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States with South Dakota–style economic nexus laws

In the case of South Dakota v. Wayfair, Inc. (decided on June 21, 2018), the Supreme Court of the United States overturned the rule that a state cannot tax a business unless it has a physical presence in the state. The court found the defendants’ “economic and virtual” connections to South Dakota to be sufficient grounds for nexus, the connection with a state that triggers a tax collection obligation.

This expansion of state taxing authority could have far-reaching consequences. More than a dozen states had already adopted economic nexus provisions prior to the June 21 ruling, though most didn’t actively enforce them due to the physical presence rule. Many states linked the effective date of their policies to the South Dakota v. Wayfair ruling, or to possible future action by Congress.

Each of the following states is or soon will enforce its economic nexus laws, as shown in the chart below.

States with South Dakota-style economic nexus

States with economic nexus Effective date Thresholds triggering a collection obligation ($ and/or transaction volume)
Alabama Will be applied proactively for sales made on or after 10.1.2018; statutory start date was 1.1.2016 More than $250,000andadditional activities
Connecticut 12.1.2018 At least $250,000and200 or more retail sales

 

and

systematic solicitation of sales in the state via the internet or other means

Georgia 1.1.2019 More than $250,000 or 200 or more retail sales
Hawaii 7.1.2018 At least $100,000 or 200 or more separate transactions
Illinois 10.1.2018 At least $100,000or200 or more separate sales
Indiana 10.1.2018 More than $100,000or200 or more separate transactions
Iowa 1.1.2019 At least $100,000or200 or more separate transactions
Kentucky 10.1.2018 More than $100,000or200 or more separate transactions
Louisiana Start date to be determined More than $100,000or200 or more separate transactions
Maine 10.1.2017 More than $100,000or200 or more separate transactions
Minnesota 10.1.2018 Makes 10 or more retail sales totaling more than $100,000or100 or more retail sales

 

and

systematic solicitation of sales in the state

Mississippi 12.1.2017 More than $250,000andsystematic exploitation of the market in the state
Nebraska 1.1.2019 More than $100,000or200 or more separate transactions
North Dakota 10.1.2018 More than $100,000or200 or more separate transactions
South Dakota 5.1.2016 (under an injunction until further notice) More than $100,000or200 or more separate transactions
Tennessee 7.1.2017 (under an injunction until further notice) More than $500,000andsystematic solicitation of sales in the state
Utah 1.1.2019 More than $100,000or200 or more separate transactions
Vermont 7.1.2018 At least $100,000 or200 or more individual sales transactions

 

and

systematic solicitation of sales from in-state customers

Washington 7.1.2017 (for B&O tax only) More than $267,000 of yearly gross receipts sourced or attributed to WA in 2017, $285,000 in 2018 orat least 25% of total yearly gross receipts sourced or attributed to WA
Wisconsin 10.1.2018 More than $100,000or200 or more separate transactions
Wyoming 7.1.2017 (under an injunction until further notice) More than $100,000or200 or more separate transactions


South Dakota v. Wayfair doesn’t give states carte blanche

While the ruling does allow states to tax businesses based on economic and virtual connections, it doesn’t necessarily give them carte blanche.

The Supreme Court found that “South Dakota’s tax system includes several features that appear designed to prevent discrimination against or undue burdens upon interstate commerce.” These are:

  • South Dakota affords small merchants “a reasonable degree of protection” from taxation. Remote vendors must have more than $100,000 in gross revenue from South Dakota sales, or 200 or more separate transactions of the same in the current or previous calendar year to trigger a tax collection obligation.
  • The law ensures no obligation to remit the sales tax may be applied retroactively.
  • South Dakota is a member of the Streamlined Sales and Use Tax Agreement, which reduces administrative and compliance costs by requiring a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures, and more. It also provides sellers access to sales tax administration software paid for by the state, and sellers that use such software are immune from audit liability. 

States with remote sales tax policies at odds with any of the above could be vulnerable to legal challenges should they try to enforce them. But states with South Dakota–style economic nexus laws are well positioned.

It will take time for the full implications of the South Dakota v. Wayfair ruling to be felt. In addition, Congress could get involved; a bill that would prevent states from taxing most remote sales has already been introduced. Furthermore, measures that would expand state tax authority (e.g., the Remote Transactions Parity Act and the Marketplace Fairness Act) have long been on the table but held in committee.

In the meantime, businesses that sell in multiple states should track changing state nexus laws and develop a plan to ensure compliance. 

Source: States with South Dakota-style economic nexus laws

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Judy Vorndran can be reached at jvorndran@taxops.com or 720.227.0093. Follow Judy on LinkedIn.

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