Economic nexus and exempt sales

The impact of COVID-19 on sales tax continues in 2021

Numerous sales and use tax changes were introduced throughout 2020, both in response to and on top of COVID-19. State and local governments throughout the U.S. cracked down on remote seller tax compliance, increased tax rates, and enacted new taxes on digital advertising and remote employees — all in an effort to offset budget deficits. To get tax compliance right in 2021, businesses must prepare now for potentially more sales tax changes this year.

What is economic nexus?

Economic nexus is a tax collection obligation imposed on companies based solely on a certain level of economic activity within a state. Unlike nexus that’s based on physical presence, economic nexus is based entirely on sales revenue, transaction volume, or a combination of both. Like many sales tax laws, economic nexus criteria vary by state and can be confusing. Review our state-by-state guide to economic nexus laws for the specific details on every state with an economic nexus law.

How states count exempt sales and services in their economic nexus laws

US Map of Exempt Sales in States with Economic Nexus Laws

Complying with economic nexus and exempt sale requirements

As you can see from the map above, the majority of states include exempt sales and services in economic nexus thresholds. Assessing if and when you have obligations in more states is critical to maintaining compliance. Review our Five steps for managing sales tax resource to know and understand the steps necessary to first determine if you have a sales tax obligation then what to do after.  

Next steps
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