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What is Sales Tax Economic Nexus and How is it Triggered?

Economic nexus is a pivotal concept in state taxation in the United States, especially in the realm of sales tax. It dictates that a business’s tax obligations in a particular state are determined by its economic presence or activity within that state, rather than just its physical presence. Sales tax economic nexus rules vary by state but are typically triggered by specific thresholds related to a business’s sales activity. These thresholds often include a minimum level of sales revenue generated within the state, a certain number of transactions with in-state customers, or a combination of both. For example, a state might set a threshold of $100,000 in gross sales or 200 transactions over a 12-month period. When a business surpasses these established thresholds, it is deemed to have established economic nexus within that state, and it becomes obligated to register with the state’s tax authorities, collect and remit sales tax on taxable transactions, and adhere to the state’s tax regulations.

The legal basis for economic nexus rules was significantly influenced by the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. This ruling upheld South Dakota’s economic nexus law, allowing states to establish such rules for sales tax collection. The decision effectively eliminated the requirement for a physical presence (as established in the 1992 Quill v. North Dakota case) for a business to be liable for sales tax in a state. As a result, economic nexus has enabled states to capture tax revenue from businesses that conduct significant sales activities within their borders, even if those businesses lack a brick-and-mortar presence in the state. It has become a vital tool for states to ensure that the ever-growing e-commerce industry and remote businesses contribute its fair share of sales tax revenue to support local and state services.

State By State Guide to Economic Nexus

Alabama

Alabama’s economic nexus policy took effect on October 1, 2018. Under this policy, the state sets a threshold of $250,000 in retail sales within a single year. Businesses are required to register by the following January 1st once they have exceeded this threshold.

When calculating economic nexus, the state considers the combined retail sales of tangible personal property delivered within Alabama and sales facilitated by a marketplace that doesn’t collect taxes. It’s important to note that sales conducted through a registered marketplace facilitator should not be factored into this calculation.

Alaska

Alaska, known for its unique tax structure, has no statewide sales tax, making it one of the few states in the United States without a traditional sales tax. Instead, Alaska primarily relies on revenue from other sources, such as oil and gas revenue, to fund its government operations. Therefore, businesses in Alaska do not have to contend with the complexities of sales tax regulations, and there is no economic nexus threshold to meet for sales tax purposes. 

However, local municipalities in Alaska may impose their own sales taxes, so businesses operating within specific municipalities should be aware of any local tax requirements.

Alaskan main street where businesses use economic nexus

For example, Nome, Alaska, marked a milestone by becoming the inaugural city to enact an economic nexus ordinance. This law officially took effect on September 1, 2019. Under this ordinance, Nome’s economic nexus criterion is defined as reaching $100,000 in total sales or conducting over 200 transactions within the city’s boundaries during a calendar year. To comply with the law, businesses are expected to register by the first day of the month that begins 30 days after the threshold is reached.

Arizona

Arizona’s economic nexus policy came into effect on October 1, 2019. In Arizona, the economic nexus threshold is activated when a business achieves $100,000 in annual gross sales. Business owners are required to register by the first day of the month that follows 30 days after surpassing this threshold.

To ascertain whether a business has met Arizona’s economic nexus criteria, the state factors in all transactions, encompassing the total proceeds from the sale of tangible personal property or services, which also includes any revenue that may be exempt or nontaxable. It’s essential to note that transactions carried out through marketplace facilitators registered for sales tax collection within the state are excluded from this calculation.

Arkansas

Arkansas implemented its economic nexus policy on July 1, 2019. In Arkansas, the economic nexus requirement is met when a business reaches $100,000 in taxable sales or conducts 200 transactions within a year. Businesses are obligated to complete their registration on the day the threshold is exceeded.

Arkansas considers a range of transactions when evaluating economic nexus, encompassing taxable services, digital products and codes, as well as the combined taxable sales of tangible personal property. Notably, transactions carried out through registered marketplace facilitators and sales of exempt tangible personal property and services are excluded from this determination.

California

California has implemented economic nexus rules for sales tax purposes. These rules became effective on April 1, 2019. To be subject to these rules, businesses must meet or exceed a threshold of $500,000 in combined gross sales of tangible personal property into the state in the current or previous calendar year.

