Paper Self Assessment Return Deadline
Sales Tax Economic Nexus Check for Online Sellers
Why this matters.
Since the Supreme Court’s decision in South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018), overruled the physical presence rule in Quill Corp. v. North Dakota, every state with a statewide sales tax can require out-of-state sellers to collect and remit sales tax once their sales into the state pass an “economic nexus” threshold. Most states use $100,000 of annual sales, some with a transaction count, while others such as California and Texas use $500,000. You can also have nexus the old way, through physical presence such as an office, employees, or inventory stored in a third-party warehouse, including fulfilment centres. Once you have nexus you must generally register with the state’s tax department before collecting tax, charge the correct state and local rate, keep exemption and resale certificates, and file returns on the schedule the state assigns.
Getting it wrong is expensive because the tax is owed whether or not you collected it from your customers. States can assess the uncollected tax, plus interest and penalties, for every period you should have been registered, and collecting tax without a permit is itself a violation in many states. Marketplace facilitator laws now in force in every sales tax state mean platforms such as Amazon or Etsy usually collect on marketplace sales, but your direct sales through your own website, invoices or other channels still count and may still need tax collected. Rules on whether digital products, SaaS and services are taxable vary widely by state, and the 24 member states of the Streamlined Sales and Use Tax Agreement offer simpler, free registration options. A regular nexus review keeps small sellers from building up years of back tax.
