Online Sales Tax: A Guide to Economic Nexus & Ecommerce

Online Sales Tax: A Guide to Economic Nexus & Ecommerce
  • On June 21, 2018, South Dakota v. Wayfair, Inc. overturned a 1992 Supreme Court ruling; states can now require ecommerce businesses to pay sales taxes where those businesses have an economic presence (or nexus)
  • The process of tracking individual state sales taxes that enforce economic nexus can be daunting, time-consuming, and expensive
  • Shopify Plus partner Avalara, a cloud-based state sales tax compliance solution, makes it easy and affordable to automate this labor-intensive burden
  • “With many remote employees located in different states, we take our nexus very seriously. Avalara has significantly reduced the administrative complexity of a remote working company.” Lisa Bradley, co-founder & CMO of R. Riveter

There’s a common accounting mistake that many ecommerce businesses unknowingly make that can cost millions of dollars and even lead to bankruptcy.

If your ecommerce business sells to customers all over the United States and is in hyper-growth mode, you’re going to want to keep reading … or you might face an unexpected lawsuit.

On June 21 of this year, the U.S. Supreme Court ruled that states are within their constitutional rights to collect sales taxes on purchases made from out-of-state online retailers.

The South Dakota v. Wayfair decision overturned a 1992 ruling, known as Quill, that prohibited states from charging sales taxes to companies that don’t have a physical presence within the state.

Because of this new ruling, your business is now on the hook for tracking and paying sales tax in every state in which you meet the threshold for economic nexus. If that isn’t stressful enough, each state has its own set of rules for sales tax.

Worse: in some states, counties and cities also have this power — meaning that businesses will need to understand and continually stay up to date as laws change across over 12,000 jurisdictions in the U.S.

Keeping track of each individual state’s specific sales tax laws and economic nexus thresholds — and ensuring that your business doesn’t get sued — can be an expensive, ongoing challenge.

That’s why we’ve put together a comprehensive guide to help you …

  1. Understand Why States Want to Enforce New Tax Laws
  2. Know How South Dakota v. Wayfair Affects Economic Nexus
  3. Learn the State-by-State Economic Nexus Laws
  4. Ensure Your Ecommerce Business Is Nexus Compliant
  5. Automate State Sales Tax Bookkeeping and Payments

1. Understand Why States Want to Enforce New Tax Laws

Before ecommerce, remote sellers in the U.S. were mostly catalog retailers, accepting orders through the mail and via telephone. They only collected and paid sales tax on transactions with buyers in states where they had a physical location.

Then, North Dakota passed a law in the 1990s requiring sales tax collection from all retailers that advertised to customers in the state. Quill Corp. was a Delaware catalog retailer selling office supplies with locations in Illinois, California, and Georgia. The company sold office supplies to North Dakota customers by phone and mail order and shipped catalogs to residents.

Quill refused to pay the sales tax, and North Dakota sued. The result was a Supreme Court ruling: Quill didn’t have to collect sales tax from North Dakota customers — neither did any other company that didn’t have a substantial physical presence in the state.

Back in 1992, remote sales accounted for only a small fraction of total retail and few people even had an email address or shopped online. Even a decade after Quill, in 2002, ecommerce still only amounted to $42 billion in the U.S.

Today, that number sits at $504.6 billion … and rising:

Data via Statista

Amazon saw the Quill decision as an opportunity to grow without tax regulations that could hamper the growth of traditional retailers. As long as it didn’t maintain a physical presence in a state, Amazon didn’t have to charge and remit sales tax to the over 12,000 sales tax jurisdictions in the U.S.

Quill had another benefit for Amazon: consumers realized they could save a little money from websites that didn’t charge sales tax, bringing more shoppers online. As a result, a rumor quickly spread that ecommerce transactions from out-of-state businesses were tax-free.

In reality, consumers are supposed to pay use tax on these sales, but almost none did. Sales tax revenue losses amounted to billions.

Something had to give. Taxes would need to be increased significantly, critical state services would need to be cut, or somehow — in spite of Quill — ecommerce sales would have to be taxed.

2. Know How South Dakota v. Wayfair Affects Economic Nexus

Until now, every bill that has attempted to change sales tax collection to allow collection from remote retailers — most notably the Marketplace Fairness Act, proposed in 2011, 2013, and 2015 — has faced too much controversy to even reach the US president’s desk for a signature or veto.

The recent South Dakota v. Wayfair decision means that your online business could now be liable for paying sales tax on orders made in states and counties where you do not have a physical presence but do have an economic presence (or nexus).

South Dakota v. Wayfair Ecommerce Sales Tax Nexus

The “economic nexus criteria” used by states to determine whether a retailer is liable for sales tax varies by state, but all help to level the playing field between non-collecting out-of-state sellers and the brick-and-mortar retailers located within.

