Welcome to our Economic and Marketplace Nexus guide. And we want explicit about this, it is a guide only as this sales tax collection issue is a real mess.
On June 21, 2018, The US Supreme Court issued its decision in the South Dakota v. Wayfair, Inc. case which changed how remote sellers have to manage and collect sales tax.
Read the full US Supreme Court decision here
Prior to this decision, a seller (or retailer) would need to have a physical presence in a state before it was required to collect and submit sales tax.
The physical presence requirement, also known as nexus, usually meant a business had to have an office, warehouse, sales staff or similar significant physical presence in a state before a state could force the seller to collect sales tax on sales on that state.
In the South Dakota v. Wayfair, Inc. decision, The US Supreme Court effectively changed the nexus requirements from physical presence to one based on sales, often now called an economic nexus.
Since the court cannot make law, there is still some debate on what the decision means in South Dakota v. Wayfair, Inc. to other states.
However, absent legislation by the US Congress to define exact rules for sales tax collection, many state legislatures have moved to copy South Dakota’s law in hope that future challenges to state laws would fail in the federal court system.
Many remote sellers fearing potential back tax issues by not complying with these new laws are starting to collect sales tax in those states.
Often sellers that exceed the minimum thresholds set by states for collecting sales tax as a non-resident remote seller entity use sales tax automation services such as Avalara or Tax Jar.
Also, some state legislatures have enacted so called “Marketplace Nexus” laws that require marketplaces like eBay, Etsy, and Amazon to collect sales tax on behalf of their sellers.
To help sellers make their best decision on how or when they may have to collect sales tax, we have created this chart. This chart does not include proposed legislation for states and is only applicable for enacted legislation.
This chart does not include information on affiliate or click-through Nexus that may be applicable to some online businesses.
|State||Economic Nexus||Marketplace Nexus||Notes|
|Alaska||No State Level Sales Tax (Municipalities may impose local sales tax)|
|Delaware||No State Sales Tax|
|District of Columbia||1/1/2019||4/1/2019||District Notice|
|Louisiana||TBD (Within 30 days of passing threshold)||State Notice|
|Montana||No State Sales Tax|
|New Hampshire||No State Sales Tax|
|New Jersey||11/1/2018||11/1/2018||State Notice|
|New Mexico||State Notice|
|New York||Jan-19||State Notice|
|North Carolina||11/1/2018||State Notice|
|North Dakota||10/1/2018||State Notice|
|Oregon||No State Sales Tax|
|Rhode Island||8/17/2017||8/17/2017||State Notice|
|South Carolina||11/1/2018||11/1/2018||State Notice|
|South Dakota||11/1/2018||3/1/2019||State Notice|
|Tennessee||7/1/2017 (Litigation Pending – Not Enforced)||State Notice|
|Texas||1/1/2019 (But Texas Comptroller will not enforce collection until 10/1/2019)||State Notice|
|West Virginia||1/1/2019||State Notice|
Frequently Asked Questions
Q: Why is there no effective date for some states?
A: This chart does not include proposed legislation. Some state legislatures may be waiting for more court challenges or US federal legislation before enacting laws that may apply to remote sellers.
Q: Are the Economic Nexus requirements the same for all states?
A: No. Sellers must read the sales tax laws for each state. While the base minimum threshold to report and collect sales tax may look similar to South Dakota, there can be significant differences between states on details of sales tax collection and rates. For example, some states may require sellers to collect local sales taxes in addition to state sales tax.
Q: I only sell on marketplaces such as eBay and Etsy. Do I have to worry about sales tax collection since some states are forcing the marketplace to collect the taxes from the buyer?
A: This depends if the marketplace is starting to collect the sales tax on the dates listed in the chart. Also, some Marketplace Nexus effective dates are beyond the original Economic Nexus effective dates and that may require some sellers to report and collect sales tax before the effective date of the Marketplace Nexus law.
Q: I sell on Marketplaces and on my own website. How does this work if the marketplace collects sales tax and I have to collect and remit sales tax because my business is subject to the Economic Nexus.
A: Presumably, marketplaces have a process in place that will allow sellers to opt-out of the marketplace being responsible for collection the sales tax. Most likely, the marketplace will require some proof or documentation that a seller is collecting the sales tax and submitting it to the state. You will need to discuss this with the marketplace.
Q: Is this really legal?
A: Technically, The US Supreme Court only reviewed the constitutionality of the laws as passed by the state of South Dakota. Since the court cannot make law, it is unknown if the same law would be valid in other states because one could argue that factors such as population size may make a difference. The US Congress could pass federal legislation and drastically change the sales tax collection requirements or even completely abolish them. Until then, sellers may have no choice but to follow each state’s sales tax laws to protect themselves from enforcement actions.
Q: Do these state sales tax laws apply to foreign sellers?
A: Technically yes. But the practicality of a sales tax jurisdiction (state) trying to enforce collection from a foreign entity seems extremely remote.
Q: This is a mess. What can I do to help fix this messy sales tax collection system?
A: Number one, contact your US Senator and member of the US House of Representatives and demand that Congress pass legislation to fix this sales tax mess. Second, you can join the free Facebook Group run by the Online Merchants Guild who are trying to keep up with the issues and are also working to find better solutions (think: more legal challenges to reduce the burden on small businesses).
Click here to read articles we have posted about Sales Tax
Important Note: Sellers are strongly encouraged to seek professional advice from an attorney or tax professional on all sales tax questions. We make no warranty that the information on this page is correct or that it should be considered legal advice.