Included transactions for determining economic nexus in California encompass a wide range of sales, including sales of tangible personal property, digital products, and taxable services delivered within the state. California has varying local sales tax rates, so businesses should be aware of local tax rates and regulations.

Colorado

Colorado main street where businesses utilize economic nexus

Colorado instituted its economic nexus policy on June 1, 2019. In Colorado, the economic nexus threshold is reached when a business achieves $100,000 in retail sales within a calendar year. It’s important to note that Colorado’s economic nexus policy doesn’t involve a transaction count clause. Businesses are obligated to register by the first day of the month, 90 days after surpassing the threshold.

When Colorado assesses economic nexus, it considers the total receipts from the retail sale of tangible personal property, regardless of whether these are taxable or nontaxable sales. 

Connecticut

Connecticut’s economic nexus policy came into effect on December 1, 2018. In Connecticut, economic nexus is established when a business achieves $100,000 in gross sales and conducts 200 transactions within a year. Interestingly, Connecticut is one of the select states that mandate businesses to satisfy both criteria before they are required to register for sales tax. The registration date falls on the first day of October in the year in which the threshold is met. 

When Connecticut evaluates economic nexus, it encompasses gross receipts from the sale of tangible personal property without any deductions permitted for exempt sales, all services, whether taxable or exempt, and sales conducted through online marketplaces. The sole exception to this inclusion rule is sales intended for resale.

Delaware

Delaware is known for its unique stance on sales tax, as it doesn’t levy a state-level sales tax on purchases. Nevertheless, businesses operating in Delaware need to be aware of the state’s specific regulations. Instead of sales tax, Delaware focuses on franchise tax and annual report requirements to maintain regulatory compliance. 

While there’s no state sales tax, local jurisdictions within Delaware may impose their own taxes, necessitating vigilance by businesses. Delaware also enforces economic nexus criteria for other types of taxes, which can require businesses to meet specific revenue or transaction thresholds, even in the absence of a traditional sales tax, ensuring that they remain in compliance with the state’s regulations.

Florida

Florida was among the later adopters of economic nexus policies, implementing its regulation on July 1, 2021. Under this framework, Florida activates economic nexus when businesses reach $100,000 in taxable remote sales annually, requiring them to register on the day the threshold is surpassed. 

Notably, Florida’s economic nexus criteria encompass only taxable sales of tangible personal property that is physically delivered within the state, while excluding nontaxable sales of tangible personal property and most services from the assessment.

Georgia

Georgia’s economic nexus initiative commenced on January 1, 2019. Under this program, the criteria for economic nexus activation in Georgia involve reaching either $100,000 in retail sales or conducting 200 retail transactions in a year, with businesses expected to register on the day when these thresholds are exceeded. 

When assessing economic nexus, Georgia’s evaluation is focused on the gross revenue generated from retail sales, excluding non-retail sales of tangible personal property and a significant portion of service transactions from consideration.

Hawaii

Hawaii’s economic nexus policy was introduced on July 1, 2018. In Hawaii, economic nexus is established when a business reaches either $100,000 in gross sales or conducts 200 annual transactions, with the registration requirement falling on the first day of the month following the achievement of these thresholds. 

When assessing economic nexus, Hawaii includes various transactions, encompassing intangible property delivered to the state, gross income/proceeds from tangible personal property sent to the state, exempt sales, and services that are either consumed or delivered within the state.

Idaho

Idaho implemented its economic nexus policy on June 1, 2019. Under this framework, economic nexus is triggered in Idaho when a business achieves $100,000 in annual gross sales, and registration is required upon surpassing this threshold. 

When determining economic nexus, Idaho considers various transactions, including the cumulative gross receipts from the sales of products and services, as well as transactions related to exempt sales and exempt services.

Illinois

Illinois has specific regulations governing economic nexus for sales tax purposes. These regulations were enacted on October 1, 2018. To be subject to these rules, businesses must meet or exceed a threshold of either 200 or more annual transactions or $100,000 in gross sales within the state over the past 12 months.

When evaluating economic nexus, Illinois takes into account various transactions, including the cumulative sales receipts and exempt sales, while excluding transactions such as sales processed through a marketplace facilitator, sales for resale, services, and occasional sales.