For example, a remote seller (online or offline) in South Dakota will trigger economic nexus when they generate $100,000 in taxable sales or 200 separate taxable sales transactions delivered into the state during the current or previous calendar year. Yet, Ohio’s economic nexus law only applies to merchants that sell over $500,000 of taxable receipts into the state.

You can also trigger nexus in some jurisdictions if you’re using affiliate linking to sell products. Drop shipping programs like Fulfillment By Amazon (FBA) can make you responsible for collecting and filing in states like Texas and Florida. In addition, nexus can be established by attending trade shows, or by having an employee in another state doing anything business-related (even checking email).

That’s why it’s important to monitor the new law’s individual requirements and your transactions in each state.

States with economic nexus can present a major risk for fast-growing companies. The media is likely to cover the success of your business … and auditors are going to read about it.

In states like New York, whistleblower lawsuits make it profitable for attorneys to sue the non-compliant. So, what can you do to avoid this situation?

3. Learn the State-by-State Economic Nexus Laws

Without a solid understanding of state-by-state sales tax laws, you leave your business vulnerable to audit, fines, and repayment. And lawsuits can strike when you least expect it.

That’s why you must learn the specific tax laws for each state in which you sell for your ecommerce business.

You can start by understanding “sourcing,” or the location where a sale is taxed.

According to Avalara, an automated tax compliance software solution:

“Origin-sourced sales are taxed where the seller is located, while destination-sourced sales are taxed at the location where the buyer takes possession of the item sold. As a seller, it is important to know whether you are located in an origin-sourced state or a destination-sourced state.”

Keep in mind, origin and destination sourcing rules work differently if you are a remote seller and have economic nexus. Those sales will most likely be destination-based. As a result, you’ll need to figure out the right sales tax rate for every location where your business has nexus.

And as your business grows, so too will your customer base, resulting in an increase in states where you have an obligation to collect sales tax.

Thankfully, if you sell to customers in a state where you don’t have nexus, you don’t have to collect sales taxes. Unfortunately, there are only a handful of states that have yet to enforce economic nexus law.

At the end of this guide, we’ve compiled a state-by-state breakdown of the current economic nexus laws.

4. Ensure Your Ecommerce Business Is Nexus Compliant

Many companies start by complying with sales tax laws manually, using Department of Revenue notices for one or two states where they know they are required to file.

Unfortunately, this method doesn’t scale. What took just a few hours a month with one state could take 20 hours or more once a business’s collection obligations expand due to trade show attendance, fulfillment by Amazon, drop shipping, or economic nexus.

Here’s the reality: growth happens — as can state sales tax complications and lawsuits — whether your business is ready or not.

To avoid the risk of an expensive, difficult audit, a different kind of solution is needed. You could hire someone full-time to manage this for you in-house, but not all businesses have the budget to do so.

There is another way …

5. Automate State Sales Tax Bookkeeping and Payments

Scalable, cloud-based solutions like Avalara offer up-to-the-minute calculation accuracy, geolocation to pinpoint districts and rates, and automated filing. Avalara works with Shopify Plus to get sales taxes right, whether you’re filing in one state or dozens — even from outside the U.S.

Avalara partner page economic nexus state sales tax automation

Avalara’s Shopify Plus Partner page

Automation saves time and lowers risk. That’s a great combination, since taking risks with sales tax can never legally result in higher profits.

Mabel Lee, Founder & CEO of Velour Lashes

“If we actually just had an individual person who was trying to figure out what taxes we needed to charge where, that would probably be a full-time job for someone,” says Lynn Wilsey, director of information technology, MusclePharm.

“I would say that the biggest benefit is that we save probably an entire employee. The entire time that somebody would have to spend doing this.”

Wilsey adds that Shopify’s Avalara functionality is built-in, so it makes it a lot easier for someone who's not a web developer to be able to go in and tweak things.

Instructions for setting up Avalara Sales Tax Calculation within Shopify Plus can be found here

That helped to cut MusclePharm’s operating costs substantially, and for Wilsey the appeal to migration grew. He says …

“When we found out there was a direct integration of Avalara with Shopify, it was just like the icing on the cake. It was just an added bonus for why we decided to migrate.”

When collection and filing are automated, your ecommerce business doesn’t have to avoid growth strategies that complicate your sales tax picture — you can expand where, when, and how you want, without the red tape and hassle.

Robin Hecht, Controller, Boll & Branch

“If you are a current Shopify Plus customer and you have not activated Avalara tax software, you don’t know what you’re missing. You will save time, you will save money, you will get extra sleep at night if you start to use that going forward. You will not regret it,” says Robin Hecht, controller, Boll & Branch.

“With our advisor’s help, as well as Avalara’s help, we have now figured out that we need to register in 20 more states since (the) Wayfair (ruling). I’m very confident the registrations and filing will go smoothly and it will be a quick check at the end of the month.”

