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With the rise of e-commerce and remote sales, companies often find themselves liable for collecting and remitting sales tax in multiple states. However, understanding where and when to collect sales tax can be challenging, especially with varying state laws and evolving regulations.
Each state has rules governing when and how businesses must collect and remit sales tax, often based on a concept called economic nexus. This guide will explain economic nexus, how it is established, and outline each state’s sales tax nexus rules.
What Is an Economic Nexus?
An economic nexus refers to a business’s obligation to collect and remit sales tax in a state, even if the business has no physical presence there. Traditionally, sales tax was only required if the business had a physical location, employees, or inventory in a state. However, after the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., states can now impose sales tax collection responsibilities on out-of-state sellers based on their economic activity.
Economic nexus laws vary by state but usually involve:
- Sales Thresholds – A minimum sales revenue generated in the state.
- Transaction Thresholds – A minimum number of transactions with customers in the state.
If a business exceeds either threshold, it must register for a sales tax permit and start collecting sales tax from customers in that state.
How Is an Economic Nexus Established?
Businesses establish economic nexus in a state when their sales exceed the state’s economic threshold. The most common criteria include:
- Revenue-Based Nexus – Businesses must collect sales tax if their total sales revenue in the state exceeds a specific amount, such as $100,000.
- Transaction-Based Nexus – A business that completes a certain number of sales (often 200 or more) in a state must collect and remit sales tax, even if the total revenue is below the dollar threshold.
- Hybrid Models – Some states use a combination of revenue and transaction thresholds, requiring businesses to meet only one of the criteria to establish a nexus.
To determine if they have an economic nexus, businesses should:
- Regularly review sales data by state.
- Keep track of total revenue and transaction counts.
- Monitor changes in state sales tax laws.
State-By-State Sales Tax Nexus Thresholds
State | Sales Threshold | Transaction Threshold |
Alabama | $250,000 | None |
Alaska* | Varies by jurisdiction | Varies by jurisdiction |
Arizona | $100,000 | None |
Arkansas | $100,000 | 200 transactions |
California | $500,000 | None |
Colorado | $100,000 | None |
Connecticut | $100,000 | 200 transactions |
Delaware** | No nexus laws | No nexus laws |
Florida | $100,000 | None |
Georgia | $100,000 | 200 transactions |
Hawaii | $100,000 | 200 transactions |
Idaho | $100,000 | None |
Illinois | $100,000 | 200 transactions |
Indiana | $100,000 | 200 transactions |
Iowa | $100,000 | None |
Kansas | $100,000 | None |
Kentucky | $100,000 | 200 transactions |
Louisiana | $100,000 | 200 transactions |
Maine | $100,000 | 200 transactions |
Maryland | $100,000 | 200 transactions |
Massachusetts | $100,000 | None |
Michigan | $100,000 | 200 transactions |
Minnesota | $100,000 | 200 transactions |
Mississippi | $250,000 | None |
Missouri | $100,000 Start your Nevada LLC in You don’t need to live in Nevada to enjoy the best asset protection | None |
Montana** | No nexus laws | No nexus laws |
Nebraska | $100,000 | 200 transactions |
Nevada | $100,000 | 200 transactions |
New Hampshire** | No nexus laws | No nexus laws |
New Jersey | $100,000 | 200 transactions |
New Mexico | $100,000 | None |
New York | $500,000 | 100 transactions |
North Carolina | $100,000 | 200 transactions |
North Dakota | $100,000 | None |
Ohio | $100,000 | 200 transactions |
Oklahoma | $100,000 | None |
Oregon** | No nexus laws | No nexus laws |
Pennsylvania | $100,000 | None |
Rhode Island | $100,000 | 200 transactions |
South Carolina | $100,000 | None |
South Dakota | $100,000 | 200 transactions |
Tennessee | $100,000 | None |
Texas | $500,000 | None |
Utah | $100,000 | 200 transactions |
Vermont | $100,000 | 200 transactions |
Virginia | $100,000 | 200 transactions |
Washington | $100,000 | None |
West Virginia | $100,000 | 200 transactions |
Wisconsin | $100,000 | 200 transactions |
Wyoming | $100,000 | 200 transactions |
*No sales tax.
**Local sales tax applies.
How to Stay Compliant With Sales Tax Laws
To ensure compliance with sales tax laws across state lines, businesses should:
- Track Sales Regularly – Monitor sales and transactions in each state to determine if thresholds are met.
- Register for a Sales Tax Permit – Register with the state’s tax authority once an economic nexus is established.
- Collect the Correct Sales Tax Rate – Tax rates vary by state and locality, so businesses should use automated tools or software to collect them.
- File and Remit Sales Tax on Time – States have different filing deadlines, so businesses must stay organized to avoid penalties.
- Use Tax Compliance Software – Tools like Avalara, TaxJar, and Vertex help automate sales tax collection and reporting.
The Bottom Line
Managing sales tax across state lines requires careful planning and compliance with state-specific nexus laws. By staying informed and using automation tools, businesses can remain compliant and avoid costly penalties. Regularly reviewing sales data and state tax requirements will ensure smooth operations in multiple jurisdictions.
Stay Compliant with NCH
If you are looking for expert guidance on business compliance, tax strategies, and entity formation, NCH can help. Our team specializes in navigating complex tax laws, ensuring your business remains compliant across multiple states. With decades of experience assisting businesses across industries, we’ll ensure you stay compliant while focusing on growth.
Call 1-800-508-1729 to protect your business from unnecessary risks!
DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.