What economic nexus means for your remote sales

Update 7.19.2018: On June 21, 2018, the U.S. Supreme Court ruled in South Dakota v. Wayfair, Inc. that states can tax out-of-state businesses based on their economic activity in the state — physical presence in a state is no longer the only prerequisite for tax collection. In the wake of the decision, other states are adopting new or enforcing existing economic nexus laws. This post has been updated to reflect the most current information available at this time. 

With sales tax revenue dropping due to an increase in untaxed (but not exempt) internet and catalog sales, a growing number of states have created economic nexus laws. These are designed to tax sales by out-of-state sellers without a physical presence in the state.

In many states, economic nexus policies have also been created with an eye toward triggering a legal battle that would land on the steps of the Supreme Court of the United States and provide an opportunity for the court to abrogate its decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). The ruling in Quill upheld the physical presence precedent: that a state cannot impose a tax obligation on a business unless that business has a substantial connection to the state, i.e., a physical presence. Update, 7.19.2018: Quill's physical presence rule was overruled on June 21, 2018.

Understanding where economic nexus exists and how policies differ from one state to the next is essential for any business that makes sales in multiple states. 

States with economic nexus

This list has been updated to reflect states with South Dakota-style economic nexus provisions as of July 19, 2018. 

Alabama 

Enforced as of October 1, 2018.

Alabama was the first state to adopt an economic nexus policy. Department of Revenue Rule 810-6-2-.90.03 took effect January 1, 2016, and holds that “out-of-state sellers that lack a physical presence in the state but make sales of tangible personal property (TPP) in Alabama have a substantial economic presence in Alabama and must collect and remit tax if both of the following are true:

• The seller’s retail sales of TPP in Alabama exceed $250,000 per year (based on the previous calendar year’s sales); and
• The seller conducts one or more of the activities described in Alabama Code Section 40-23-68, which includes solicitation of sales through advertising on cable television, and any other contact with the state “sufficient enough to permit Alabama to impose a sales and use tax collection requirement under Code § 40-23-68(b)(9).”

When the policy was first adopted, Governor Robert Bentley dared retailers to sue the state. Alabama was the first state to issue that challenge to remote retailers. That challenge was eventually answered by a large online retailer, and the case (Newegg Inc. v. Alabama Department of Revenue, No. s. 16-613) is still making its way through the courts.

In a less contentious move, Alabama created the Simplified Sellers Use Tax policy to make compliance easier for remote retailers. It “allows eligible sellers to participate in a program to collect, report and remit a flat eight percent (8%) sellers use tax on all sales made into Alabama,” without worrying about the various combined state and local rates.

Connecticut

Enforced as of December 1, 2018.

Connecticut has taken a strong stance toward taxing out-of-state sellers. Senate Bill 417, signed into law in May 2018, expands the state's nexus law to capture more revenue from remote sellers in a variety of ways. Under the expanded economic nexus provision, an out-of-state business is considered to be engaged in business in Connecticut if it:

• Regularly or systematically solicits the sale of tangible personal property in Connecticut via the internet (or other means); and
• Has at least $250,000 in Connecticut gross receipts from retail sales from outside Connecticut to destinations within the state during the 12-month period ending September 30, 2018; and
• Has 200 or more retail sales from outside Connecticut to destinations within the state during the 12-month period ending September 30, 2018.

Additional details are available here.

Georgia

Enforced as of January 1, 2019.

Georgia enacted an economic nexus provision in May 2018. HB 61 requires an out-of-state seller to collect and remit Georgia sales and use tax if in the previous or current calendar year it:

• Has gross revenue exceeding $250,000 from retail sales of tangible personal property delivered electronically or physically to a location in Georgia for consumption, use, or storage in the state; or
• Conducts 200 or more separate retail sales of tangible personal property delivered electronically or physically to a location in Georgia for consumption, use, or storage in the state.

Additional information is available here.

Hawaii

Enforced as of July 1, 2018.

Mere days before the Supreme Court issued its ruling in South Dakota v. Wayfair, Inc., Hawaii enacted an economic nexus law similar to South Dakota's law. Under Senate Bill 2514, which wasted no words, a business is engaged in business in Hawaii if in the current or immediately preceding year it:

• Has gross income of $100,000 or more from the sale of tangible personal property delivered in the State, services used or consumed in the State, or intangible property used in the State; or
• Has entered into 200 or more separate transactions involving tangible personal property delivered in the State, services used or consumed in the State, or intangible property used in the State.