Illinois main street where small businesses use economic nexus

Indiana

Indiana’s economic nexus policy was set in motion on October 1, 2018. In Indiana, economic nexus is established when a business reaches $100,000 in gross sales, with the registration obligation commencing on the day the threshold is exceeded. 

When assessing economic nexus, Indiana takes into account various transactions, encompassing gross sales revenue from tangible personal property, electronically delivered products, sales intended for resale, taxable and exempt services, and exempt sales.

Iowa

Iowa implemented its economic nexus program on January 1, 2019. In Iowa, economic nexus is triggered when a business achieves $100,000 in annual gross sales, and the registration requirement falls on the first day of the month, 30 days after surpassing this threshold. 

When determining economic nexus, Iowa factors in various transactions, including exempt and taxable sales, sales intended for resale, exempt sales, specific electronic transactions, and the gross sales revenue of tangible personal property.

Kansas

Kansas, like many other states, has implemented economic nexus rules for sales tax purposes. These regulations came into effect on October 1, 2019. To be subject to these rules, businesses must meet or exceed a threshold of $100,000 in gross sales within the state.

Included transactions for determining economic nexus in Kansas encompass a variety of sales, including sales of tangible personal property, digital products, and taxable services delivered within the state. It’s essential for businesses to understand that the exact taxability of certain products and services may vary, so consulting with tax professionals or referring to the state’s tax guidelines is advisable.

Kentucky

Kentucky’s economic nexus policy was set in motion on October 1, 2018. In Kentucky, economic nexus is established when a business reaches either $100,000 in gross sales or conducts 200 or more annual transactions, with the registration requirement commencing on the first day of the month, 60 days after the threshold is surpassed. 

When evaluating economic nexus, Kentucky takes into account various transactions, which include digital property transmitted electronically, exempt sales, and the gross sales receipts from tangible personal property.

Louisiana

Louisiana has established economic nexus rules for sales tax purposes. These regulations took effect on July 1, 2020. To be subject to these rules, businesses must meet or exceed a threshold of $100,000 in gross sales or engage in 200 or more transactions within the state in the previous or current calendar year.

Included transactions for determining economic nexus in Louisiana encompass a broad range of sales, including sales of tangible personal property, digital products, and taxable services delivered within the state. It’s important to note that Louisiana has a unique sales tax structure, including state and local sales taxes, so businesses must be aware of local tax rates and regulations that may apply.

Maine

Maine initiated its economic nexus policy on July 1, 2018. In Maine, businesses trigger economic nexus when they reach either $100,000 in gross sales or conduct 200 or more annual transactions. The registration requirement falls on the day the threshold is surpassed. 

For the purpose of economic nexus assessment in Maine, included transactions encompass taxable delivered services, exempt sales, and gross sales of tangible personal property. Transactions of exempt services are excluded.

Maryland

Maryland’s economic nexus policy commenced on October 1, 2018. In Maryland, businesses activate economic nexus by achieving $100,000 in gross sales or conducting 200 annual transactions. The registration obligation takes effect on the first day of the month following the attainment of the threshold. 

Maryland’s included transactions are taxable services, exempt digital goods sales, exempt software sales, exempt personal property sales, digital delivered goods, software sold and delivered, and revenue from tangible personal property sales. Exempt services are the only excluded transactions.

Massachusetts

Historic Massachusetts main street where businesses have been using economic nexus since 2017

Massachusetts began its economic nexus policy on October 1, 2017. In Massachusetts, businesses trigger economic nexus by achieving $100,000 in gross sales within a year. The registration requirements vary based on when the threshold is surpassed. If the threshold is met prior to October 31, registration is effective on the first day of the following year. If the threshold is reached in the next two months, registration is due by the first day of the second month following the threshold’s attainment. 

Included transactions for economic nexus determination in Massachusetts are sales of tangible personal property delivered to the area, services (taxable and exempt) provided throughout the state, and exempt sales.

Michigan

Michigan has implemented economic nexus rules for sales tax purposes. These rules became effective on October 1, 2018. To be subject to these rules, businesses must meet or exceed a threshold of $100,000 in gross sales or engage in 200 or more transactions within the state in the current or previous calendar year.

