Close to five years ago, the landmark decision in the Supreme Court case of South Dakota v. Wayfair (2018) changed the sales tax landscape across the country. This decision made it so that states could require companies who met specific sales thresholds to collect and remit tax on sales, even if the company did not have a physical presence in the state. As of today, every state that has sales tax has enacted some sort of economic nexus law, but they have varying transaction threshold requirements, which makes it challenging for online sellers to keep up. As more states, including the state that started it all, jump on the bandwagon, could 2023 be the year transaction thresholds are done away with altogether?
What Are The Challenges Of Current Economic Nexus Threshold Requirements?
There are currently six broad categories of economic nexus thresholds, including:
- $100,000 (17 states)
- $100,000 or 200 transactions (23 states, Puerto Rico and the District of Columbia)
- $100,000 and 100 transactions (one state)
- $250,000 (two states)
- $500,000 (two states)
- $500,000 and 100 transactions (one state)
However, this isn’t where the differences between state economic nexus thresholds end. Some states’ thresholds only include taxable sales of tangible personal property (TPP), while others are based on gross sales. Some state thresholds include services, but they aren’t counted in others. If you sell through a marketplace, that adds another layer of complexity – some thresholds include sales made through a marketplace, but some do not.
If that wasn’t challenging enough for businesses, states also base thresholds on different time periods. In some states, it is the prior or current calendar year that matters. For others, only the prior calendar year, the past 12 months or the past four calendar quarters are taken into account. Some states have a different time requirement entirely. You can see why business owners and sales tax experts have called for uniformity.
What States Have Already Eliminated An Economic Nexus Transaction Threshold Requirement?
One way many states are already simplifying sales tax nexus laws for businesses is by removing the transaction threshold requirement. The transaction threshold has been particularly challenging for small businesses that may not make much in terms of sales but have met the 200-transaction threshold and therefore have nexus in states with that requirement. With the elimination of the transaction threshold, businesses have greater certainty and clarity in evaluating their sales tax nexus footprint.
Thirteen states never had an economic nexus transaction threshold to begin with – Alabama, Arizona, Florida, Idaho, Kansas, Mississippi, Missouri, New Mexico, Oklahoma, Pennsylvania, South Carolina, Tennessee and Texas. Eight states have eliminated their preexisting nexus transaction thresholds, including our home state of California. Some other states that have followed suit are Colorado, Iowa, Maine, Massachusetts, North Dakota, Washington and Wisconsin.
South Dakota, the state that led the charge to tax remote sales, just joined the growing trend to remove the transaction threshold with the signing of Senate Bill 30 by the governor on February 9, 2023. Up until now, the threshold requirements in South Dakota were $100,000 in gross sales or at least 200 separate transactions in the current or previous calendar year. The change will take effect on July 1, 2023.
Is Further Economic Nexus Simplification On The Horizon?
We hope so! The Senate Finance Committee met in June 2022 to discuss and hear testimony from sales tax experts to see what can be done to make compliance easier for businesses and economic nexus and Wayfair streamlining was a large topic of discussion. While we can’t exactly predict what the future holds for economic nexus and sales tax law, experts agree that a simplified and more uniform process would ease the compliance burden, especially for small businesses that may not have as many resources. As updates come, we will continue to keep you informed on our weekly blog. If you need further support, our expert sales tax team at Miles Consulting Group is happy to help!
Do You Need Help Keeping Up With Economic Nexus Threshold Requirements?
If you find yourself with economic nexus transaction requirements in the states where you do business or need overall sales tax support, we have a skilled multistate tax team who would love to work with you and take that pressure off your back! We are happy to meet with you and clarify any tax issues you are trying to navigate. Contact us today.
