In the United States, the sales tax landscape has changed drastically due to the recent U.S. Supreme Court Case of South Dakota v. Wayfair (June 2018). Following this landmark decision which made it easier for companies to create nexus in states, many states have enacted legislation which establishes guidelines, thresholds for economic nexus. In a previous blog, we talked about this epic decision.
What is Economic Nexus?
In the past, companies needed to have physical presence, or “boots on the ground,” in a state in order to have nexus (or taxable presence) in a state. This meant that a company needed to have offices, inventory, employees, or contractors in a state for a certain amount of time. Companies now don’t necessarily need to have physical presence in a state for them to create nexus; they now can have nexus in a state by virtue of economic nexus. Economic nexus essentially means that companies with sales of a certain dollar amount or a certain number of transactions with a state are required to register, collect and remit sales tax. Some states require both criterion. Additionally, note that some states base their economic threshold on taxable sales, while other states mention gross sales.