Additional information is available here.

Illinois

Enforced as of October 1, 2018.

Illinois enacted an economic nexus provision on June 4, 2018. It requires an out-of-state seller to collect and remit tax on Illinois sales if, in the preceding 12 months, it either:   

• Has cumulative gross receipts from sales of tangible personal property or services in Illinois of $100,000 or more; or
• Has 200 or more separate sales transactions of tangible personal property or services to purchasers in Illinois.

Additional information is available here.

Indiana 

Under an injunction until further notice. 

House Bill 1129 establishes economic nexus for remote vendors in Indiana as of July 1, 2017. Out-of-state vendors lacking a physical presence in Indiana must collect and remit tax on sales to Indiana customers when one of the following is true in the current or preceding calendar year:

• The vendor makes more than $100,000 in gross revenue from Indiana sales transactions; or
• The vendor makes more than 200 separate sales transactions in the state.

Like Alabama, Indiana created a law it hopes will be challenged. This would create an opportunity for the Supreme Court to overturn its decision in Quill. Update, 7.19.2018: Indiana's law was challenged and remains under an injunction pending legal proceedings. At this time, it's unclear how the decision in South Dakota v. Wayfair, Inc. will impact the law.

Iowa

Enforced as of January 1, 2019.

Due to the enactment of SF 2417 in June 2018, an out-of-state business must comply with Iowa sales and use tax laws if in the current or immediately preceding calendar year that retailer:

• Has gross revenue from Iowa sales equal to or exceeding $100,000; or
• Makes Iowa sales in 200 or more separate transactions.

SF 2417 is a sweeping measure that expands nexus in a variety of ways. Additional information is available here.

Kentucky

Enforced as of July 1, 2018.

Kentucky HB 366 imposes a tax collection obligation on remote retailers who, in the previous or current calendar year:

• Has gross receipts derived from the sale of tangible personal property or digital property in Kentucky of more than $100,000; or
• Sells tangible personal property or digital property that was delivered or transferred electronically to a purchaser in Kentucky in 200 or more separate transactions.

The Kentucky Department of Revenue issued a statement shortly after the Supreme Court issued its decision in South Dakota v. Wayfair, Inc. It said its legislation was in conjunction with the Supreme Court decision and that Kentucky would "move forward with implementation of these provisions for remote sellers with sales into the state."

Additional information is available here. 

Louisiana

Start date to be determined.

Louisiana enacted an economic nexus law on June 12, 2018, mere days before the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, Inc. Under House Bill 17, an out-of-state retailer is responsible for collecting and remitting sales tax if, in the current or previous calendar year, it:

• Has gross revenue for sales delivered into Louisiana in excess of $100,000; or
• Made 200 or more separate transactions of taxable goods or services delivered into Louisiana.

The provision was set to apply “to all taxable periods beginning on or after the date of the final ruling by the United States Supreme Court in South Dakota v. Wayfair Inc., Overstock.com, Inc., and Newegg Inc.” That occurred on June 21, 2018. However, the Louisiana Department of Revenue has yet to announce when it will take effect.

Additional information is available here.

Maine

The stated effective date is October 1, 2017. The state has not amended the start date in response to the Wayfair decision.

Under Maine’s economic nexus law, enacted in 2017, an out-of-state seller is required to collect and remit tax in Maine if, during the previous or current taxable year:

• The seller’s gross revenue from delivery into Maine of tangible personal property, electronically transferred products, or services that are taxable in Maine exceeds $100,000; or
• The seller sold for delivery into Maine tangible personal property, electronically transferred products, or services that are taxable in Maine at least 200 separate sales transactions.

Additional information is available here.

Minnesota

Start date to be determined.

Under a 2017 Minnesota law, a retailer not maintaining a place of business in this state is presumed to be engaged in regular solicitation within this state if it engages in regular or systematic solicitation of sales in Minnesota and:

• Makes 100 or more retail sales from outside this state to destinations in this state during a period of 12 consecutive months; or
• Makes ten or more retail sales totaling more than $100,000 from outside this state to destinations in this state during a period of 12 consecutive months.

The effective date of the provision is dependent on the enactment of a federal law authorizing states to tax remote sales, or the U.S. Supreme Court modifying its decision in Quill Corp. v. North Dakota. The Supreme Court overruled Quill’s physical presence rule on June 21, 2018, and the Minnesota Department of Revenue has promised to provide additional guidance soon.

