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Understanding economic nexus and its impact on your business

This article applies to:AvaTax

Economic nexus is a tax collection obligation imposed on companies that have a certain level of economic activity within a state. Unlike nexus that’s based on physical presence, economic nexus is based entirely on sales revenue, transaction volume, or a combination of both. Like many sales tax laws, economic nexus criteria vary by state, but all aim to level the playing field between non-collecting out-of-state sellers and brick-and-mortar businesses. 

On June 21, 2018, the Supreme Court of the United States ruled in favor of the state in South Dakota v. Wayfair, Inc. This ruling allows the state to begin taxing remote sales via their economic nexus laws. Since the ruling, more than 40 states enacted economic nexus laws of their own.

Prior to this ruling, states could only enforce a tax collection obligation on businesses that had a physical presence in the state, such as a brick-and-mortar location or remote employees. While the physical presence standard still exists, nexus laws were expanded to include a sales tax obligation based on a certain level of economic activity within the state, including sales revenue, transaction volume, or a combination of both. Like many sales tax laws, economic nexus criteria vary by state and by the type of tax.

States with economic nexus

As the economic nexus laws can vary quite a bit from state to state, so it’s important for businesses to understand the laws in full and review sales activity frequently to determine when and where they have a new obligation. Economic nexus is one of the many ways your business can establish nexus: an obligation to register, collect, and remit sales tax in a jurisdiction. 

  1. Alabama
  2. Alaska
  3. Arizona
  4. Arkansas
  5. California
  6. Colorado
  7. Connecticut
  8. Florida
  9. Georgia
  10. Hawaii
  11. Idaho
  12. Illinois
  13. Indiana
  14. Iowa
  15. Kansas
  16. Kentucky
  17. Louisiana
  18. Maine
  19. Maryland
  20. Massachusetts
  21. Michigan
  22. Minnesota
  23. Mississippi
  24. Missouri
  25. Nebraska
  26. Nevada
  27. New Jersey
  28. New Mexico
  29. New York
  30. North Carolina
  31. North Dakota
  32. Ohio
  33. Oklahoma
  34. Pennsylvania
  35. Rhode Island
  36. Puerto Rico
  37. South Carolina
  38. South Dakota
  39. Tennessee
  40. Texas
  41. Utah
  42. Vermont
  43. Virginia
  44. Washington
  45. Washington, D.C.
  46. West Virginia
  47. Wisconsin
  48. Wyoming

 

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