On March 13, 2024, Indiana Governor, Eric Holcomb, signed an emergency law amending Sales and Use Tax provisions in the state. The most notable of these provisions was to amend the economic threshold for sales tax nexus by removing the number of annual sales transactions in the state as one of the two triggers that require retail merchants to collect and remit state sales tax.
Background of Economic Nexus
In a past blog, we discuss the origins of economic nexus and where we were in 2023 – 5 years after the Wayfair case was decided:
Have questions about economic nexus in Indiana or another state? Click here to schedule a free consultation:
In most states, the threshold began as either a sales limit or a transaction limit. For example, when South Dakota’s economic nexus law was enacted, it established a threshold of 200 transactions or $100,000, which many states later modeled as they passed their own economic nexus legislations.
Indiana’s original economic nexus law came into effect on October 1, 2018, and before this law change, the threshold was the lesser of $100K of sales OR 200 transactions.
Transaction Threshold Often an Unnecessary Burden
In their eagerness to pass economic nexus laws after Wayfair, many states followed the lead of South Dakota’s law which introduced both thresholds, a dollar amount and a number of transactions.
However, even at the beginning many states did not include the number of transactions in their threshold (i.e., CA and TX to name a few). A few states drafted their rules to read that a company must meet both thresholds (i.e.; New York, which requires $500,000 AND 100 transactions.)
In recent months a few other states have removed the transaction threshold as they realize that it puts an unnecessary burden on smaller companies selling small dollar value items. (For example, if a company sells a trinket worth $2.00, they’d hit the burden of having to register, collect sales tax, remit the tax and file either a monthly or quarterly return after selling just 51 trinkets.)
The following states currently only have dollar amount thresholds: AL, AZ, CA, CO, FL, ID, IA, KS, MA, MO, MS, NM, ND, OK, PA, SC, SD, TN, and TX. But stay tuned – several other states have indicated changes in the transaction thresholds are ahead. It seems that states are realizing that simply having a threshold based on sales dollar volume of $100,000 makes a lot more sense!
Other items in the newly signed law
The amendment to the law also includes a few other provisions that we’ll now discuss:
- It allows a retail merchant that receives 75 percent or more of its receipts from the sale of prepared food to elect to claim a sales tax exemption on transactions involving electricity equal to 50 percent of the tax imposed on the transactions;
- It specifies the pass through entity tax liability for pass through entities in certain circumstances;
- It makes changes to certain statutes of limitations provisions and technical changes; and
- It provides multiple effective and expiration dates for several provisions.
Click here to read more on this law.
Economic nexus is still an issue
While it seems like we’ve been talking about economic nexus for quite some time (we have – since the Wayfair decision in June 2018), we still see this as an area that clients need assistance to navigate.
If you are a retailer selling goods online, a SaaS company selling subscriptions in the cloud, or a technology company selling digital goods and related consulting, we can help determine your nexus start date and filing requirements in Indiana and every other state.
If you have any questions regarding this change in the law, please contact us at info@milesconsultinggroup.com.
