Economic Nexus Laws to Collect Sales Tax from Remote Sellers
Impact: In light of the increased popularity of e-commerce and online retail and the impact of the pandemic on e-commerce shopping behavior, it is even more essential for businesses to understand different states’ economic nexus laws and be prepared for associated challenges.
The Law: Mandates out-of-state sellers to collect and remit sales tax when they deliver more than $100,000 of goods or services into the state or engage in 200+ separate transactions to deliver goods or services into the state. Remote sellers who have neither property nor personnel in a state can face tax collection and remittance duties in that state.
In response to this decision, most states and the District of Columbia have enacted economic nexus laws to collect sales tax from remote sellers. Like that in South Dakota, these laws impose a revenue threshold and/or a transaction count threshold. Most states have followed South Dakota by setting the revenue threshold at $100,000 and the transaction count threshold at 200, while a few have adopted different numbers.
Nearly three years after the South Dakota v. Wayfair decision, the only two states that have not adopted economic nexus (other than the five states that do not collect general sales tax) are Florida and Missouri. However, multiple bills on adopting economic nexus laws have been introduced in both states, with proposed effective dates either later this year or early 2022.
History: In 2018, the U.S. Supreme Court in South Dakota v. Wayfair made the groundbreaking ruling permitting states to impose sales tax collection and remittance obligations on out-of-state sellers upon the establishment of an “economic nexus.” This economic nexus requirement overturned the “physical presence” standard the Court previously established in Quill Corporation v. North Dakota in 1992.
Contact: If you have any questions regarding economic nexus or want assistance with any federal or state tax matter, please contact your tax attorney at 937-223-1130 or Jsenney@pselaw.com or Jzhao@pselaw.com directly.