"

Sales Tax & Compliance brought to you by >> Avalara Logo new12

Estimated reading time: 4 minutes, 29 seconds

Making sense of economic nexus small seller exceptions

Economic nexus imposes a sales and use tax collection obligation on remote sellers based only on their economic activity in a state. Nearly 30 states have adopted economic nexus since the Supreme Court of the United States ruled physical presence in a state is no longer the sole requisite for sales tax collection (South Dakota v. Wayfair, Inc., June 21, 2018), and all provide an exception for small sellers. The problem is, these exceptions are not all the same.

To determine how much business a remote seller is doing in a state, economic nexus laws rely on the volume of sales, the number of transactions, or both. For example, the South Dakota law that led to the demise of the physical presence rule uses the following thresholds: $100,000 in gross sales or 200 or more transactions of property, electronically delivered goods, or services delivered into the state in the current or previous calendar year.

Approximately 20 states with economic nexus share the $100,000 in sales/200 transactions threshold (though not all include the same transactions in the test): Remote sellers that have less than $100,000 in sales or fewer than 200 transactions in the state don’t have to collect and remit sales or use tax in the state. Those with more than $100,000 in sales or at least 200 transactions must.

Seems simple enough, and for a business that sells only in its home state and South Dakota, it probably is. However, it’s less simple for businesses with customers in multiple economic nexus states. And it will become even more complicated when other state economic nexus policies go into effect later this year and in early 2019.

Different small seller exceptions

Though most economic nexus states closely follow South Dakota’s example, several have adopted different thresholds. In Alabama, for example, a remote seller must do more than $250,000 in sales in the state and engage in certain activities (e.g., solicitation) to trigger economic nexus. In Connecticut, the threshold is at least $250,000 in revenue and 200 or more retail sales into the state and systematic solicitation in the state. In Minnesota, the economic nexus threshold is 10 or more sales totaling $100,000 or 100 or more retail sales. And so on. 

There are even subtle differences among states with South Dakota–style economic nexus thresholds. A remote seller must have $100,000 or more (or 200 transactions) to trigger economic nexus in Colorado, while in Indiana, a remote seller must have more than $100,000 (or 200 transactions). The likelihood of a business meeting or missing the threshold by mere pennies seems slim, but still, a difference is a difference.

Then there’s West Virginia, one of the latest states to adopt economic nexus. Like most other states, it relies on the $100,000/200 transactions thresholds to determine whether an out-of-state seller has established an obligation to collect and remit West Virginia sales and use tax. Unlike the others, its policy says both $100,000 and 200 transactions and $100,000 or 200 transactions.

West Virginia State Tax Department Administrative Notice 2018-18 states that a tax collection obligation is triggered if either threshold is met during the 2018 calendar year. Each year thereafter, it explains, “The requirement will be imposed for a given calendar year based on the vendor's attainment of either of the stated thresholds in the immediately preceding calendar year” [emphasis mine].

However, the Tax Department website provides conflicting information. It states in its introduction: “This collection requirement does not apply to a remote seller that during calendar year 2018 had gross sales of tangible personal property and/or services for delivery in West Virginia of $100,000 or less and had fewer than 200 sales transactions for delivery in West Virginia” [emphasis mine].

It continues, “When the small seller-exception applies, then in any calendar year when either of these thresholds is met, the seller must begin to collect West Virginia sales and use taxes on sales made after the date either of these thresholds is met” [emphasis mine].

Farther down that page, FAQs 4 (Are all remote sellers required to register in West Virginia?) and 7 (How is the small-seller exception determined?) state that both thresholds must be met to trigger a sales tax collection obligation.

When we sought clarification from the department, we were told that the small-seller exception applies if both thresholds are met during calendar year 2018. However, if a remote seller meets either threshold during calendar year 2019, or any year thereafter, it establishes economic nexus and an obligation to collect and remit West Virginia sales and use tax.

Transactions included in state thresholds

Another complicating factor is that different states include different transactions in the threshold. For example, thresholds in the states below are based on the following:

• Connecticut: retail sales of products
• Maine: taxable and nontaxable products, services, and electronically delivered products
• Mississippi, Nevada, and Vermont: sales into the state
• West Virginia: taxable and nontaxable products and services

Such differences make determining the threshold in multiple states extremely challenging.
States are striving to make their economic nexus laws clear, but these are new laws, and it will likely take time to sort out all the kinks.

Learn more about different state economic nexus laws, and check out Avalara’s state-by-state guide to sales tax economic nexus rules

progressive

Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.

Read 3847 times
Rate this item
(0 votes)

Sales Tax Assessment Tool

The Accounting Top 100

Sales Tax Calculator

Social Leader board

The Accounting Top 100 social media leaderboard ranks accounting professionals based on their overall presence, influence, and engagement on social media platforms. Each user’s rank is determined by that user’s Klout Score in addition to a list of custom metrics, and all updated rankings are displayed in new leaderboards generated every two weeks.

Did you make the list?

Congratulations! You can now track your progress on the leaderboard by clicking “Follow us” at the top of the list. Want to get the word out about your new celebrity status? Share this page with all of your friends and followers so they can view and join in on this fun social activity.

Think you’ve got what it takes to make the Top 100?

Join for free today!

Disclaimer

Avalara’s Accounting Top 100 leaderboard (the “Leaderboard”) is assembled using a list of accounting professional users that’s curated by manual entry as well as by Rise.Global's internal Twitter search functionality. We reserve the right to change scoring metrics used for ranking and to exclude anyone from the list, in our sole discretion. The Leaderboard is not an endorsement, recommendation or sponsorship of any of the accounting professionals on the Leaderboard, and we do not make any representation or guarantee of their ability or reliability. Assessments by different methods or based on different information may yield different results. The Leaderboard is only a starting point to gather information about accounting professionals, and you should not rely on it to decide whether to hire an accounting professional.

For feedback and/or questions please contact [email protected].

Visit other PMG Sites:

Template Settings

Color

For each color, the params below will give default values
Tomato Green Blue Cyan Dark_Red Dark_Blue

Body

Background Color
Text Color

Header

Background Color

Footer

Select menu
Google Font
Body Font-size
Body Font-family
Direction
PMG360 is committed to protecting the privacy of the personal data we collect from our subscribers/agents/customers/exhibitors and sponsors. On May 25th, the European's GDPR policy will be enforced. Nothing is changing about your current settings or how your information is processed, however, we have made a few changes. We have updated our Privacy Policy and Cookie Policy to make it easier for you to understand what information we collect, how and why we collect it.