How Nexus Sales Tax Applies for Ecommerce Businesses?

Nexus sales tax is the sales tax rules interstate sellers need to follow when they are operating any type of business in the state’s local jurisdictions. In the past, the United States government would not require out-state-sellers to collect sales tax for the products they sell in other states, unless they have a physical business presence or representative in that state. However, following the supreme court decision regarding the Wayfair vs. South Dakota case in 2018, the government now requires all businesses to follow the nexus sales tax rules in all states.

The rules also apply to e-commerce businesses who are running their business interstates through online e-commerce platforms. Here’s how nexus sales tax applies for e-commerce businesses in the United States.

1. Ecommerce Businesses Need to Reach Sales Threshold in Each State

Each state in the United States now has their own sales threshold that interstate sellers need to meet before they can collect sales tax for the products and services sold in their state. So, all out-of-state sellers might do business as usual in the state, and they might not need to collect any sales tax, if they don’t reach the sales threshold for that state.
The sales threshold varies from state to state. The state can apply a sales threshold such as $100,000 in sales or 200 transactions. There are also some states that don’t apply any sales tax threshold for out-of-state sellers.

2. Economic Nexus Applies for All Out-of-State Ecommerce Businesses

The economic nexus tax works for all out-of-state e-commerce businesses in the United States. It means these e-commerce businesses don’t need to have any business presence in other states to collect sales tax for their products sold in other states. So, even if you are running your business 100% online, or even if you might dropship your products, you still need to collect the economic nexus sales tax if you reach a certain sales threshold.

The new economic nexus rules took effect in 2018 after the case between Wayfair and South Dakota state. In the following years, the rules applied to most states in the United States.

3. The Sales Threshold Applies for a Full Year

The sales threshold mentioned for each state is the threshold calculated for a full year of doing business in the state. For instance, if you are selling 250 items per year in another state, while the state’s sales threshold is 200 transactions, it means that you will need to pay sales tax to the state where your business is operating. However, you don’t need to pay any sales tax for the state if you are only selling 199 items per year in that state.
It’s the same with the threshold based on the value of transactions. Some states will apply a low sales threshold or no threshold at all, while other states will apply a high sales threshold, which can only affect big businesses from other states.

Conclusion

You’ve learned how nexus sales tax applies for ecommerce businesses. Running a business in the United States, even though it’s just an online self-managed business, requires you to pay the nexus sales tax if you are serving customers from other states.

Check the requirements for each state and be sure that you comply with the nexus sales tax rules of the state where you have ongoing business transactions there. You can use a tax management software to make things easier for you to manage and calculate all your business taxes.