To learn more about how automation can help to simplify sales taxes for your ecommerce business, visit Avalara’s website.


State-by-State Economic Nexus Laws

Alabama

Alabama is a destination state. Alabama considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business such as a retail store
  • A warehouse or inventory stored in the state
  • Regular presence of traveling salespeople or other agents
  • Remote entity nexus (e.g., selling into the state without a physical presence — a rule enforced before the Wayfair court case)

Simplified Sellers Use Tax: If a merchant does not have nexus in Alabama, but sells into Alabama, they can voluntarily collect use tax and remit it on behalf of Alabama customers.

Alabama generally does not charge taxes on shipping if a common carrier is used, and the shipping is broken out as a separate line item rather than incorporated into product prices.

Economic Nexus Threshold:

  • $250,000/year based on the previous calendar year’s sales
  • Effective: Jan 1, 2016

Alaska

Alaska has no state sales tax but is a home rule state. In other words, some local jurisdictions may charge a destination based rate if the merchant has nexus in the state.

Arizona

Arizona is an origin state for sellers with nexus, and if the order originates from within Arizona.

If a merchant is an out of state seller, then it has nexus when selling into Arizona. So, you must also register with the local jurisdictions you are selling into and charge destination taxes.

Transaction Privilege Tax (TPT) is a tax on the privilege of doing business in Arizona. Much like sales tax in the rest of the country, TPT is collected by merchants and remitted back to the state based on a percentage of a sale.

Simplified Sellers Use Tax is also a concept in Arizona for out of state sellers that have nexus in Arizona. If a seller does not have nexus, customers are still required to pay use tax for online purchases but must remit it themselves.

Economic Nexus Threshold applies if you have any of the following in Arizona:

  • An office or place of business
  • An employee present in the state for more than two days per year
  • Goods in a warehouse
  • Ownership of real or personal property
  • Delivery of merchandise in Arizona in vehicles owned by the taxpayer
  • Independent contractors or other representatives in Arizona for more than two days per year

Arizona does not tax shipping if the shipping price is broken out as a separate line item on the order.

Arkansas

Arkansas is a destination state, and considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business (owned or leased)
  • A warehouse or agency in Arkansas (owned or leased)
  • Real or personal property
  • Shipping is taxable in Arkansas

Economic Nexus Threshold: $100,000/year in gross revenue or 200 or more separate transactions during the previous calendar year.

California

California is a hybrid origin state. That means that any city, county, or state taxes will be based on the seller’s location, while any district taxes are applied based on the customer’s location. That said, it’s also acceptable to collect all destination taxes on an order — it is called “courtesy collection.” (Note: Shopify does not currently support this.)

Any retailer that has substantial nexus with this state for purposes of the commerce clause of the U.S. Constitution or any retailer upon whom federal law permits this state to impose a use tax collection duty.

Confusing, right? Substantial nexus is defined as being “engaged in business,” which includes but is not limited to:

  • A physical location (e.g., offices, warehouses, places of distribution, sales or samples somewhere, storage places, etc.)
  • A person working for you (e.g., reps, agents, salespeople, canvassers, contractors, solicitors operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property)
  • An affiliate (e.g., “click-through” nexus) which includes people who directly or indirectly refer potential purchasers of tangible personal property who are being paid a commission for these services
  • Affiliate Nexus Threshold: Nexus occurs when sales from affiliates exceed $10,000 in the preceding 12 months and total in-state sales exceed $1 million in the preceding 12 months
  • Presence at a trade show (e.g., making sales at a trade show may constitute nexus, but if the retailer had a physical presence at a convention or trade show for 15 or fewer days in any 12 month period and did not derive more than $100,000 of net income from these activities in the prior calendar year, nexus is not established)
  • Note: sellers are still required to collect use tax when at a trade show

Shipping is not taxable in California if you are passing on the cost of shipping, and charge it as a separate line.

Shipping is taxable in California if you use a combined line for shipping and handling

If you mark-up shipping in California, the mark-up is taxable.

Colorado

Colorado is a destination state for sellers with nexus. The state considers a seller to have sales tax nexus if you have any of the following:

  • An office, distributing house, sales room or house, warehouse, or other places of business
  • Independent contractors or other representatives in Colorado soliciting business
  • For sellers with locations, Colorado is broken down into districts. As a seller in Colorado, you must charge state tax and any district taxes relating to the location of your buyer.

For merchants selling into Colorado, without nexus and selling over $100,000 a year, you must do the following:

  • Along with every transaction to a Colorado buyer, provide a notice that use tax is due on the sale
  • Each year, provide customers who purchased more than $500 from you with an annual summary of their purchases to help them pay use tax due and provide this information to the Colorado Department of Revenue
  • Colorado taxes shipping if the charge is inseparable from the purchase. This means, if there's an option for pickup or alternative delivery, you don't have to charge taxes. This is not the case for most online sales, and as such shipping is generally taxable.