Additional information is available here.

Mississippi

The stated effected date is December 1, 2017. Actual enforcement date to be determined.

According to a 2017 Mississippi Department of Revenue rule, out-of-state sellers who are purposefully or systematically exploiting the Mississippi market are required to collect and remit tax on sales into the state if they:

• Have sales into the state exceed $250,000 for the prior twelve months; and
• Purposefully or systematically exploit the Mississippi market.

Additional information is available here.

North Dakota 

Enforced as of October 1, 2018.

North Dakota Senate Bill 2298 creates economic nexus for out-of-state sellers that lack a physical presence in the state but meet one of the following criteria in the current or previous calendar year:

• The vendor has gross sales from TPP and other taxable items delivered in North Dakota of more than $100,000; or
• The vendor makes at least 200 separate taxable sales transactions in North Dakota.

Unlike Alabama and Indiana, the state that was involved in the seminal Supreme Court case, Quill Corp. v. North Dakota, is not interested in another lengthy legal battle. Therefore, the effective date of the economic nexus law is contingent “on the date the United States Supreme Court issues an overturning of Quill v. North Dakota” or other confirmation that “a state may constitutionally impose its sales or use tax upon an out-of-state seller” under certain circumstances. Update, 7.19.2018:
With the June 21, 2018, ruling in South Dakota v. Wayfair, Inc., the state has announced it will enforce economic nexus as of October 1, 2018.

Additional information is available here.

South Dakota 

Under an injunction until further notice.

As of May 1, 2016, Senate Bill 106 requires remote sellers with no physical presence in South Dakota to collect and remit sales tax as if they have a presence in the state, if one of the two following criteria in the previous or current calendar year is true:

• The remote seller’s gross revenue from sales of TPP, electronically delivered products, or services delivered into South Dakota exceeds $100,000; or
• The remote seller has 200 or more separate transactions of TPP, electronically delivered products, or services delivered into South Dakota.

SB 106 was challenged before it even took effect and is under an automatic injunction during the pendency of the action. Earlier this spring, a state circuit court found South Dakota’s economic nexus law to be unconstitutional, which is what the state wanted: “The South Dakota law was designed to be challenged” because an eventual decision in the state’s favor could require “abrogation of the United States Supreme Court’s decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992).”

Update, 7.19.2018: South Dakota's challenge to Quill, South Dakota v. Wayfair, Inc., was heard by the U.S. Supreme Court in April 2018. On June 21, 2018, the court ruled Quill's physical presence rule was "unsound and incorrect." The case has been remanded to state courts for further proceedings, and the law cannot be enforced at this time.

Additional informaiton is available here.

Tennessee 

Under an injunction until further notice.

The Tennessee Department of Revenue’s economic nexus rule requires out-of-state dealers to register with the department and report and pay tax on all taxable sales to Tennessee consumers when both the following conditions are true:

• The remote seller engages in the regular or systematic solicitation of consumers in the state through any means; and
• The remote seller makes sales that exceed $500,000 to consumers in the state during the previous 12-month period.

Affected out-of-state sellers were initially required to register with the state by March 1, 2017, and must begin collecting and remitting sales tax by July 1, 2017, “unless a later date is established by the Department by notice.”

Update, 7.19.2018: The rule was challenged and is under an injunction until further notice. The state has yet to say how the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. will affect its law.

Vermont 

Enforced as of July 1, 2018.

Out-of-state vendors that don’t have a physical presence in Vermont are required to collect and remit sales tax when they engage in “regular, systematic, or seasonal solicitation of sales of TPP in Vermont” and one of the following is true during a preceding 12-month period:

• The vendor makes at least $100,000 in sales to Vermont consumers; or
• The vendor makes at least 200 individual sales transactions for delivery into Vermont.

Under Act No. 134, a vendor is considered to regularly and systematically, or seasonally, solicit sales in Vermont by: displaying advertisements in Vermont; distributing catalogs, periodicals, advertising flyers, or other advertising by means of print, radio, or television media; or using internet, mail, telephone, computer database, cable, or other communication systems for the purpose of affecting sales of TPP.

Vermont economic nexus will take effect “the later of July 1, 2017 or beginning on the first day of the first quarter after a controlling court decision or federal legislation abrogates the physical presence requirement of Quill v. North Dakota, 504 U.S. 298 (1992).” Read Vermont economic nexus law hinges on Supreme Court, Congress.