Included transactions for determining economic nexus in Michigan encompass a wide range of sales, including sales of tangible personal property, digital products, and taxable services delivered within the state. Michigan’s sales tax rates may vary by locality, so businesses should be aware of local tax rates and regulations.

Minnesota

Minnesota’s economic nexus policy was established on October 1, 2018. In Minnesota, economic nexus is activated when businesses reach $100,000 in sales or conduct 200 or more transactions within a year. Registration is mandatory within two months of surpassing the threshold. 

Mississippi

Mississippi’s economic nexus policy commenced on September 1, 2018. In Mississippi, economic nexus is triggered when businesses achieve $250,000 in sales in the preceding twelve month period. Registration is required on the day the threshold is exceeded.

For determination of economic nexus, the state considers total sales made into Mississippi without allowing for any exclusions.

Missouri

Missouri’s economic nexus policy began January 1, 2023. The threshold is $100,000 in the previous twelve month period reviewed quarterly. Businesses are required to register three months after the quarter closes in which the threshold is surpassed. 

For the purpose of economic nexus assessment in Missouri, included all sales of tangible personal property made to Missouri customers and shipped into Missouri, including sales through a marketplace facilitator.

Montana

Montana is unique among U.S. states as it does not impose a general statewide sales tax, and it has no specific economic nexus rules for sales tax purposes. Businesses operating in Montana do not have to navigate complex economic nexus thresholds or sales tax collection and reporting requirements related to sales within the state.

Nebraska

Nebraska’s economic nexus policy was initiated on January 1, 2019. In Nebraska, economic nexus is triggered when businesses achieve $100,000 in gross sales or conduct 200 or more annual transactions. The registration requirement is effective on the first day of the second calendar month after surpassing the threshold.

Included transactions for economic nexus determination in Nebraska encompass aggregate retail sales to in-state customers, services, and exempt sales. Transactions involving sales for sub-renting, subleasing, and resale are excluded.

Nevada

Nevada initiated its economic nexus rules on November 1, 2018. Businesses meeting or exceeding a $100,000 retail sales threshold or conducting 200 or more yearly retail transactions are subject to these rules. Registration is required on the first day of the month occurring 30 days after the threshold is met.

For the purpose of determining economic nexus in Nevada, included transactions encompass gross revenue generated from the retail sales of tangible personal property and exempt sales. Transactions related to exempt services and sales for resale are excluded.

Nevada downtown shopping center where businesses use economic nexus

New Hampshire

New Hampshire is unique in that it does not have a traditional statewide sales tax. As a result, there are no economic nexus rules for sales tax purposes in the state. Businesses operating in New Hampshire do not have to meet specific economic thresholds or navigate complex sales tax collection and reporting requirements within the state.

New Jersey

New Jersey has established economic nexus rules for sales tax purposes. These rules became effective on November 1, 2018. To be subject to these rules, businesses must meet or exceed a threshold of either $100,000 in gross sales or engage in 200 or more yearly transactions within the state.

Included transactions for determining economic nexus in New Jersey encompass a wide range of sales, including gross revenue from the retail sales of tangible personal property, certain digital products, and taxable services delivered in accordance with N.J.S.A. 54:32B-3(b). New Jersey’s sales tax rates may vary by location and specific tax categories.

New Mexico

New Mexico’s economic nexus rules commenced on July 1, 2019. To be affected, businesses must reach an annual taxable sales threshold of $100,000. Registration is required on the first day of January in the year following the threshold’s attainment.

For the determination of economic nexus in New Mexico, included transactions comprise sales from real property services and licenses, digital products, Software as a Service (SaaS), and aggregate gross receipts from taxable property, licenses, and leases. Exempt sales and services are excluded transactions.

New York

New York’s economic nexus rules were established on June 21, 2018. Businesses must reach a threshold of $500,000 dollars in gross sales of tangible personal property (TPP) and conduct 100 or more transactions in the previous four quarters to be subject to these rules. Registration is obligatory one month after exceeding the threshold.

For determining economic nexus in New York, included transactions involve retail sales of nontaxable property, sales of SaaS, and other tangible personal property. Exempt and taxable services are considered excluded transactions.