Economic Nexus Threshold: $100,000/year in gross revenue or 200 or more separate transactions on the previous or current calendar year’s sales.

Connecticut

Connecticut is a destination state but is simpler to navigate than other states as there are no local taxes — just the state rate.

Connecticut considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee present in the state for more than two days per year
  • Goods in a warehouse
  • Ownership of real or personal property
  • Delivery of merchandise in Connecticut in vehicles owned by the taxpayer
  • Independent contractors or other representatives in Connecticut for more than two days per year

Shipping is taxable if the product is also taxable.

Economic Nexus Threshold: $250,000/year in gross revenue and 200 or more separate transactions on the previous calendar year’s sales.

Delaware

No sales tax in Delaware. 👍

Florida

Florida is a destination state. Florida considers a seller to have sales tax nexus in the state if you have any of the following:

  • Ownership of property in the state
  • Sales of taxable items at retail
  • An employee present in the state
  • Repairs or alterations of tangible personal property
  • Rentals, leases, or licenses to use real property
  • Rentals of short-term living accommodations
  • Rental or lease of personal property
  • Manufacturing or producing goods for sale at retail
  • Importing goods from any state or foreign country, for sale at retail or for use in the business or for pleasure
  • Providing taxable services (for example, investigative and crime protection services, interior nonresidential cleaning services, and nonresidential pest control services)
  • Sellers with locations in state or nexus with no location have the same rules

Shipping is generally taxable in Florida — unless the seller provides an option for the buyer to pick up the item and the charge is stated separately.

Georgia

Georgia is a destination state. Georgia considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee present
  • Goods in a warehouse
  • Ownership of real or personal property
  • Delivery of merchandise in Georgia (specifically in the seller’s vehicle/fleet, etc.)
  • Independent contractors or other representatives in Georgia

Shipping is taxable.

Economic Nexus Threshold (Beginning Jan. 1, 2019): $250,000/year in gross revenue, or makes sales into Georgia in more than 200 separate transactions in the previous or current calendar year.

Hawaii

Hawaii doesn’t have sales tax. Instead, sellers must pay a general excise tax (GET).

This 4% tax is applied to a seller’s total receipts. It is often passed on to the buyer, like a sales tax would be. However, merchants are allowed to charge 4.167%, (or 4.712% on Oahu) to buyers to cover the amount the government would take, since this tax applies to total receipts, including the tax collected.

This also means shipping is taxable in Hawaii.

Economic Nexus Threshold: $100,000/year in gross revenue, or makes sales into Hawaii in more than 200 separate transactions in the previous or current calendar year.

Illinois

Illinois is an origin state if you are an in-state seller. It is a destination state if you have nexus, but no Illinois location to sell from. This is a use tax, and only the state rate is applicable.

Shipping is generally taxable in Illinois unless the following conditions are met:

  • You provide an option for pick-up
  • The charge is stated separately

Economic Nexus Threshold: $100,000/year in gross revenue, or makes sales into Illinois in more than 200 separate transactions in the previous 12 months.

Idaho

Idaho is a destination state. Idaho considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office, warehouse, sales or sample room, or storage place
  • A stock of goods
  • Renting or leasing property (other than real property) to a customer who uses the property in Idaho
  • Business servicing tangible personal property in Idaho
  • A salesman, agent, or representative who comes to Idaho to sell, deliver, install, or take orders (it doesn’t matter whether the salesman, agent, or representative is your employee, or whether they live in Idaho or another state)
  • Shipping is not taxable in Idaho if it's stated separately on the bill

If you don't have a location in Idaho, but have nexus, you only charge the 6% state tax at the destination.

Indiana

Indiana is a destination state, but the tax rate is pegged at 7% and there are no local taxes.

Indiana considers a seller to have sales tax nexus in the state if you have any of the following in the state:

  • Owned or leased tangible property
  • An employee or independent sales representative in the state
  • Indiana inventories
  • Third parties that install, repair, or service property that is sold to Indiana customers

Shipping is taxable in Indiana.

Economic Nexus Threshold: $100,000 in gross revenue in the previous calendar year, or makes sales into Indiana in more than 200 separate transactions in the current or previous calendar year.

Iowa

Iowa is a destination state. Merchants with nexus and a location in state should charge taxes based on the destination of the buyer. For out of state sellers with nexus, only the state rate of 6% applies.

Iowa considers a seller to have nexus if you have any of the following in the state:

  • An office, warehouse, distribution house or place of business
  • An employee, contractor or another representative in Iowa, either temporarily or permanently
  • Installs property it sold in Iowa
  • A construction contractor performs a job in Iowa
  • Regularly engages in the delivery of products to Iowa

Shipping is generally not taxable in Iowa unless you roll the shipping into the product price.

