States ease nexus thresholds

Almost five years ago, the Supreme Court’s Wayfair decision was heralded as a revenue gateway for almost all states to require remote sellers to collect and remit sales tax. Thresholds were established, filing forms and deadlines fixed and one by one states waited for the money to roll in (with Florida and Missouri among the latest of the 45, with Alaska perhaps soon to join them).

And the money did roll in for a while, especially during the pandemic when eCommerce exploded. Then the bill came for administration of sellers – especially small ones – in states that had the dual threshold criteria of either $100,000 in sales or 200 transactions (almost half of states that enforce economic nexus).

Turns out those transaction thresholds “in reality, bring very little economic benefit to the state’s tax collections,” writes Matthew Walsh, the “Indirect Tax Professional.”

States seem to have begun lowering their transaction thresholds or are becoming more open to the idea. Two years ago, for instance, Wisconsin studied how halving its 200-transaction threshold would hurt coffers. The conclusion: “minimal fiscal effect.”

Who’s taken the latest action?

South Dakota – center of the Supreme Court’s landmark decision in 2018 – recently eliminated its economic nexus transaction threshold.

As of July 1, South Dakota is removing the 200-transaction threshold; only those selling $100,000 or more into the state will be required to register and collect and remit sales tax.

South Dakota joins California, Colorado, Iowa, Maine, North Dakota, Washington and Wisconsin in eliminating transaction-based nexus thresholds. (Some states never adopted one.)

Starting Aug. 1, Louisiana’s threshold will also be only $100,000 of sales into the state and not 200 transactions besides. Also effective on that date, the $100,000 threshold for marketplace facilitators will be based on gross revenue for retail sales into the state of tangible personal property, products transferred electronically or services; resale and wholesale transactions will no longer count.

Costs remain high

“As long as the Wayfair ruling stands, the Congress ought to step in and give small businesses some relief,” said Sen. Ron Wyden (D-OR), chair of the Committee on Finance that last year examined the impact of Wayfair on small businesses. “That ought to start with exempting small businesses that have revenues under a certain threshold,” he said. “And Congress ought to create clear, standardized rules that lay out what states can require of small businesses outside their borders.”

In 2021, the Government Accountability Office estimated nationwide remote sales tax collections to be about $30 billion. That revenue wasn’t free – or cheap.

“Businesses reported that they incurred software costs to expand their multistate tax collection capabilities, audit and assessment costs associated with increased tax jurisdiction exposure, and costs to stay current with legal requirements in multiple jurisdictions,” reads the GAO report, “Remote Sales Tax: Federal Legislation Could Resolve Some Uncertainties and Improve Overall System.”

It’s a good bet that more states will lower their transactions thresholds in the coming months and years. We’ll keep you posted.

Let TaxConnex manage the burden of keeping up with all the changes and challenges that come with staying compliant in this post-Wayfair world. Contact us to learn what it means when sales tax compliance is all on us.