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Home • Data • State Taxes • Economic Nexus Treatment by State, 2024




ECONOMIC NEXUS TREATMENT BY STATE, 2024

March 19, 2024June 7, 20244 min readBy: Manish Bhatt

Sales taxes are an important revenue source for states that maintain them. All
states except Alaska, Delaware, Montana, New Hampshire, and Oregon have
statewide sales taxes. While the state has no such taxA tax is a mandatory
payment or charge collected by local, state, and national governments from
individuals or businesses to cover the costs of general government services,
goods, and activities. , Alaska localities are permitted to implement and
collect sales taxes.

Prior to the Supreme Court’s 2018 decision in South Dakota v. WayfairSouth
Dakota v. Wayfair was a 2018 U.S. Supreme Court decision eliminating the
requirement that a seller have physical presence in the taxing state to be able
to collect and remit sales taxes to that state. It expanded states’ abilities to
collect sales taxes from e-commerce and other remote transactions. , only
sellers with a physical presence in a state could be required to collect and
remit state sales taxes. (States sometimes got creative through ideas like
“click-through nexus” or “cookie nexus” in an effort to circumvent the
restriction.) The Wayfair court, however, recognized the changing nature of the
economy and the rise of e-commerce and overturned decades of precedent, allowing
states to begin taxing non-resident businesses selling into the state.

Following the decision, states acted quickly to begin requiring out-of-state
marketplace facilitators and remote sellers to collect and remit sales taxes.
This impacted both large and small sellers and increased compliance obligations
that often disproportionately fall on small- and medium-sized sellers. The
increased compliance costs are further compounded by the lack of uniformity
among the various taxing jurisdictions.

Currently, 25 states limit economic nexus to sales meeting a dollar threshold
(e.g., $200,000). Others, however, require that marketplace facilitators and
remote sellers collect and remit sales taxes if either a dollar threshold is met
or the seller conducts a certain number of transactions in the state.



Establishing economic nexus through transactions alone is quite burdensome as
compliance costs associated with collection and remittance requirements could be
greater than the business transacted. For example, a marketplace facilitator or
remote seller with sales in Arkansas exceeding $100,000 is required to collect
and remit sales taxA sales tax is levied on retail sales of goods and services
and, ideally, should apply to all final consumption with few exemptions. Many
governments exempt goods like groceries; base broadening, such as including
groceries, could keep rates lower. A sales tax should exempt
business-to-business transactions which, when taxed, cause tax pyramiding. . The
same seller would also be subject to collection and remittance obligations if
the seller conducted 200 or more transactions in the state. To put a finer point
on this, selling 200 of the same item at a price of $5 for a total of $1,000
would be sufficient to require the seller to comply with the Arkansas sales tax
collection and remittance rules, even though the total revenue was dramatically
less than the $100,000 sales threshold. This hypothetical seller would almost
certainly spend more complying with the law (e.g., specialized software to track
sales, accounting services, etc.) than they receive in profits on these sales,
making doing business in Arkansas unappealing.

Nineteen states limit their economic threshold determinations to dollar amounts
alone. This is imperfect but certainly better than requiring the smallest online
businesses to collect and remit sales tax. Connecticut and New York do not
impose an obligation to collect and remit sales tax unless the remote seller or
marketplace facilitator meets or exceeds both a sales and transactions
threshold.

The Wayfair court was correct in highlighting the changing nature of the economy
and the necessity for sales tax codes to adapt. However, the decision did little
to define how states should require sales tax collection and remittance from
marketplace facilitators and remote sellers. As a result, there is a frustrating
lack of uniformity among the states, which creates inefficiencies
disproportionately borne by small and mid-sized sellers.

States should reform their marketplace facilitator and remote seller rules and
remove the transaction threshold altogether. Indiana recently became the latest
state to make the switch, a positive and pro-growth tax reform that others
should follow. Reforming economic nexus thresholds would not only be better for
businesses but for states as well. It is more cost-effective for states to focus
on—and simplify—compliance for a reasonable number of sellers than to impose
rules that have low compliance and are costly to administer.




ECONOMIC NEXUS TREATMENT BY STATE, 2024

CSV Excel PDF Print
Search:

Limited to Dollar Amount of SalesDollar OR Number of SalesDollar AND Number of
Sales (3)No Statewide Sales Tax AlabamaArkansasConnecticutAlaska
ArizonaHawaiiNew YorkDelaware CaliforniaIllinoisMontana ColoradoKentuckyNew
Hampshire FloridaMarylandOregon GeorgiaMichigan IdahoMinnesota IndianaNebraska
IowaNevada KansasNew Jersey LouisianaNorth Carolina MaineOhio
MassachussettsRhode Island MississippiUtah MissouriVermont New MexicoVirginia
North DakotaWashington, D.C. OklahomaWest Virginia PennsylvaniaWyoming South
Carolina South Dakota Tennessee Texas Washingon Wisconsin


Note: This map shows how states determine economic nexus. This map does not show
specific dollar or transaction thresholds.

Source: Tax Foundation, state statute, forms, and instructions





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TOPICS

 * Business Taxes
 * Individual and Consumption Taxes
 * Online Sales Taxes
 * Sales Taxes
 * Tax administration
 * Tax Law


TAGS

 * Tags:
 * South Dakota v. Wayfair


LOCATIONS

 * Locations:
 * Alabama
 * Alaska
 * Arizona
 * Arkansas
 * California
 * Colorado
 * Connecticut
 * Delaware
 * Florida
 * Georgia
 * Hawaii
 * Idaho
 * Illinois
 * Indiana
 * Iowa
 * Kansas
 * Kentucky
 * Louisiana
 * Maine
 * Maryland
 * Massachusetts
 * Michigan
 * Minnesota
 * Mississippi
 * Missouri
 * Montana
 * Nebraska
 * Nevada
 * New Hampshire
 * New Jersey
 * New Mexico
 * New York
 * North Carolina
 * North Dakota
 * Ohio
 * Oklahoma
 * Oregon
 * Pennsylvania
 * Rhode Island
 * South Carolina
 * South Dakota
 * Tennessee
 * Texas
 * The District of Columbia
 * United States
 * Utah
 * Vermont
 * Virginia
 * Washington
 * West Virginia
 * Wisconsin
 * Wyoming


AUTHORS

 * Expert
   
   
   MANISH BHATT
   
   Senior Policy Analyst

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