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Online Retailers – Where Do You have Economic Nexus?

Oregon is one of five states that does not have a sales tax.  In Oregon, retailers do not have to worry about difficult to understand sales tax issues.  However, many of our clients are online retailers and life is about to change for these small business owners.

The Supreme court case South Dakota vs Wayfair eliminated the physical presence test requirement and authorized the economic presence test.  South Dakota’s economic nexus standards are now setting precedent due to the Supreme court case.  South Dakota’s sales tax policies protect small businesses and are simplified.  Most states will have to take action in order to have the sales and use tax laws in place to meet the new standard.

Economic Nexus generally correlates with a set level of sales or gross receipts activity within the state. No physical presence is required.

The Supreme Court decision solidifies economic nexus and could also impact businesses in the income tax area. 

24 states have an economic nexus legislation in place.  Many are working to provide further guidance on the new law and promise that guidance in the next 30 days.   Sales Tax Institute Nexus Chart

For example – this is on the Minnesota state sales tax website:

We are analyzing the Court’s decision to identify how it affects Minnesota and online retailers, remote sellers, and marketplace providers. We will work with our customers to ensure fair, efficient, and transparent implementation of this decision. We will provide further guidance within 30 days.  The Minnesota Department of Revenue has processes in place to ensure that we appropriately respond to tax law changes and to inform our customers of any impacts changes may have.

If you are an online retail company, my recommendation is to monitor total amount of sales per state.  Once the total sales in a state >$10,000, look at that specific state’s rules.  It will take some time for the states to determine how they will respond to South Dakota vs Wayfair.  By Quarter 3 2018, you should look to see if you must collect and remit sales tax for any states that have customers who you ship goods to.