Economic Nexus Threshold (Starting Jan. 1, 2019): $100,000/year in gross revenue, or makes sales into Iowa in more than 200 separate transactions in the previous or current calendar year.

Kansas

Kansas is a destination state, so taxes are applied at the buyer’s location.

Kansas considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee present in the state
  • Goods in a warehouse
  • Retailers selling goods at trade or craft shows and festivals
  • Non-resident contractors performing labor services in the state

Shipping is always taxable.

Kentucky

Kentucky does not have local rates, so the state tax applies across the board. For all intents and purposes, this means Kentucky is a destination state, albeit one without local rates to apply.

Kentucky considers a seller to have sales tax nexus if you have any of the following in the state:

  • Owned or leased property that is utilized or located in the state
  • An employee or independent contractor present in the state
  • Goods in a warehouse
  • Services completed in the state
  • Computer software used by a third party in the state
  • Participating in trade or craft shows and festivals in the state for 15 days or more per year

Tax is charged on shipping in Kentucky.

Economic Nexus Threshold: $100,000/year in gross revenue, or makes sales into Kentucky in more than 200 separate transactions in the previous or current calendar year.

Louisiana

Louisiana for all intents and purposes is a destination state. The problem is that sellers must register with each jurisdiction if they have to charge tax there, and these jurisdictions may have different rules on who has nexus, and when, based on physical location or ecomonic nexus. This means it's hard to determine automatic rules, even based on nexus.

Louisiana is also a notice and report state, which means that out of state merchants must place a notification at checkout that the customer may need to report their purchase and file for use tax.

Shipping taxes are not taxable if the following conditions are met:

  • List the shipping and handling charges separately from the charges for goods on the invoice
  • Allow the buyer, if they so choose, to pick up their item from the seller
  • When ordering a product for a buyer from another seller, have that seller ship directly to the customer — so the buyer won’t have to pay you the sales tax on shipping and handling

Economic Nexus Threshold: $100,000/year in gross revenue, or makes sales into Louisiana in more than 200 separate transactions in the previous or current calendar year.

Maine

Maine enforces a single tax rate across the state and not local jurisdictions. So, for all intents and purposes, it can be considered a destination state.

Maine considers a seller to have sales tax nexus if you have any of the following in the state:

  • Allow the buyer, if they so choose, to pick up an item from the seller
  • A store, office, warehouse, repair facility or other places of business
  • An employee, salesperson, contractor or another representative

If stated separately, shipping is not taxable.

Economic Nexus Threshold: $100,000 in gross revenue in the previous or current calendar year. Or, if the business generates more than 200 separate sales transactions in the state of Maine during the previous or current calendar year.

Maryland

Maryland is a destination state with no local tax rates.

Maryland considers a seller to have sales tax nexus in the state if you have any of the following in the state:

  • An office or place of business
  • An employee present in the state
  • Goods in a warehouse
  • Ownership of real or personal property
  • Making repeat entries to the state for service or repair to tangible personal property

Shipping is not taxable if stated separately. If you combine shipping and handling, the entire amount is taxable.

Economic Nexus Threshold: $100,000/year in gross revenue, or makes more than 200 separate sales transactions in the state of Maryland during the previous or current calendar year.

Massachusetts

Massachusetts is a destination state, so they charge taxes based on where the buyer is located. That being said, Massachusetts doesn't have any local rates, so everyone is charged the same.

Massachusetts considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office, place of business, or any owned property
  • An employee present in the commonwealth for more than two days per year
  • Goods in a warehouse
  • Ownership of real or personal property
  • A sample or display area, such as a trade show exhibit
  • Delivery of property or performance of service in Massachusetts

Shipping is taxable.

Economic Nexus Threshold: $500,000 in sales over the preceding calendar year and 100 or more transactions resulting in delivery into Massachusetts in the preceding calendar year.

Michigan

Michigan is a destination state with no local tax rates. Michigan considers a seller to have sales tax nexus in the state if you “sell tangible personal property to a consumer.” This means whether you are in the state, or out of state, you're supposed to collect tax if selling into Michigan.

Shipping is taxable.

Economic Nexus Threshold: $100,000 in gross revenue in the last calendar year or makes sales into Michigan in more than 200 separate transactions in the previous calendar year.

Minnesota

Minnesota is a destination state. Minnesota considers a seller to have sales tax nexus if you have any of the following in the state:

  • Have an office; distribution, sales, or sample room location; warehouse or other places of business in Minnesota, either directly or by a subsidiary
  • Have a representative, agent, salesperson, canvasser, or solicitor in Minnesota, on either a permanent or temporary basis, who operates under the authority of the retailer or its subsidiary for any purpose, such as: repairing, selling, delivering, installing, soliciting orders for the retailer’s goods or services, or leasing tangible items in Minnesota
  • Deliver items into Minnesota in their own vehicles
  • Provide taxable services in Minnesota
  • Have entered into an agreement with a solicitor for the referral of Minnesota customers for a commission and your gross receipts over 12 months is at least $10,000

Shipping is taxable if items are taxable.

