On June 21, 2018, in the case of South Dakota v. Wayfair1, the Supreme Court ruled that states may impose sales tax on remote sellers based on the volume or dollar value of your sales in a state, whether or not your business has a physical presence there.
As a result, eCommerce businesses are subject to new tax rules when selling across state lines. Known as nexus, these sales taxes fall into three categories:
Economic Nexus2
Based solely on thresholds of sales into a state by volume or revenue.
Click-Through Nexus3
Sales generated by online referrals or ads links.
Affiliate Nexus4
Companies that work with a partner who has Nexus.
What is nexus?
Sales tax nexus is the connection between a seller and a state that requires that businesses collect and remit tax on sales made in state(s). Nexus can be created through:
- Physical location
- Employee or contractor
- Inventory stored
- Affiliates working on your behalf
- Company shipping your products
- Advertising campaign
- Trade show presence
- Economic nexus, i.e. Remote sales that meet volume or dollar thresholds
- Click-through nexus
- Affiliate nexus
Each state has its own laws about what business activities trigger nexus. Local jurisdictions within states may also have unique regulations.
Avoid these common pitfalls
- Not knowing if nexus applies to you: Tax law ignorance is no justification for tax evasion
- Charging the wrong tax rate: Out-of-state sellers usually charge the tax rate at the buyer’s location
- Not collecting tax on eCommerce sales: Follow tax advice and state nexus rules for taxing remote sales
- Not tracking taxable and exempt sales: Exempt sale volumes are included in economic nexus thresholds in some states. Be sure to check the guidelines wherever you do business.
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1 South Dakota v. Wayfair, Inc. - 138 S. Ct. 2080 (2018)
2 State-by-state guide to economic nexus laws, as of April 9, 2020, [https://www.avalara.com/us/en/learn/guides/state-by-state-guide-economic-nexus-laws.html], (accessed 21 April 2020)
3 State-by-state guide to click-through nexus laws, as of July 2, 2019, [https://www.avalara.com/us/en/learn/guides/state-by-state-click-through-nexus-guide.html], (accessed 21 April 2020)
4 State-by-state guide to affiliate nexus laws, as of May 6, 2019, [https://www.avalara.com/us/en/learn/guides/state-by-state-affiliate-nexus-guide-avalara.html], (accessed 21 April 2020)
Disclaimer: Content is provided “AS IS” and intended for informational purposes only and should not be relied upon for operational, marketing, legal, technical, tax, financial or other professional advice. Visa Inc. does not make any warranty or representation as to the completeness or accuracy of the Information, nor assume any liability or responsibility that may result from reliance on such Information. Readers are encouraged to seek the advice of a competent legal professional where such advice is required.