Economic Nexus by State

E-commerce sellers selling in the United States must collect sales tax in states where they have sales tax nexus. Sales tax nexus occurs when a retailer has a connection to a state, such as an office, warehouse, or other business activity. However, it can also be established simply by making a certain number or amount of sales in a state, referred to as economic nexus.

This article will explain everything you need to know about economic nexus. We’ll cover what it is, when it became legal, and take a look at the nexus threshold requirements by state.

What Is Economic Nexus?

Economic nexus is defined as a connection between a state and a business that allows the state to require companies to register to collect and remit sales tax. As mentioned above, it’s established when a business reaches a threshold for transactions or sales revenue.

In many states, this threshold is $100,000 in gross sales or 200 separate sales transactions in a year. Some states may even require a sales threshold and a certain number of transactions for businesses to register and file state sales tax returns.

Who Does Economic Nexus Affect?

Economic nexus impacts companies that don’t have a physical presence in a state, namely e-commerce or other online sellers. They may sell goods and services in that state and meet or exceed its economic nexus threshold. 

Economic Nexus Example

Earnie’s E-Commerce Emporium is based in California but sells to customers nationwide. Earnie’s has sales tax nexus in California because they are based there. But they also sell to many customers in Colorado. Last year, they sold over $300,000 annually to Colorado customers. 

Colorado’s economic nexus sales tax threshold is either $100,000 in annual sales or 200 transactions. This means that even though Earnie’s E-Commerce Emporium isn’t based in Colorado and has no employees, stores, or warehouses there, it has economic nexus in Colorado and is required to collect Colorado sales tax.

Why Does Economic Nexus Exist?

Before the Supreme Court’s June 21, 2018, decision in South Dakota v. Wayfair, e-commerce sellers were only required to collect sales tax in states where they had a physical presence, such as a store, employee, or inventory. 

However, states had a complaint. States use sales tax collected to fund budget items like schools and roads, and they realized that e-commerce sellers not collecting sales tax was leaving them at a disadvantage. Technically, if a consumer buys a product tax free, they must pay “use tax” on that item to their state. However, this is nearly impossible to enforce on consumers, especially on small purchases.

The way states saw it, large online retailers like Wayfair, Overstock, or NewEgg were making millions of dollars in sales to buyers in their states but had an unfair advantage in that they weren’t required to collect sales tax from these buyers and remit it back to the state's treasury.

Operating on that assumption, states like South Dakota decided to legally test the idea that e-commerce sellers were not required to collect sales tax from buyers in their state. They sued retailers like Wayfair et al., and the case went all the way to the Supreme Court. 

The Supreme Court agreed with the states. The Wayfair ruling allows states to pass economic nexus sales tax laws. 

How Economic Nexus Changed Sales Tax Collection

Pre-Wayfair, retailers were generally only required to collect sales tax in states where they had a physical presence. This physical presence could be anything from having an office or store in a state to some forms of advertising or having a third-party affiliate in a state. 

But post-Wayfair, many online sellers found themselves with sales tax nexus in more states. This means e-commerce companies are required to register for sales tax permits in their economic nexus states, set up sales tax collection on all e-commerce sales channels, and file and remit sales tax in multiple states. 

Pre-and Post-Wayfair Sales Tax Collection Example

Pre-Wayfair, even a huge online store like Overstock.com was only required to collect sales tax in states where they had a physical presence. 

So even though they might sell millions in sales per year into a lightly populated state like South Dakota, they were not required to collect sales tax on their sales. (Buyers who purchase an item and don’t pay sales tax are supposed to pay “use tax” to the state on that purchase, but most consumers don’t even know about this obligation.) 

So, the way South Dakota saw it, they were missing out on vital sales tax revenue they used to pay for budget items like hospitals and roads.

Now, post-Wayfair, South Dakota requires large companies like Overstock.com to collect sales tax from buyers in their state. This is because Overstock (and many, many other e-commerce companies) meet South Dakota’s threshold of $100,000 in sales or 200 sales transactions in the current or last calendar year.

What Is the Economic Nexus Threshold by State?

This chart shows each state’s economic nexus threshold. The threshold may be a dollar amount, such as $100,000 in sales, or it may also include a transaction amount, such as 200 or more separate transactions. 

When reading economic nexus threshold information, be sure to look for tricky language. For example, some states only count retail sales, but others may count “gross receipts” which include wholesale sales. Some states include sales made through third-party marketplaces when it comes to calculating economic nexus, while others do not. 

