Include

Exempt sales: Include

Sales Tax No Register within 30 days of meeting either threshold. Begin collecting tax within 60 days of meeting either threshold Remote seller division was created to bea single point of contact for remote sales tax collection. LA will provide further information as they promulgate rules. 200 transaction threshold eliminated 8/1/23
Maine 7/1/2018 Monetary: $100,000 Transaction: 7/1/2018 200

1/1/2022 N/A

Previous or current calendar year Type of sales to include: The sale of TPP, products transferred electronically, or taxable services

Sales through a marketplace: Exclude Sales for resale: Include Exempt sales: Include

Sales and Use Tax Yes Register Immediately Maine removed their 200 transaction threshold effective 1/1/22. Prior to 1/1/22, 200 transactions created nexus. Maine is actively auditing sellers back to 7/1/2018.
Maryland 10/1/2018 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: The sale of TPP and/or taxable services

Sales through a marketplace: Include Sales for resale: Include Exempt sales: Include

Sales and Use Tax No Register immediately
Massachusetts 10/1/2019 Monetary: $100,000 Transaction: N/A Previous or current calendar year Type of sales to include: Gross sales of TPP and/or services

Sales through a marketplace: Exclude Sales for resale: Include Exempt sales: Include

Sales and Use Tax No 1st day of the 1st month beginning two months after threshold is crossed
Michigan 10/1/2018 Monetary: $100,000 OR

Transaction: 200

Previous calendar year Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Sales Tax No Calendar year after MI plans on enforcing prospectively only.
Minnesota 10/1/2018 Monetary: $100,000 OR

Transaction:

10/1/2018 100

10/1/2019 200

Prior 12 Months Type of sales to include: Retail sales Sales through a marketplace: Include Sales for resale: Exclude

Exempt sales: Include

Sales and Use Tax No No later than 60 days. Continue to collect for 12 months.
Mississippi 9/1/2018 Monetary: $250,000 Transaction: N/A Prior 12 months Type of sales to include: Total sales Sales through a marketplace: Exclude Sales for resale: Include

Exempt sales: Include

Use Tax No Register Immediately MS updated their guidance on 7/1/2020 when they codified the rules for economic nexus and market place facilitators.
Missouri 1/1/2023 Monetary: $100,000 Transaction: N/A Previous or current calendar year Type of sales to include: All sales of tangible personal property

Sales through a marketplace: Include Sales for resale: Include Exempt sales: Include

Vendor Use Tax Register Immediately
Nebraska 4/1/2019 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Retail sales Sales through a marketplace: Include Sales for resale: Exclude

Exempt sales: Include

Sales Tax Yes Collecting and remitting sales tax on or before the first day of the second calendar month after the threshold(s) are exceeded. NE plans on enforcing prospectively only. If the threshold is passed mid-year, the seller or MMP must begin collecting sales tax by the first day of the second calendar month after the threshold is exceeded.
Nevada 10/1/2018 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Retail sales Sales through a marketplace: Include Sales for resale: Exclude

Exempt sales: Include

Sales and Use Tax Yes Register by the first day of the calendar month that begins at least 30 days after they hit the threshold. NV plans on enforcing prospectively only.
New Jersey 11/1/2018 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Gross revenue from sales of tangible personal property, specified digital products, or taxable services Sales through a marketplace: Include

Sales for resale: Include

Exempt sales: Include

Sales Tax No The next transaction NJ plans on enforcing prospectively only. This prospective treatment does not apply if the seller has a physical presence in New Jersey, or is otherwise legally obligated to collect and remit New Jersey Sales and Use Tax. Once the threshold is met, the tax collection obligation continues for that year and the next year
New Mexico 7/1/2019 Monetary: $100,000 Transaction: N/A Previous calendar year Type of sales to include: Taxable gross receipts

Sales through a marketplace: Exclude Sales for resale: Exclude Exempt sales: Exclude

Gross Receipts Tax Yes Register Immediately NM switched to destination based sourcing effective 7/1/2021 meaning that all sellers are required to collect local taxes based upon delivery location.
New York 6/21/2018 Monetary:

6/21/2018 $300,000

6/24/2019 $500,000

AND

Transaction: 100

Prior four quarters Type of sales to include: Sales of TPP Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Sales Tax Yes Register within 30 days, must

collect 20 days thereafter

In NY both the sales and transaction thresholds must be met. So it is not

$500k or 100 transactions but rather $500k and 100 transactions.

