Modern Economic Nexus for Online Stores: The Basics

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For many years, online sellers generally only had to collect sales tax in states where they had a physical presence, such as an office, warehouse, or employees. That changed significantly in 2018 when the U.S. Supreme Court’s decision in South Dakota v. Wayfair allowed states to require out-of-state businesses to collect sales tax based on their economic activity within the state.

This concept is known as economic nexus. Instead of focusing on physical presence, states now look at factors such as sales revenue or transaction volume. Many states use thresholds based on revenue, transaction volume, or both. Each state sets its own rules, and the thresholds can vary considerably.

For online merchants selling nationwide, this creates a new compliance challenge. A business may trigger tax collection obligations in multiple states without ever setting foot there. As sales grow, keeping track of where nexus exists, registering in the appropriate states, calculating the correct tax rates, filing returns, and remitting payments can quickly become overwhelming.

Fortunately, several practical options can simplify the process

• Monitor nexus thresholds regularly. Most eCommerce platforms and reporting tools can help sellers track sales by state and identify when thresholds are approaching.
• Use automated sales-tax software. Solutions such as tax automation platforms can monitor nexus, calculate tax rates, prepare filings, and reduce manual work.
• Leverage marketplace facilitator laws. Many states require large marketplaces to collect and remit sales tax on behalf of third-party sellers, reducing compliance responsibilities for sellers using those platforms.
• Work with a tax professional. Businesses with significant multistate sales may benefit from expert guidance to ensure registrations, filings, and exemptions are handled correctly.
• Create a compliance roadmap. Rather than reacting after crossing thresholds, businesses can establish procedures for monitoring nexus and responding as new obligations arise.

While economic nexus has made sales-tax compliance more complex, modern software tools and professional services have made it far more manageable than it was just a few years ago. With proper monitoring and automation, most online sellers can stay compliant allowing merchants to spend more time growing their businesses and less time wrestling with compliance.
—BiBiBi ;B

Continued reading:
Part 2: Nexus and Online Sales: A Note for New Online Sellers and Creative Entrepreneurs

Part 3: Nexus Made Simple: The Hands-Off Guide to E-Commerce Compliance