More than a year ago, on June 21, 2018, the U.S. Supreme Court issued Wayfair v. South Dakota. This ruling allows states to require non-resident sellers in a given state to register and collect tax on their sales of goods and services despite the absence of physical presence. The creation of the Economic Nexus was one of the most significant sales tax changes in recent years in the United States.
The states were quick to respond. To date, the vast majority of them have adopted the Economic Nexus rule. However, as each state manages sales tax independently within its territory, the rules adopted vary from state to state.
States that have adopted the Economic Nexus
As of August 1, 2019, only two states, excluding the five that do not impose sales taxes, have not passed laws recognizing the Economic Nexus. These are Florida and Missouri. So there are a total of 43 states that have adopted the Economic Nexus at different times in 2018 and 2019.
Economy Nexus creation threshold
South Dakota had established that any seller making more than US$100,000 in sales or 200 transactions on its territory creates an Economic Nexus. The majority of states have adopted this same threshold. However, some have adopted a higher sales threshold (between $250,000 and $500,000).
The number-of-transactions criterion has been ignored by many jurisdictions. Other states, like New York for example, require that both the number of transactions and the amount of sales be met to establish an Economic Nexus on its territory. Kansas, on the other hand, considers that an Economic Nexus is created as soon as the first taxable sale is made on its territory.
Threshold calculation method
The sales considered in calculating the threshold described above are also not the same from one state to another. In most states, the total amount of gross sales (taxable sales, exempt sales, sales for resale) is used to establish whether an Economic Nexus has been created. Other states, like Illinois, consider only retail sales (excluding sales for resale) and some, like Pennsylvania, consider only taxable sales.
Impacts and changes for your company
Many Canadian entities with sales in the U.S. but no physical presence there should review their sales tax analysis of Nexus, and possibly register with new states.
The Demers Beaulne team can help you identify how the new rules may impact your business.
Should you require further information, please do not hesitate to contact our tax department.