North Carolina 11/1/2018 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: All sales of TPP, digital property, and services

Sales through a marketplace: Include Sales for resale: Include Exempt sales: Include

Sales and Use Tax No Within 60 days If a marketplace is not collecting tax the marketplace seller is responsible.
North Dakota 10/1/2018 Monetary: $100,000 Transaction:

2018 200

2019 N/A

Previous or current calendar year Type of sales to include: The sales of TPP and other taxable items delivered in this state

Sales through a marketplace: Include Sales for resale: Exclude Exempt sales: Exclude

Sales and Use Tax No Within 60 days
Ohio 8/1/2019 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Retail sales Sales through a marketplace: Include Sales for resale: Exclude

Exempt sales: Include

Sellers Use Tax No begins the month that the seller establishes nexus and applies prospectively from that date.
Oklahoma 7/1/2018 Monetary:

7/1/2018 $10,000

11/1/2019 $100,00

Transaction: N/A

Previous calendar year Type of sales to include: Taxable sales Sales through a marketplace: Exclude Sales for resale: Exclude

Exempt sales: Exclude

Vendor Use Tax No Register Immediately Oklahoma has a $10,000 threshold for notice and reporting requirements which follow different rules and have much higher penalties. See Notice and Reporting chart for greater detail. Starting 11/1/2019 OK is enforcing an economic nexus threshold of $100,000. Once you cross $100,000 you no longer have the option of the notice and reporting, but must register for sales tax. If you do not cross the $100,000 number notice and reporting is still in effect.
Pennsylvania 7/1/2019 Monetary: $100,000 Transaction: N/A Previous Pennsylvania fiscal calendar year – beginning on April 1st Type of sales to include: Gross sales Sales through a marketplace: Exclude Sales for resale: Include

Exempt sales: Include

Sales Tax No Collection will begin in the second quarter.
Rhode Island 7/1/2019 Monetary: $100,000 OR

Transaction: 200

Previous calendar year Type of sales to include: Gross revenue from the sale of TPP, prewritten computer software delivered electronically or by load and leave, vendor-hosted prewritten computer software, and/or have taxable services delivered into this state

Sales through a marketplace: Include Sales for resale: Include Exempt sales: Include

Sales and Use Tax No Must register and collect on January 1 of the following calendar year.
South Carolina 11/1/2018 Monetary: $100,000 Transaction: N/A Previous or current calendar year Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Sales and Use Tax No First day of the second calendar month after a threshold is met Penalty and interest will be charged back to the date the threshold was crossed if you are not registered.
South Dakota 11/1/2018 Monetary: $100,000 OR

Transaction: 200 (Transaction threshold to be eliminated 7/1/23)

Previous or current calendar year Type of sales to include: Gross sales of TPP, any products transferred electronically, or services

Sales through a marketplace: Include Sales for resale: Include Exempt sales: Include

Sales Tax No Register Immediately Enforcement will be prospective only. Effective 7/1/23 SD is removing the 200 or more separate transactions threshold.
Tennessee 7/1/2019 Monetary:

10/1/2019 $500,000

10/1/2020 $100,000

Transaction: N/A

Prior 12 months Type of sales to include: Retail sales Sales through a marketplace: Exclude Sales for resale: Exclude

Exempt sales: Include

Sales and Use Tax No Collect and remit the tax by the first day of the third calendar month following the month in which this threshold was met.
Texas 10/1/2019 Monetary: $500,000 Transaction: N/A Prior 12 months Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Sales and Use Tax No No later than the first day of the fourth month after the month that a remote seller exceeds the $500,00 safe harbor amount. Retailers exceeding the safe harbor amount are required to get a Texas sales tax permit and begin collecting. Retailers with Texas sales below the safe harbor amount do not have to register and collect. Remote sellers doing business in Texas will have the option of collecting: the combined rate of all applicable local use taxes; or a single local use tax rate as set by the state. Inventory in an Amazon FBA warehouse used exclusively to fulfill marketplace sales will no longer createa nexus in Texas. If Amazon fulfills non-marketplace sales it will create nexus.
Utah 1/1/2019 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Gross sales Sales through a marketplace: Exclude Sales for resale: Include

Exempt sales: Include

Sales and Use Tax No Register Immediately UT plans on enforcing prospectively only.
Vermont 7/1/2018 Monetary: $100,000 OR

Transaction: 200

Prior 12 months Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Use Tax No Review at the end of each quarter. If the threshold is met collect and remit tax starting no later than the first day of the following month. VT has notice & reporting with no threshold.
Virginia 7/1/2019 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Retail sales Sales through a marketplace: Exclude Sales for resale: Exclude