North Carolina

North Carolina’s economic nexus regulations started on November 1, 2018, or two months after a remote seller crosses the threshold of six figures in gross sales or 200 or more annual transactions, whichever occurs later. Registration is mandatory on the day the threshold is exceeded.

In terms of determining economic nexus in North Carolina, included transactions comprise gross sales sourced to the state and property/service sales prices. Exempt services and sales are also part of the included transactions.

North Dakota

Main street in a North Dakota city with businesses who utilize economic nexus

North Dakota’s economic nexus rules commenced on October 1, 2018. To be affected, businesses must reach a threshold of $100,000 in taxable sales within a year. Registration is required on the first day of January of the following year or two months after surpassing the threshold, whichever occurs first.

Included transactions for determining economic nexus in North Dakota include gross sales of taxable services and taxable property. Sales processed in a marketplace, along with exempt sales and services, are excluded transactions.

Ohio

Ohio’s economic nexus rules began on January 1, 2018. Businesses must meet a threshold of $100,000 in gross sales or conduct 200 or more annual transactions to be subject to these rules. Registration is required on the date the threshold is exceeded.

Included transactions in Ohio consist of exempt sales, services enumerated for the benefit of the state, and gross receipts from tangible personal property sales. Exempt services and sales for resale are considered excluded transactions.

Oklahoma

Oklahoma’s economic nexus rules were implemented on July 1, 2018. Businesses are affected if they achieve $100,000 in gross sales within the current or previous year. Registration is mandatory on the first day of the month after surpassing the threshold.

Included transactions in Oklahoma encompass the aggregate sale of taxable tangible personal property. Exempt services, as well as exempt sales, are excluded transactions.

Oregon

Oregon does not have a statewide sales tax. It is one of the few states in the United States that does not impose a traditional sales tax on the sale of goods and services. As a result, businesses and consumers in Oregon do not have to pay state-level sales tax on their purchases. However, local jurisdictions in Oregon, such as cities and counties, have the option to impose local sales taxes, but they are relatively rare and typically apply to specific types of transactions, such as the sale of prepared food and beverages in some areas. It’s essential for businesses and consumers in Oregon to be aware of any local sales tax requirements that may exist in their specific jurisdiction, but the state itself does not have a statewide sales tax.

Pennsylvania

Pennsylvania’s economic nexus regulations took effect on July 1, 2019. To be subject to these rules, businesses must reach a sales threshold of $100,000 in a year. Registration is required on the first day of April in the year following the threshold’s attainment.

Included transactions in Pennsylvania encompass gross sales of products and services, exempt services, and sales made by commonwealth agents, subsidiaries, or representatives.

Rhode Island

Rhode Island’s economic nexus rules were initiated on August 17, 2017. To be affected, businesses must meet a threshold of $100,000 in gross sales or conduct 200 or more annual transactions. Registration is mandatory on the first day of January in the year following the year in which the threshold was surpassed.

Rhode Island’s included transactions consist of prewritten computer software provided through electronic means, gross sales revenue of tangible personal property, certain digital products, and taxable services delivered. Excluded transactions are limited to exempt services.

South Carolina

South Carolina implemented economic nexus rules on November 1, 2018. The threshold in South Carolina is $100,000 of yearly gross sales. Registration is required on the first day of the second calendar month after surpassing the threshold.

Included transactions in South Carolina comprise gross revenue resulting from the sale of tangible personal property, products transferred electronically, and exempt sales and services rendered within the state.

South Carolina's French quarter where businesses utilize economic nexus

South Dakota

South Dakota’s economic nexus rules began on November 1, 2018. The threshold in South Dakota is $100,000 of gross annual sales. Registration is required after surpassing the threshold.

Included transactions in South Dakota consist of exempt sales, rendered services, products transferred electronically, and gross sales revenue stemming from the sale of tangible personal property that is tangible.

Tennessee

Tennessee’s economic nexus rules took effect on October 1, 2019. To be subject to these rules, businesses must reach $100,000 in retail sales in the previous 12 months. Registration is required on the first day of the third calendar month following the threshold’s attainment.