Economic Nexus Threshold: $100,000 in gross revenue or makes more than 100 separate sales transactions in the state of Minnesota over the previous 12 months.

Mississippi

Mississippi is an origin state. Mississippi considers a seller to have sales tax nexus if you have any of the following in the state:

  • Owns an office or place of business
  • Has employees or agents of the business who service customers in Mississippi or solicit or accept orders for merchandise

Sellers with nexus in Mississippi but with no physical location are required to collect a flat use tax.

Shipping is taxable.

Economic Nexus Threshold: Sales into Mississippi that exceeded $250,000 in the previous 12 months.

Missouri

Missouri is an origin state for sellers with nexus and a location in state.

For remote sellers, merchants that have nexus but don't have a location are required to charge use tax.

Shipping is not generally taxable.

Montana

No sales tax in Montana. 👍

Nebraska

Nebraska is a destination state. Nebraska considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • Employees, agents, salespeople, contractors, etc. present in the state
  • Ownership of or goods in a warehouse, storage facility, etc.
  • Deriving receipts from rental or lease of property

Shipping is taxable.

Economic Nexus Threshold: Sales into Nebraska exceeding $100,000 or sales were made in 200 or more separate transactions in the current or last calendar year.

Nevada

Nevada is a destination state. Nevada considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee present in the state
  • Goods in a warehouse
  • Ownership of real or personal property
  • Delivery of merchandise in Nevada in vehicles
  • Independent contractors or other representatives in Nevada

Shipping is taxable.

Economic Nexus Threshold: $100,000/year in gross revenue the previous calendar year or 200 or more separate transactions in the previous or current calendar year.

New Hampshire

No sales tax in New Hampshire. 👍

New Jersey

New Jersey is a destination state. New Jersey considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee present in the state
  • Goods in a warehouse
  • Ownership of real or personal property
  • Delivery of merchandise in New Jersey
  • Independent contractors or other representatives in New Jersey
  • Provide any maintenance program in New Jersey

New Jersey considers shipping taxable on taxable items. It's also non-taxable on non-taxable items, but you have to break these out separately into two lines. If you only have one line for both types of products, it becomes taxable.

Economic Nexus Threshold: Sales of $100,000 in New Jersey, or more than 200 transactions in the state in the current or last calendar year.

New Mexico

New Mexico is an origin state. New Mexico doesn't actually have a sales tax, it has a gross receipts tax that is often passed on by merchants.

Gross receipts tax nexus in New Mexico can be triggered by a number of factors. The most common include having a physical location (office, warehouse, plant, etc.) within the state, having employees within the state, or conducting marketing activities within the state.

New Mexico is attempting to pass legislation that would compel merchants located outside of New Mexico, who are selling into New Mexico, to pay gross receipts tax on their New Mexico sales.

Shipping is taxable.

New York

New York is a destination state. Merchants must apply tax based on where the buyer is located if they have nexus in New York. This is defined as:

  • An office or place of business
  • Employees in state
  • Goods in a warehouse
  • Ownership of real estate or personal property
  • Delivery of merchandise in New York in vehicles owned by the taxpayer
  • Independent contractors or other representatives in New York

New York currently has no economic nexus laws.

Shipping is taxable in New York if the products sold are taxable.

North Carolina

North Carolina is a destination state. North Carolina considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • Employees, independent contractors, agents, or other representatives
  • Any place of distribution, sales or sample room, warehouse or storage place, or other places of business that you maintain, use or occupy either directly or indirectly, temporarily or permanently

Shipping is taxable.

Economic Nexus Threshold: $100,000/year in gross revenue, or makes sales into North Carolina in more than 200 separate transactions in the current or last calendar year.

North Dakota

North Dakota is a destination state. North Dakota considers a seller to have sales tax nexus if you have any of the following in the state:

  • A temporary or permanent office or place of business
  • An employee or agent
  • Leasing or renting tangible personal property

Shipping is taxable.

Economic Nexus Threshold: Sales into North Dakota exceeding $100,000 or sales were made in 200 or more separate transactions in the current or last calendar year.