Update, 7.19.2018: After the U.S. Supreme Court ruled in favor of South Dakota on June 21, 2018, the Vermont Department of Taxation announced it would enforce its economic nexus law starting July 1, 2018.

Additional information is available here.

Washington

Enforced as of July 1, 2017 (for retailing B&O tax only).

Out-of-state businesses that make retail sales into Washington are subject to B&O tax in 2018 if they have:

• More than $267,000 of yearly gross receipts sourced or attributed to Washington in 2017, $285,000 in 2018; or
• At least 25 percent of total yearly gross receipts sourced or attributed to Washington in 2017 or 2018.

Additional information is available here.

Wisconsin

Enforced as of October 1, 2018.

The Wisconsin Department of Revenue has announced plans to adopt an economic nexus measure much like South Dakota’s. The rule “will be consistent with the Court’s decision in Wayfair, which approved a small seller exception for sellers who do not have annual sales of products and services into the state of (1) more than $100,000, or (2) 200 or more separate transactions.”

Although the rule has yet to be written, it will be enforced starting October 1, 2018. Additional details are available here.

Wyoming 

Under an injunction until further notice.

Under House Bill 19, out-of-state vendors lacking a physical presence in Wyoming are required to collect and remit Wyoming sales and use tax starting July 1, 2017, if one of the following conditions is met in the current or previous calendar year:

• The sellers’ gross revenue from the sale of TPP, admissions, or services delivered into Wyoming exceeds $100,000; or
• The seller sold TPP, admissions, or services delivered into Wyoming in at least 200 separate transactions.

The authors of the legislation expect remote vendors to fight its new economic nexus policy. And like many of the abovementioned states, Wyoming would relish the opportunity to argue for the repeal of Quill before the United States Supreme Court.

Update, 7.19.2018: Wyoming's law was challenged and is under an injunction pending legal action. The state has not yet said how the U.S. Supreme Court's decision in South Dakota v. Wayfair, Inc. will impact its law.

Other states

As of July 19, 2018, a number of other states are looking at adopting economic nexus. These include Maryland, Nebraska, and New Jersey, .

Many other states, including Massachusetts, Ohio, Pennsylvania, Rhode Island, and Washington, have adopted expanded nexus provisions that include economic thresholds, but differ in important ways from the economic nexus law adopted by South Dakota.

For example, as of July 1, 2017, out-of-state internet vendors with significant Massachusetts sales must collect sales or use tax under Massachusetts Department of Revenue Directive 17-1 if:

• The vendor makes more than $500,000 in sales to Massachusetts consumers; and
• The vendor makes at least 100 taxable sales transactions for delivery into Massachusetts.

The department maintains that large internet vendors have a physical presence in the state through the software and cookies they place on customers’ in-state computers and communication devices to facilitate the vendor’s in-state sales. The Massachusetts policy only applies to internet vendors, not retailers who sell to customers via catalogs or the phone. As a result, says the department, the physical presence precedent upheld in Quill doesn’t apply. Read Massachusetts whips up new sales tax obligation for internet vendors that use cookies.

You'll find aditional information about expanded nexus laws and more in States watch in the wake of the South Dakota v. Wayfair, Inc. Supreme Court ruling  

Be vigilant

The above lists are organic: State sales and use tax policies are always subject to change. And it should be noted that economic nexus policies aren’t the only way states are striving to capture tax revenue from remote sellers. Many states have adopted affiliate and click-through nexus policies, whereby out-of-state sellers establish a substantial connection to the state through ties to in-state affiliates, or when links on an in-state business’s website generate a certain amount of business for a remote seller. States are also expanding their laws to tax online marketplace transactions.

Furthermore, some states have adopted or are considering use tax notification requirements for remote retailers, rather than affiliate, click-through, and economic nexus laws. Use tax notification and reporting requirements such as the one adopted by Colorado require non-collecting remote retailers to notify consumers of their obligation to remit use tax to the state if sales tax wasn’t collected at checkout. Some of these policies require vendors to annually report their sales to customers, and some take it a step further, requiring the vendor to provide the state department of revenue with a list of customers and the total amount of their purchases. In their own way, many of these policies are also designed to challenge Quill.

What you can do to stay in compliance

Businesses need to be vigilant in order to remain in compliance in all states where sales are made. Tax automation software such as Avalara AvaTax helps businesses of all sizes with sales and use tax compliance. Learn more.

Learn more about South Dakota v. Wayfair, Inc. and its potential impact on businesses.