Utah looks to cut remote seller transactions threshold in 2024
Utah will likely eliminate its 200-transactions economic nexus threshold for remote sellers in 2024. If it does, it will be in good company. Ten states have already ditched their transaction thresholds, and many others are thinking of doing the same.
Read on for answers to these questions, or click on the link to jump to the section that interests you most.
What is a remote seller threshold?
A remote seller threshold is the point at which a seller with no physical presence in a state is required to register for sales tax then comply with all applicable sales tax laws in that state. You don’t have to register for sales tax if you’re under the threshold (and haven’t established a sales tax obligation in another way). If you meet or exceed the remote seller threshold, you do.
Not so long ago, a state could generally require a business to register for sales tax only if the business had a physical presence in that state. That changed June 21, 2018, when the Supreme Court of the United States ruled in favor of the state in South Dakota v. Wayfair, Inc. The Wayfair decision overturned the physical presence requirement, freeing states to tax remote sales.
Having a physical presence in a state still gives you nexus, the connection that creates a sales tax obligation. Indeed, physical presence remains one of the most common nexus triggers. But since Wayfair, economic activity in a state can establish a sales tax obligation for out-of-state businesses with no physical tie to the state — and economic nexus just might be vying for the most-common-nexus-trigger award.
The months and years following Wayfair were heady times as states rushed to take advantage of their newfound taxing authority. Hawaii, Maine, and Vermont began enforcing economic nexus on July 1, 2018, mere days after the groundbreaking decision (their laws had been waiting in the wings). By the end of 2019, nearly every state with a general statewide sales tax was taxing remote sales.
Most states leaned heavily on South Dakota’s economic nexus law when crafting their own economic nexus policies because the Supreme Court had allowed it to stand. Initially, South Dakota required a remote business to register for sales tax if, in the current or previous year, the business had:
- $100,000 in sales in the state; or
- 200 or more transactions in the state
$100,000 or 200 transactions is — or rather was — South Dakota’s remote seller threshold (aka, economic nexus threshold). The state that launched 45+ economic nexus laws eliminated its 200-transactions threshold as of July 1, 2023.
Why does Utah want to get rid of its transaction threshold?
Basing a remote sales tax obligation on 200 transactions is 1) a burden for low-dollar high-volume sellers and 2) costly for states. For those reasons, many sales tax experts support retiring it.
“The amount of tax collected should be greater than the cost of compliance,” observes Scott Peterson, VP of Government Relations at Avalara. “States have realized some businesses sell a lot of very inexpensive products, producing an amount of tax that is much less than the cost of compliance.” This is the incentive behind eliminating the transaction threshold.
Diane Yetter, President and Founder of the Sales Tax Institute and YETTER Tax, has described the $100,000 in sales or 200 transactions test as “the most onerous” economic nexus threshold used by states. “A third of our clients with sales under $50,000 in a state in the last year were required to register solely by exceeding the 200-transaction threshold,” she wrote in her testimony for a 2022 United States Senate Finance Committee hearing on the impact of the Wayfair decision on small businesses.
“The 200-transaction threshold is particularly problematic,” according to Manish Bhatt, a Senior Policy Analyst with the Center for State Tax Policy at the Tax Foundation. If you make 200 transactions for $5 each in Maryland, he explained during a webinar on post-Wayfair remote sales tax reforms, “for $1,000 of economic activity in Maryland you could be subject to collection and remittance obligations, and those compliance burdens may far exceed the amount that you’ve actually sold into the state.”
The Streamlined Sales and Use Tax Governing Board is encouraging member states to get rid of their transaction thresholds. “There’s a big initiative among the SST states to remove and update the transaction threshold,” says Chad Paulson, Manager of SST Government Affairs at Avalara. “It’s a burden for small sellers who do very low-dollar transactions to collect and remit in all these states.”
There are 24 SST member states and to date, only five have eliminated their transaction threshold. These are Iowa, North Dakota, South Dakota, Washington, and Wisconsin. Utah would be number six, assuming no other SST state chucks their transaction threshold first.
If all SST states with a transaction threshold follow the recommended best practice and move to a sales-only threshold, very few states would have a transaction threshold.
Which states have a transaction threshold for economic nexus?
As of this writing, the following states have a threshold based on sales volume or number of transactions: Alaska, Arkansas, Georgia, Hawaii, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, Ohio, Puerto Rico, Rhode Island, Utah, Vermont, Virginia, Washington, D.C., West Virginia, and Wyoming. All but five of these states, plus Puerto Rico and Washington, D.C., participate in SST.
Connecticut and New York use a sales and transaction threshold and aren’t SST member states.
Do the math and you’ll see 23 states currently don’t have a transaction threshold for remote sellers, either because they got rid of it or they never implemented one. Delaware, Montana, New Hampshire, and Oregon don’t have a general statewide sales tax or widespread local sales taxes (like Alaska).
Will Utah actually get rid of the transaction threshold?
There’s a good chance the Utah State Legislature will pass H.B. 17, and that the governor will sign it into law. If the transaction threshold is eliminated, combined state and local sales tax revenues from remote sellers will drop by approximately $5.1 million in fiscal year 2025 and $5.7 million in fiscal year 2026, according to the bill’s fiscal note.
Check out our state-by-state guide to economic nexus laws to learn more about the remote seller thresholds in each state — there’s a lot to them. And if you’re wondering whether your business is registered for sales tax in all the right states, our free economic nexus risk assessment can help.
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