State	Economic Nexus Threshold	Date Implemented	Source
Alabama	Retail sales of more than $250,000 made directly by the seller during the previous calendar year.	October 1, 2018	Alabama Department of Revenue
Alaska	While Alaska has no statewide sales tax, some municipalities have a local sales tax. In those cases, the nexus threshold is $100,000 in gross annual sales and 200 transactions. On January 1, 2025, the 200 transaction threshold will be removed.	January 1, 2020	Alaska Remote Sellers Sales Tax Commission
Arizona	Gross sales of $100,000 or more in the previous or current calendar year.	October 1, 2019	Arizona Department of Revenue
Arkansas	Taxable sales of more than $100,000 or more than 200 transactions during the previous or current calendar year.	July 1, 2019	Arkansas Department of Finance and Administration
California	Sales of tangible personal property exceed $500,000 during the preceding or current calendar year.	April 1, 2019	California Department of Tax and Fee Administration
Colorado	More than $100,000 in retail sales in the preceding or current calendar year.	June 1, 2019	Colorado Department of Revenue
Connecticut	Retail sales of at least $100,000 and 200 transactions during a 12-month period.	December 1, 2018	Connecticut Department of Revenue Services (Conn. Gen. Stat. sec. 12-407(a)(15)(v)
Florida	Taxable retail sales of tangible personal property exceed $100,000 over the previous calendar year.	July 1, 2021	Florida Department of Revenue
Georgia	Gross revenue from retail sales of tangible personal property exceeds $100,000, or the number of retail sales of tangible personal property is 200 or more in the previous or current calendar year.	January 1, 2020	Georgia Department of Revenue
Hawaii	Gross proceeds of $100,000 or more, or 200 or more separate transactions in the preceding or current calendar year.	July 1, 2018	Hawaii Department of Taxation
Idaho	Sales exceed $100,000 in the previous or current calendar year.	June 1, 2019	Idaho State Tax Commission
Illinois	Gross receipts from sales of tangible personal property of $100,000 or more, or the seller makes 200 or more separate transactions during the previous 12-month period.	October 1, 2018	Illinois Revenue
Indiana	Gross revenue exceeds $100,000 in the previous or current calendar year.	October 1, 2018	Indiana Department of Revenue
Iowa	Gross revenue exceeded $100,000 in the previous or current calendar year.	January 1, 2019	Iowa Department of Revenue
Kansas	Gross sales exceeded $100,000 in the previous or current calendar year.	July 1, 2021	Kansas Department of Revenue
Kentucky	Gross receipts from sales exceed $100,000, or the seller makes 200 or more separate transactions in the previous or current calendar year.	July 1, 2018	Kentucky Department of Revenue
Louisiana	Gross revenue from sales exceeds $100,000 in the previous or current calendar year.	July 1, 2020	Louisiana Department of Revenue (La. Revenue and Taxation sec. 47:30(4)(m)(i)
Maine	Total gross sales of tangible personal property or taxable services in the previous or current year exceed $100,000.	July 1, 2018	Maine Revenue Services
Maryland	Gross revenue from sales exceeds $100,000, or the number of transactions is 200 or more during the previous or current calendar year.	October 1, 2018	Comptroller of Maryland
Massachusetts	Sales exceed $100,000 in the previous or current taxable year.	October 1, 2019	Massachusetts Department of Revenue
Michigan	Gross sales (taxable and nontaxable) in the prior year exceed $100,000, or the number of transactions exceeds 200.	October 1, 2018	Michigan Department of Treasury
Minnesota	Retail sales exceed $100,000, or the seller made 200 or more retail sales in the previous 12 months.	October 1, 2019	Minnesota Department of Revenue
Mississippi	Sales of more than $250,000 in the previous 12 months.	September 1, 2018	Mississippi Department of Revenue
Missouri	Gross receipts from taxable sales of tangible personal property exceed $100,000 annually.	January 1, 2023	Missouri Department of Revenue
Nebraska	Retail sales of more than $100,000, or the number of separate transactions is 200 or more during the previous or current calendar year.	April 1, 2019	Nebraska Department of Revenue
Nevada	Retail sales of more than $100,000, or the number of separate retail transactions is 200 or more in the previous or current calendar year.	October 1, 2018	Nevada Department of Taxation
New Jersey	Gross revenue from sales of tangible personal property, specified digital products, or taxable services exceeds $100,000, or the number of separate transactions is 200 or more in the previous or current calendar year.	November 1, 2018	New Jersey Division of Taxation
New Mexico	Taxable gross receipts of at least $100,000 in the previous calendar year.	July 1, 2019	New Mexico Taxation and Revenue Department
New York	Gross receipts from sales of tangible personal property exceed $500,000, and the seller made more than 100 sales of tangible personal property in the previous four sales tax quarters.	June 21, 2018	New York Department of Taxation and Finance
North Carolina	Gross sales exceed $100,000 in the previous or current calendar year.	November 1, 2018	North Carolina Department of Revenue
North Dakota	Taxable sales exceed $100,000 in the previous or current calendar year.	October 1, 2018	North Dakota Office of State Tax Commissioner
Ohio	Gross receipts exceed $100,000, or the seller makes 200 or more separate transactions in the previous or current calendar year.	August 1, 2019	Ohio Department of Taxation
Oklahoma	Taxable merchandise sales exceed $100,000 in the previous or current calendar year.	November 1, 2019	Oklahoma Tax Commission
Pennsylvania	Gross sales exceeding $100,000 in the previous calendar year.	July 1, 2019	Pennsylvania Department of Revenue
Rhode Island	Gross revenue from sales of $100,000 or more, or the number of separate transactions is 200 or more in the previous calendar year.	July 1, 2019	Rhode Island Division of Taxation
South Carolina	Gross revenue from sales of tangible personal property, products transferred electronically, and services delivered into the state exceed $100,000 in the previous or current calendar year.	November 1, 2018	South Carolina Department of Revenue
South Dakota	Gross revenue from sales exceeds $100,000 in the previous or current calendar year.	November 1, 2018	South Dakota Department of Revenue
Tennessee	Retail sales of $100,000 or more in the previous 12-month period.	October 1, 2019	Tennessee Department of Revenue
Texas	Total revenue of $500,000 or more during the preceding 12 calendar months.	January 1, 2019	Texas Comptroller
Utah	Gross revenue from sales of tangible personal property, products transferred electronically, or services exceeds $100,000, or the seller makes 200 or more separate transactions in the previous or the current calendar year.	January 1, 2019	Utah State Tax Commission
Vermont	A minimum of $100,000 in sales or at least 200 individual sales transactions during the preceding 12-month period.	July 1, 2018	Vermont Department of Taxes
Virginia	Annual gross retail sales exceed $100,000, or the seller makes 200 or more sales transactions in the previous or current calendar year.	July 1, 2019	Virginia Tax
Washington	More than $100,000 in cumulative gross receipts in the current or prior year.	October 1, 2018	Washington Department of Revenue
Washington DC	Gross receipts of more than $100,000, or the number of separate retail transactions is 200 or more in the previous or current calendar year.	January 1, 2019	Washington DC Office of Tax and Revenue
West Virginia	Gross sales of $100,000 or more, or the number of separate transactions for goods or services is 200 or more in the preceding or current calendar year.	January 1, 2019	West Virginia Tax Division
Wisconsin	Gross sales exceed $100,000 in the previous or current calendar year.	October 1, 2018	Wisconsin Department of Revenue
Wyoming	Gross revenue from the sale of tangible personal property, admissions, or services delivered exceeds $100,000 in the preceding or current calendar year.	February 1, 2019	Wyoming Department of Revenue