Ohio

Ohio is an origin state. Ohio considers a seller to have sales tax nexus if you have any of the following in the state:

  • A place of business within this state, whether operated by employees or agents of the seller, by a member of an affiliated group of which the seller is a member, or by a franchisee using a trade name of the seller
  • Employees, agents, representatives, solicitors, installers, repair people, salespeople, or other individuals in Ohio for the purpose of conducting its business
  • A person in the state for the purpose of receiving or processing orders of its goods or services
  • Makes regular deliveries of tangible personal property into this state by means other than common carrier (e.g., the out of state seller has goods delivered to this state in vehicles which the out of state seller owns, rents, leases, uses, or maintains or has goods delivered by another member of an affiliated group, of which the out of state seller is a part, acting as a representative of the out of state seller)
  • Owns tangible personal property that is rented or leased to a consumer in this state, or offers tangible personal property, on approval, to consumers in this state
  • Owns, rents, leases, maintains, or has the right to use and uses tangible personal or real property that is physically located in this state
  • Is registered with the secretary of state to do business in this state or is registered or licensed by any state agency, board, or commission to transact business in this state or to make sales to persons in this state

Ohio wants sellers that have nexus in Ohio and who made a sale from outside the state to charge sales tax based on the destination of the buyer.

Shipping is taxable.

Oklahoma

Oklahoma is a destination state. Oklahoma considers a seller to have sales tax nexus if you have any of the following in the state:

  • Owns tangible personal property that is rented or leased to a consumer in this state, or offers tangible personal property, on approval, to consumers in this state
  • An office or place of business
  • A salesperson, contractor, installer or another representative of the business doing business in the state
  • Goods in a warehouse, distribution center or other places of business
  • Delivery of merchandise in Oklahoma in vehicles owned by the taxpayer

If a merchant is not based in Oklahoma, but has sales tax nexus in Oklahoma, they are considered an Oklahoma “remote seller.” This is where things get trickier, since remote sellers are required to collect use tax, which is similar to sales tax, but can vary slightly from Oklahoma sales tax rates.

Shipping is not taxable if stated separately.

Notice and Report Threshold: Sales in Oklahoma of at least $10,000 in the previous 12 months. Sellers who meet the threshold are required to elect to do one of the following on or before June 1st of each calendar year:

  • Register for an Oklahoma sales tax permit and collect sales tax on Oklahoma sales
  • Comply with Oklahoma’s notice and reporting requirements

Oregon

No sales tax in Oregon. 👍

Pennsylvania

Pennsylvania is an origin state. Pennsylvania considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee present in the state
  • Goods in a warehouse
  • Ownership of real or personal property
  • Delivery of merchandise in Pennsylvania
  • Independent contractors or other representatives in Pennsylvania
  • Leasing property in the state

Philadelphia and Allegheny County are the only jurisdictions with a local tax in Pennsylvania. Merchants that have nexus in Pennsylvania, but are located out of state, are only responsible for the state tax.

If the items for sale are taxable, then so is the shipping.

Notice and Report Threshold: Sales into Pennsylvania that exceeded $10,000 in the previous 12 month period. Sellers who meet the threshold are required to make an election by Mar. 1 of every year and do one of two things:

Option 1: Register for a Pennsylvania sales tax permit, collect sales tax on sales that ship into Pennsylvania, and remit sales tax to the state.

Option 2: Comply with the state’s notice and reporting requirements.

Rhode Island

Rhode Island is a destination state but has no local taxes. Rhode Island considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee, representative, contractor, agent, or salesperson present in the state
  • Goods in a warehouse, sample room, or storage room present in the state
  • Delivery of merchandise to customers in the state in the merchant’s own vehicle(s)
  • Attendance at a trade show or craft show
  • Advertising
  • A third-party affiliate in the state (due to “click-through nexus”)

Shipping is taxable.

Economic Nexus Threshold: Sales in Rhode Island were of $100,000 or more or exceeded 200 separate transactions in the state in a calendar year.

South Carolina

South Carolina is a destination state. South Carolina considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee present
  • Goods in a warehouse
  • Ownership of real or personal property
  • Delivery of merchandise in vehicles owned by the taxpayer
  • Independent contractors or other representatives

Shipping is taxable.

Economic Nexus Threshold: Sales of $100,000 in South Carolina in the previous or current calendar year.

South Dakota

South Dakota is a destination state. South Dakota considers a seller to have sales tax nexus if you have any of the following in the state:

  • A physical location (office, warehouse, plant, etc.) 
  • Employees
  • Marketing activities

Shipping is taxable in South Dakota if the products are taxable. 

Economic Nexus ThresholdSales of $100,000 in South Dakota or more than 200 transactions in the state in the current or last calendar year.

Tennessee

Tennessee is an origin state. Tennessee considers a seller to have sales tax nexus if you have any of the following in the state:

  • A corporate presence
  • An employee present
  • A lease or rental of tangible personal property
  • Ownership of real or personal property
  • Independent contractors or other representatives

Tennessee allows out of state sellers with nexus to do one of two things:

Option 1: You can either collect the sales tax rate at the buyer’s ship-to address for all orders shipped to Tennessee (i.e., destination-based sourcing). 

Option 2: You can collect the 7% state rate and add 2.25% to all purchases, meaning you would charge a flat 9.25% rate to all Tennessee buyers.

