Move Over, Physical Presence — Economic Nexus is the New Bright-Line
The decision on June 21 by the Supreme Court — to uphold South Dakota’s law requiring the collection of sales tax when a company’s sales into the state exceed the threshold — ushers in the new defining standard in interstate commerce: economic nexus.
This decision reverses the prior Supreme Court ruling from 1992 requiring sellers to have a physical presence (i.e. property, employees, etc.) within a state before that state could require the collection and remittance of sales or use tax.
The change to the definition of economic presence enlarges the pool from which South Dakota can collect tax revenues, while concurrently expanding the onus of tracking and reporting to sellers previously exempted under the physical presence test. The precedent set by South Dakota v. Wayfair, Inc. has consequences reaching far beyond the South Dakota state line.
In addition to South Dakota, other states, including Washington, already have an economic nexus tax standard, while numerous others have legislation for such nexus provision expansions pending. Ultimately, the expectation is that all states will eventually adopt some form of an economic nexus standard in light of the Wayfair decision. As of July 2018, the following states currently require sales tax administration when certain thresholds are met.
| State | Threshold Requiring Sales Tax Administration |
| Alabama | $250,000 |
| Connecticut | $250,000 or 200 separate transactions |
| Georgia | $250,000 or 200 separate transactions or choose notice and reporting requirement |
| Hawaii | $100,000 or 200 separate transactions |
| Iowa | $100,000 or 200 separate transactions |
| Illinois | $100,000 or 200 separate transactions |
| Kentucky | $100,000 or 200 separate transactions |
| Louisiana | $100,000 or 200 separate transactions |
| Massachusetts | $500,000 or 100 separate transactions |
| Maine | $100,000 or 200 separate transactions |
| Minnesota | $100,000 or 100 separate transactions |
| Mississippi | $250,000 |
| North Dakota | $100,000 or 200 separate transactions |
| Oklahoma | $10,000 or choose notice and reporting requirement |
| Pennsylvania | $10,000 or choose notice and reporting requirement |
| Rhode Island | $100,000 or 200 separate transactions or choose notice and reporting requirement |
| South Dakota | $100,000 or 200 separate transactions |
| Utah | $100,000 or 200 separate transactions |
| Vermont | $100,000 or 200 separate transactions |
| Washington | $10,000 or choose notice and reporting requirement |
| Wisconsin | $100,000 or 200 separate transactions |
| Wyoming | $100,000 or 200 separate transactions |
Even if a state has not yet implemented an economic nexus provision, out-of-state sellers can still trigger the state’s mandatory reporting requirement. Failure to report as required can result in steep penalties, so it’s important to stay abreast of the thresholds in all states wherein a seller transacts. The table below summarizes the reporting thresholds for states with such requirements, as of July 2018.
| State | Reporting Requirement |
| Colorado | $100,000 of sales |
| Georgia | $250,000 of sales or 200 separate transactions |
| Kentucky | $100,000 of sales |
| Louisiana | $50,000 of sales |
| Oklahoma | $10,000 of sales |
| Pennsylvania | $10,000 of sales |
| Rhode Island | $100,000 of sales or 200 separate transactions |
| South Dakota | $100,000 of sales or 200 separate transactions |
| Vermont | $100,000 of sales |
| Washington | $10,000 of sales |
Manufacturers and distributors will almost certainly be impacted by some aspect of the Supreme Court’s decision. Our tax experts at Aldrich can help you determine if these sweeping changes will directly affect your business and help you prepare for the changes ahead. Please, don’t hesitate to contact us with your questions.
This post was originally published on July 30, 2018. It was updated on August 1, 2018, to provide you with the most current information.
