Hot Topics: Economic Nexus Thresholds and Reporting Requirements

What’s the latest brewing today in sales tax? A lot, spanning many hot topics – and if you can believe it, not all the news is bad.

Take economic nexus thresholds. It’s pushing six years since the U.S. Supreme Court’s Wayfair decision largely opened sesame for states to begin enforcing economic nexus thresholds. Physical nexus standards – such as having offices, staff or inventory in a state – had long mandated that retailers had to collect and remit a state’s sales tax. Economic nexus, on the other hand, meant that retailers would have to collect and remit sales tax simply by passing a dollar or transaction amount threshold (or both), usually within the previous 12 months.

(States’ economic nexus thresholds differ widely, but as a general rule, if your company reaches $100,000 a year in sales in a state it’s time to investigate if you’ve established economic nexus there.)

Economic Nexus Thresholds Repealed

Some of the major new nexus rules about thresholds are good, in that states are starting to end the per-transaction requirement for economic nexus. Louisiana and South Dakota, for instance, have repealed their 200-transaction thresholds (Louisiana’s repeal took effect last Aug. 1 and South Dakota’s took effect last July 1). In both states, the only economic nexus threshold s is now $100,000 in sales in the previous year.

This is a welcome change that other states have already made and that we expect other states will make as time goes on. With luck, eventually, transaction thresholds won’t be part of the economic nexus equation.

New nexus requirements

On the flip side, some states are either embracing new economic nexus rules or inching toward them despite a history of no state-wide sales tax.

For instance, economic nexus kicked in a year ago in Missouri, which followed Florida as the last state with a statewide sales tax to enforce economic nexus.

Some of the NOMAD states with no statewide sales tax need watching – especially Alaska, which is inching toward a statewide sales tax while an increasing number of its communities band together to enforce economic nexus. (Of Alaska’s 162 municipal governments, approximately 110 already levy some variety of sales tax.)

Other similar home rule states (that is, numerous local tax jurisdictions) include Alabama and Louisiana, where if your sales exceed the state-level thresholds you ignite sales tax in all the local jurisdictions you sell into, as well. To their credit, these states have created advantageous ways for small retailers who hit nexus thresholds, affording simpler guidelines for charging and remitting the sales tax.

Not all home rule states have been so friendly. Colorado, which started economic nexus rules long before Wayfair and which today has some 73 local tax jurisdictions, has a history of making compliance complex and not granting grace to those companies that are just trying to make ends meet while complying with sales tax nexus requirements.

Colorado did create a centralized filing portal to help with compliance, but it’s long had user issues and required mandatory registrations with local communities. In recent developments, though, Colorado must improve its system no later than next Jan. 1.

Next time, we’ll look at developments in sellers vs. marketplace facilitators.

(For more, listen to our “Hot Topics” webinar about the latest developments in sales tax.)

If you think your business may be impacted by sales tax developments, contact TaxConnex. TaxConnex provides services to become your outsourced sales tax department. Get in touch to learn more.