Included transactions in Tennessee encompass exempt and taxable services, exempt sales, and sales made to customers. Excluded transactions include sales made for resale. 

Texas

Texas has an economic nexus start date that is either the first day of the fourth month after the month when a remote seller hits the threshold or October 1, 2019. The threshold in Texas is $500,000 of gross sales in the previous 12 months. Registration is required on the first day of the fourth calendar month after the threshold is exceeded.

Included transactions in Texas include exempt sales, exempt services, and gross revenue resulting from the sale of services and personal property within the state. Additionally, physical presence is no longer required for franchise tax.

Utah

Provo Utah, main street where businesses and shops use economic nexus

Utah’s economic nexus rules began on January 1, 2019. The threshold in Utah is $100,000 of gross sales or 200 annual transactions. Registration is required on the day the threshold is surpassed.

Included transactions in Utah consist of products electronically transferred into Utah, gross revenue from tangible personal property/services sales into the state, exempt sales, and taxable/exempt services rendered within the state.

Vermont

Vermont’s economic nexus rules started on July 1, 2018. The threshold in Vermont is $100,000 of gross sales or 200 transactions in the prior four calendar quarters. Registration is required on the initial day of the month, 30 days following the quarter when the threshold was surpassed.

Included transactions in Vermont encompass services (exempt and taxable) within the state, the sales of tangible personal property/services to the state, and electronically transferred products.

Virginia

Virginia’s economic nexus rules took effect on July 1, 2019. The threshold in Virginia is either 200 or more yearly transactions or $100,000 of retail sales. Registration is required on the day the business surpasses the threshold.

Included transactions in Virginia include taxable services, exempt sales, products transferred electronically, and all sales of tangible personal property. Excluded transactions encompass exempt services and sales for resale.

Washington

Washington’s economic nexus rules commenced on January 1, 2018, for businesses exceeding 200 transactions or $100,000 of gross sales, and on July 1, 2017, for the B&O tax requirement. Registration is required on the first day of the month exactly 30 days after surpassing the threshold.

Included transactions in Washington encompass cumulative gross yearly income, exempt sales, exempt sales for resale, and taxable services.

Washington D.C.

Washington D.C’s economic nexus rules took effect on January 1, 2019.The economic nexus rule for out-of-state or online retailers states that companies with a gross revenue surpassing $100,000 or engaging in 200 or more separate transactions in the preceding or ongoing year must register and submit monthly sales tax.

West Virginia

West Virginia’s economic nexus rules took effect on January 1, 2019. The threshold in West Virginia is 200 or more annual transactions or $100,000 in gross sales. Registration is required on the day the threshold is exceeded.

Included transactions in West Virginia consist of tangible personal property sales, exempt sales, taxable services, and electronically transferred products.

Wisconsin

Wisconsin’s economic nexus rules started on October 1, 2018. The threshold in Wisconsin is $100,000 in gross annual sales. Registration is required on the date the threshold is exceeded.

Included transactions in Wisconsin encompass exempt sales, yearly services gross sales, and yearly tangible property gross sales into the state. Wisconsin does not have excluded transactions.

Wyoming

Wyoming’s economic nexus rules commenced on February 1, 2019. The threshold in Wyoming is solely determined by reaching $100,000 in gross sales. Registration is required on the day the threshold is surpassed.

Included transactions in Wyoming include wholesale sales, exempt sales, taxable sales, and gross yearly admission sales. There are no excluded transactions in Wyoming.

How Can DHJJ Assist You?

At DHJJ, we offer comprehensive support to businesses navigating the complex landscape of economic nexus in various states across the U.S. Our dedicated team of tax professionals is well-versed in the ever-evolving tax regulations and economic nexus rules in all states. We can assist your business in understanding the specific thresholds and requirements for each state, helping you identify when and where economic nexus is triggered.

We are equipped to provide strategic tax planning services to optimize your tax compliance and minimize liabilities.

We can help you establish a robust tax collection and reporting system, ensuring that your business complies with state regulations, registers with tax authorities, and accurately collects and remits sales tax as required. With our expert guidance, you can navigate the intricacies of economic nexus, minimize risks of non-compliance, and stay focused on growing your business while leaving the complexities of multi-state tax obligations in capable hands.

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