Sales Tax and Online Retailers

Sales tax nexus is the connection that exists between a state’s taxing authority and a seller that requires the seller to register and collect and pay sales tax. For example, having an office, remote employees, affiliates or subsidiaries in a particular state will create nexus. But other specified business activities will trigger nexus with the state, too. Surpassing a set amount of sales transactions or sales income is one such business activity.

ECONOMIC NEXUS

In 2018, the U.S. Supreme Court recognized that states can require online retailers to collect and remit sales tax if they meet certain economic thresholds. This new form of nexus is referred to as economic nexus and it doesn’t require a physical presence in the state. Depending on which states you sell into and how many sales you have will determine whether you have economic nexus. Each state is free to set their own thresholds; however, the minimum requirements for economic nexus are 200 transactions or more than $100,000 in sales per year.

MARKETPLACE SELLERS

Retailers operating exclusively via participating marketplaces (i.e. Amazon, Ebay) need not worry about collecting sales tax because the marketplace collects on your behalf. This is a huge benefit because sales tax is complex and varies by city, county and state, so it’s important to follow the rules.