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Economic Nexus: Everything You Need to Know

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Published on October 28, 2024
 Ultimate Guide to Understanding Economic Nexus | TaxHero
Diving into the ecommerce world is exciting, but sometimes the jargon can be a bit much. One term you’ll hear is “economic nexus.” Think of it like a signpost in the world of sales taxes, guiding businesses where they stand.
Here at TaxHero, we want to make things simple. We’ll break down this term, explain why it matters, and help you understand how it affects your ecommerce business. Ready to get started?
 

What is Economic Nexus?

Economic nexus is a set of criteria determining if your ecommerce business has a significant presence in a particular state. This idea became well-known because of the South Dakota v. Wayfair case in 2018. If your ecommerce business meets these criteria, you must follow that state’s tax rules, which means collecting and remitting sales tax.
 Simply put, if your ecommerce business has a notable footprint in a state – through sales, transactions, or physical presence – it triggers economic nexus in that jurisdiction.
The importance of understanding economic nexus in ecommerce lies in avoiding legal issues and planning finances wisely, helping you expand your business smoothly without unexpected tax problems. It acts as a guide to navigating potential tax obligations when entering new markets by ensuring compliance and strategic growth.
 

Criteria for Establishing Economic Nexus

When establishing an economic nexus for your ecommerce business, states generally consider a few key factors. Here’s what you need to keep an eye on:
  • Sales Revenue: Refers to the total sales you’ve made in a particular state. If your sales revenue in a state crosses a certain threshold, you have established a nexus there.
  • Transaction Volume: Besides the amount you earn, the number of transactions you conduct in a state also counts. If you have a high volume of sales transactions in a state, it establishes an economic nexus.
  • Keeping Up with Changes: State laws regarding economic nexus can change. Make it a practice to regularly check for updates to avoid surprises and ensure you’re meeting all necessary criteria.

State-by-State Variations in Economic Nexus Laws

When managing an ecommerce business that spans across different states, it’s vital to be aware of the variations in economic nexus laws that exist from state to state. Here’s why it matters:
  

Different Thresholds

Each state sets its thresholds for establishing economic nexus based on sales revenue or transaction volume. It’s essential to be aware of these individual thresholds to remain compliant and avoid unnecessary complications.
 Refer to the table below to find out the thresholds in each state:
  