As always, we recommend contacting the state or a dedicated sales tax expert for questions specific to your business.

Economic Nexus Sales Tax: Conclusion

Economic nexus is relatively new to states and has only been around for a handful of years. However, its impact is felt nationwide by e-commerce and remote sellers who do business in states where they don’t have a physical location. Being able to track nexus thresholds, keep up on sales tax rate changes, and any other changes coming down from the states is vital for businesses to thrive and avoid paying out-of-pocket penalties.

Zamp is a completely automated sales tax solution that handles the day-to-day of sales tax for you. We are a complete service that handles nexus tracking, state registrations, accurate calculations, product taxability research, mapping, reporting, and filing. Set up a call with our team below to learn more!

Economic Nexus Sales Tax: FAQ

How do I know when I have economic nexus? 

Zamp! Zamp’s Economic Nexus Calculator will alert you when you have economic nexus in a new state.

How does it work? We integrate with your online stores, ERPs and marketplaces and alert you when you are approaching or have crossed over a state’s economic nexus threshold. No more trying to count individual transactions into a state or dreading doing your business’s books each month.

I have physical presence in a state, but do not meet that state’s economic nexus threshold. Do I still need to collect sales tax there? 

Yes. Economic nexus did not override any other forms of sales tax nexus. If you have an office, store, employee, etc. in a state you still have nexus in that state even if you don’t meet that state’s economic nexus sales or transactions threshold.

Does economic nexus apply to income tax?

In the US, Federal Public Law 86-272 prevents states from requiring that businesses who only solicit sales of tangible personal property pay income tax. However, this law is quietly being eroded. You can read more about economic nexus and income tax here. We recommend speaking with a sales tax expert should you have any questions about whether sales tax nexus also leads to an income tax obligation.