Exempt sales: Include

Use Tax No No later than 30 days For purposes of determining whether a dealer meets the $100,000 gross revenue or 200 transaction thresholds, the sales made by all commonly controlled persons will be aggregated and the sales transactions of commonly controlled persons will be attributed to all members of its corporate group that are dealers.
Washington 10/1/2018 Monetary: $100,000 Transaction:

2018 200

2020 N/A

Previous or current calendar year Type of sales to include: Retail sales Sales through a marketplace: Include Sales for resale: Exclude

Exempt sales: Include

Excise Tax No 30 days Notice and reporting requirement was eliminated 7/1/2019. It is important to note that the business and occupation (B&O) tax is required to be paid even when a marketplace is collecting and remitting taxes. Washington states you must have proof the facilitator is collecting on your behalf.
West Virginia 1/1/2019 Monetary: $100,000 OR

Transaction: 200

Previous calendar year Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Combined Sales and Use Tax No First date of collection should be consistent with the first sales date indicated on its application for business registration. The responsibility of a remote seller to collect and remit taxes will be determined annually for each subsequent year based on the remote seller’ s sales in the immediately preceding calendar year. Remote sellers registered for West Virginia sales or use taxes must collect the applicable municipal sales and use taxes when the shipped-to physical address of the customer is located within the geographic boundaries of a municipality that imposes a sales and use tax.
Wisconsin 10/1/2018 Monetary: $100,000 Transaction: 10/1/2018 200

2/20/2021 N/A

Previous or current calendar year Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Sales and Use Tax No The next transaction Tax must be collected for the balance of the year and the next year minimum. Sellers who only make exempt sales are not required to register.

Products delivered into a state on behalf of others, count towards the thresholds. Drop shippers take note. Remote sellers that only sell on marketplaces where the marketplace collects are not required to be registered even if they exceed the economic nexus threshold.  However, if the marketplace seller makes any sales where the marketplace provider does not collect the tax, it must include all sales including those on a collecting marketplace to determine if it exceeds the small seller threshold and if so, it must register and collect on those sales.

Wyoming 2/1/2019 Monetary: $100,000 OR

Transaction: 200

Previous or current calendar year Type of sales to include: Gross sales Sales through a marketplace: Include Sales for resale: Include

Exempt sales: Include

Sales and Use Tax No Register Immediately Wyoming is enforcing prospectively only.

Source: Sales Tax And More

As of August 2023, 28 states and the District of Columbia had adopted economic nexus threshold values of $100,000 in sales or 200 transactions into the state each year. Three large-population and large-gross Domestic Product states including California, New York, Tennessee, and Texas adopted higher monetary thresholds of $500,000.

More recently, states including Florida, Kansas, and Missouri adopted monetary thresholds without an accompanying transactional threshold. Then, other states including Iowa, Maine, North Dakota, South Dakota, Washington, and Wisconsin eliminated previously-established transactional thresholds in favor of monetary-only thresholds.

Some states also raised or lowered their previously established monetary thresholds, including Tennessee, which moved from $500,000 to $100,000; Oklahoma which moved from $10,000 to $100,000; New York which moved from $300,000 to $500,000; Georgia which moved from $250,000 to $100,000; California which moved from $100,000 to $500,000; and Arizona which moved from $200,000 to $100,000.

Finally, the states also differ regarding the fact that whether a business meets these thresholds when its sales equal or exceed the stated values. For example, both Illinois and Indiana have thresholds of $100,000 or 200 transactions; but in Illinois, the $100,000 threshold is met when sales equal this amount whereas in Indiana it is met when sales exceed this amount.

Note that the economic nexus thresholds adopted by states exempt small businesses from remote sales tax requirements. These are the businesses whose sales into a state fall below a certain level.

The state-by-state nexus rules chart above lays out the state-by-state sales tax chart that enumerates that states differ regarding which sales must be included in the calculation of the economic thresholds, the periods over which the sales occur, and whether a business meets a threshold when its sales equal or exceed the stated value, among other variations.
What Are The Steps Involved in eCommerce Sales Tax Compliance?
eCommerce sales tax compliance is crucial for your business to avoid any legal issues and ensure accurate financial reporting. The steps involved in eCommerce sales tax compliance can vary based on factors such as the location of your business, the locations where you have sales tax obligations, and the specific products or services you sell.

The following are the general steps that you need to follow as an eCommerce business to stay compliant with sales tax regulations.

What Are The Steps Involved In eCommerce Sales Tax Compliance?

eCommerce sales tax compliance is crucial for your business to avoid any legal issues and ensure accurate financial reporting. The steps involved in eCommerce sales tax compliance can vary based on factors such as the location of your business, the locations where you have sales tax obligations, and the specific products or services you sell.

Read: How to Manage eCommerce Sales Tax Compliance?

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