STATE EFFECTIVE DATE SALES THRESHOLD
Alabama October 1, 2018 $250,000 in sales during the previous calendar year
Alaska not applicable
Arizona  2021 $100,000 in sales during the previous or current calendar year
Arkansas   July 1, 2019 $100,000 in sales OR 200 transactions during the previous or current calendar year
California  April 1, 2019 $500,000 in sales during the preceding or current calendar year
Colorado   December 1, 2018 $100,000 in sales during the previous or current calendar year
Connecticut  December 1, 2018 $100,000 in sales OR 200 transactions during the 12-month period ending on September 30
Delaware not applicable
District of Columbia   July 1, 2021 $100,000 in sales OR 200 transactions during the previous calendar year
Florida    July 1, 2021 $100,000 in sales during the previous calendar year
Georgia  January 1, 2020 $100,000 in sales OR 200 transactions during the previous or current calendar year
Hawaii  July 1, 2018 $100,000 in sales OR 200 transactions during the current or immediately preceding calendar year
Idaho  June 1, 2019 $100,000 in sales during the previous or current calendar year
Illinois  October 1, 2018 $100,000 in sales OR 200 transactions during the preceding 12-month period
Indiana January 1, 2024 $100,000 in sales in the current or prior calendar year
Iowa  January 1, 2019 $100,000 in sales during the current or immediately preceding calendar year
Kansas  July 1, 2021 $100,000 in sales during the current year or the year immediately prior
Kentucky  October 1, 2018 $100,000 in sales OR 200 transactions during the previous or current calendar year
Louisiana August 1, 2023 $100,000 in sales during the previous or current calendar year
Maine  July 1, 2018 $100,000 in sales OR 200 transactions during the previous or current calendar year
Maryland  October 1, 2018 $100,000 in sales OR 200 transactions during the previous or current calendar year
Massachusetts  October 1, 2019 $100,000 in sales during the previous or current calendar year
Michigan  October 1, 2018 $100,000 in sales OR 200 transactions during the previous calendar year
Minnesota October 1, 2019 $100,000 in sales OR 200 transactions during the twelve-month period ending on the last day of the most recently completed calendar quarter
Mississippi   September 1, 2018 $250,000 in sales prior to the twelve-month period
Missouri  January 1, 2023 $100,000 in sales during the previous twelve-month period reviewed quarterly
Montana not applicable
Nebraska April 1, 2019 $100,000 in sales OR 200 transactions during the previous or current calendar year
Nevada  November 1, 2018 $100,000 in sales OR 200 transactions during the previous or current calendar year
New Hampshire not applicable
New Jersey  November 1, 2018 $100,000 in sales OR 200 transactions during the previous or current calendar year
New Mexico  July 1, 2019 $100,000 in sales during the previous calendar year
New York  June 21, 2018 $500,000 in sales AND 100 transactions during the preceding four sales tax quarters.
North Carolina  November 1, 2018 $100,000 in sales OR 200 transactions during the previous or current calendar year
North Dakota  October 1, 2018 $100,000 in sales during the previous or current calendar year
Ohio  August 1, 2019 $100,000 in sales OR 200 transactions during the previous or current calendar year
Oklahoma  November 1, 2019 $100,000 in sales during the preceding or current calendar year
Oregon not applicable
Pennsylvania  April 1, 2018 $100,000 in sales during the previous 12-month period.
Rhode Island July 1, 2019 $100,000 in sales OR 200 transactions during the previous calendar year
South Carolina  November 1, 2018 $100,000 in sales during the previous or current calendar year
South Dakota  July 1, 2023 $100,000 in sales during the previous or current calendar year
Tennessee  October 1, 2019 $100,000 in sales during the previous 12-month
Texas  October 1, 2019 $500,000 in sales on the preceding twelve calendar months
Utah   January 1, 2019 $100,000 in sales OR 200 transactions during the previous or current calendar year
Vermont July 1, 2018 $100,000 in sales OR 200 transactions in the previous four calendar quarters
Virginia July 1, 2019 $100,000 in sales OR 200 transactions during the previous or current calendar year
Washington October 1, 2018 $100,000 in sales during the current or preceding calendar year
West Virginia  January 1, 2019 $100,000 in sales OR 200 transactions during the preceding or current calendar year
Wisconsin  January 1, 2019 $100,000 in sales during the previous or current calendar year
Wyoming  July  1, 2024 Wyoming will no longer require 200 transactions as part of the state’s economic nexus threshold. Remote sellers will now only be required to register and collect the state’s 4% sales tax in the state if they surpass the $100,000 gross sales threshold.
   

Varied Definitions

Not all states define economic nexus in the same way. Some focus more on sales revenue, while others prioritize transaction volumes or physical presence. Keeping tabs on these variations helps in strategizing your ecommerce business operations effectively.
 

Seeking Expert Advice

Given the complexities, seeking advice from ecommerce sales tax professionals like TaxHero can be the best action. We can help you navigate the maze of state laws, ensuring your ecommerce business remains compliant and thrives.
 

Frequently Asked Questions About Economic Nexus

How do economic nexus laws apply to me if I run a seasonal business?

Seasonal businesses are not exempt from these laws. It’s crucial to calculate your sales and transactions during your operational months accurately to comply with the respective state’s thresholds and criteria.
  

How does economic nexus relate to other forms like click-through or affiliate nexus?

Economic nexus focuses on sales and transaction thresholds, whereas click-through and affiliate nexus revolve around relationships with affiliates in a state. Depending on your business model, you might need to comply with one or more nexus regulations.
  

What actions should I take if I realize my business has unknowingly established an economic nexus in a state?

Suppose you find out that you’ve established an economic nexus unknowingly. In that case, it’s recommended to consult with a tax expert promptly to understand the necessary steps for compliance and rectify any past discrepancies.
  

Ready to Navigate Economic Nexus Waters with Ease?

With all these regulations and variations, you’ll need a sales expert to check which states your business has established economic nexus. You can schedule a call with our CEO, who will personally onboard and explain how TaxHero conducts nexus checks.
Furthermore, we’ve got you covered with our comprehensive services, ensuring you understand the basics and adapt to state-specific laws. Let’s embark on this journey together for a successful and compliant ecommerce business adventure.
 

Download Economic Nexus Chart

  • TaxHero’s Sales Tax Economic Nexus Chart includes essential information such as each state’s thresholds, effective dates, sales inclusion criteria, tax rates, and filing deadlines. With direct contact information for state revenue offices, you’ll have everything you need in one convenient resource. Don’t miss out on this invaluable tool for staying compliant and informed!
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