Economic nexus laws create confusion and uncertainty for retailers
In order to understand sales and use tax compliance, a business must have a firm grasp on the definition of nexus. So, what is nexus? Nexus, in its simplest terms, is a connection between a seller and a state that requires the seller to collect and remit tax made on sales in that state. Historically, nexus has been linked to a physical presence. In 1992, the Supreme Court of the United States (SCOTUS) ruled in Quill Corp. v. North Dakota (Quill) that a state could not force a business to collect sales tax unless it had a physical presence in the state.
But many states are challenging that definition due to the rise of online sales in recent years. In an effort to recoup lost sales and use tax revenue, states are looking to expand nexus beyond standard brick-and-mortar locations. There are a variety of new nexus criteria, including relationships to in-state affiliates, the presence of web cookies on in-state computers, and one of the most confounding nexus triggers, economic or sales activity alone. With the explosion of ecommerce and remote sellers, economic nexus is at the forefront of sales tax legislation, including attention from the Supreme Court.
In April 2018, SCOTUS heard arguments in South Dakota v. Wayfair, Inc. This important case — a challenge to the high court’s 1992 decision in Quill — could potentially bring about sweeping change to the way ecommerce and remote sellers handle sales tax. Until a ruling is announced, states with economic nexus laws are in a bit of a tricky situation, as many economic nexus laws are delayed, on hold, or unenforceable.
Keep up with developments in the case of South Dakota v. Wayfair, Inc.
For some states trying to implement economic nexus laws, economic activity alone triggers nexus — no physical presence is needed. In others, it’s a combination of economic activity and other activities like solicitation of sales. Like all sales tax laws, economic nexus criteria vary by state. And economic nexus laws have an extra layer of difficulty: While they’re seemingly unenforceable unless Quill is overturned (or Congress intervenes), that hasn’t stopped individual states from moving forward and passing economic nexus regulations.
There are currently 16 states with economic nexus laws and the list is constantly changing. As recently as May 10, 2018, Georgia enacted a new economic nexus law. In addition, eight more states are currently considering economic nexus laws. For more information on economic nexus states and their individual laws, read Understanding Economic Nexus. This handy booklet provides additional details on sales and threshold triggers for states that have adopted economic nexus, as well as links to the taxing authority for each of these states for more information.
Economic nexus laws are changing rapidly and it can be hard to keep up. The Supreme Court could announce a decision in South Dakota v. Wayfair any day now and no matter how they rule, the decision will likely impact sales tax across the country and require businesses to reevaluate their nexus footprint.
We’re constantly updating information and challenges to the economic laws for Alabama, Connecticut*, Georgia*, Indiana, Maine, Massachusetts, Mississippi, North Dakota, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Vermont, Washington, and Wyoming.
*The provided Understanding Economic Nexus document was published on April 1, 2018. After publication, Georgia and Connecticut passed laws involving economic nexus, thus they are not represented in the asset. For the most up-to-date information, please refer to the links above or state taxing authorities.
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