Shipping is taxable if items are taxable.

Economic Nexus Threshold: Sales exceeding $500,000 in the state in the previous 12 months.

Texas

Texas is an origin state for sellers with nexus in state, and a destination state for those with nexus but no location.

Texas considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee present 
  • A place of distribution
  • A warehouse or storage space
  • A sales or sample room
  • Or another place where business is conducted

Texas has local and special tax jurisdictions over and above the state, county, and city taxes.

Shipping is taxable.

Utah

Utah is an origin state, and local taxes may apply. If purchasing from a merchant that does not have nexus in Utah, customers in the state are responsible for filing their purchases as use tax on their income tax.

Sellers can also voluntarily register and collect if they do not have nexus in Utah.

If you separately state the charge for shipping then it is not taxable.

Economic Nexus Threshold (Beginning Jan. 1, 2019): Sales of $100,000 or more in the state or at least 200 individual sales transactions into the state in the current or last calendar year.

Vermont

Vermont is a destination state.

Sales tax nexus in Vermont can be triggered by a number of factors. The most common include: having a physical location (office, warehouse, plant, etc.) within the state, having employees within the state, or conducting marketing activities within the state.

More recently, internet commerce has sparked debate over what activities can trigger nexus and where sales tax should be collected.

For example, Fulfillment by Amazon merchants may find their products stored in Amazon warehouses across the country. This presence of physical goods in a state may trigger nexus and expands the complexity of managing sales tax compliance.

Shipping is taxable in Vermont.

Vermont is a notice and report state for merchants located outside of Vermont selling under $100,000 a year. Sellers that generate over $100,000 a year are required to register with the state of Vermont and collect use tax.

Economic Nexus Threshold: Sales of $100,000 or more in the state or at least 200 individual sales transactions into the state.

Virginia

Virginia is an origin state for sellers in state, but remote sellers must apply destination taxes.

Virginia considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee or independent contractor present in the state
  • Goods in a warehouse
  • Ownership of real or personal property
  • Leased Property
  • More than 12 deliveries of merchandise in a year in Virginia not by common carrier (FedEx/USPS/UPS/DHL/etc.)
  • Advertisements in newspapers, periodicals, on billboards or posters, or by any other means not delivered by U.S. mail

Shipping is not taxable if it is broken out separately.

Washington

Washington is a destination state. Sellers that do not have nexus but sell into Washington do have some liability to notice and report, similar to Colorado.

Economic Nexus Threshold: Sales of $100,000 or more into the state or 200 separate transactions into Washington in the current or last calendar year.

According to the state, sellers with sales equal to or exceeding the sales or transaction number thresholds are required to register for a Washington sales tax permit, collect sales tax on sales that ship into Washington, and remit sales tax to the state.

Notice & Report Threshold: Sales of $10,000 or more into the state. According to Washington Notice & Report, sellers who make $10,000 or more in sales to buyers in the state are required to do one of two things:

Option 1: Register for a Washington sales tax permit, collect sales tax on sales that ship into Washington, and remit sales tax to the state.

Option 2: Comply with Washington’s rigorous notice and reporting requirements.

Washington, D.C.

Washington, D.C., is a destination state, but there are no local taxes to apply — only the state rate.

Washington, D.C., considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office, place of distribution, sales or sample room or place, warehouse or storage place, or other places of business
  • A representative, agent, salesperson, canvasser, or solicitor for the purpose of making sales at retail, or the taking of orders for such sales

Shipping is taxable in the state.

West Virginia

West Virginia is a destination state. The state uses nine-digit zip codes to delineate different taxation areas.

Sellers from out of state, selling into West Virginia with nexus must apply the appropriate state and local taxes. Sellers selling into West Virginia without nexus are not responsible for collecting tax, but the customer is responsible for remitting use tax on these purchases.

Shipping is always taxable, regardless of product taxability.

Wisconsin

Wisconsin is a destination state. Wisconsin considers a seller to have sales tax nexus if you have any of the following in the state:

  • An office or place of business
  • An employee present in the state
  • Goods in a warehouse
  • Ownership of real or personal property

Shipping is taxable if the product is taxable. If the products are a mix of taxable and not taxable, then the portion of the shipping that applies to taxable products is taxable.

Economic Nexus Threshold: Sales of $100,000 or more annually or 200 or more separate transactions into the state in the current or last calendar year.

Wyoming

Wyoming is a destination state but doesn't have local taxes, so everyone pays the same.

Shipping is taxable.

Economic Nexus Threshold: Sales of $100,000 or more into the state or 200 or more separate transactions into the state.

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About the Author

Andrea Wahbe is a freelance B2B marketing strategist and corporate storyteller who writes about Canadian SMEs, marketing, and digital media trends. Follow her on Twitter.

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