Sales Taxes: States with South Dakota–Style Economic Nexus Laws

This expansion of state taxing authority could have far-reaching consequences. More than a dozen states had already adopted economic nexus provisions prior to the June 21 ruling, though most didn’t actively enforce them due to the physical presence rule. Many states linked the effective date of their policies to the South Dakota v. Wayfair ruling, or to possible future action by Congress.

Each of the following states is or soon will enforce its economic nexus laws, as shown in the chart below.

States with South Dakota-style economic nexus 

States with economic nexus	Effective date	Thresholds triggering a collection obligation ($ and/or transaction volume)
Alabama	Will be applied proactively for sales made on or after 10.1.2018; statutory start date was 1.1.2016	More than $250,000 and additional activities
Connecticut	12.1.2018	At least $250,000 and 200 or more retail sales and systematic solicitation of sales in the state via the internet or other means
Georgia	1.1.2019	More than $250,000                                    or                                                                   200 or more retail sales
Hawaii	7.1.2018	At least $100,000                                          or                                                                   200 or more separate transactions
Illinois	10.1.2018	At least $100,000 or 200 or more separate sales
Indiana	7.1.2017 Under an injunction	More than $100,000 or 200 or more separate transactions
Iowa	1.1.2019	At least $100,000 or 200 or more separate transactions
Kentucky	7.1.2018	More than $100,000 or 200 or more separate transactions
Louisiana	Start date to be determined	More than $100,000 or 200 or more separate transactions
Maine	10.1.2017	More than $100,000 or 200 or more separate transactions
Minnesota	Start date to be determined	Makes 10 or more retail sales totaling more than $100,000 or 100 or more retail sales and systematic solicitation of sales in the state
Mississippi	12.1.2017	More than $250,000 and systematic exploitation of the market in the state
North Dakota	10.1.2018	More than $100,000 or 200 or more separate transactions
South Dakota	5.1.2016 (under an injunction until further notice)	More than $100,000 or 200 or more separate transactions
Tennessee	7.1.2017 (under an injunction until further notice)	More than $500,000 and systematic solicitation of sales in the state
Vermont	7.1.2018	At least $100,000   or 200 or more individual sales transactions and systematic solicitation of sales from in-state customers
Washington	7.1.2017 (for B&O tax only)	More than $267,000 of yearly gross receipts sourced or attributed to WA in 2017, $285,000 in 2018                          or at least 25% of total yearly gross receipts sourced or attributed to WA
Wisconsin	10.1.2018	More than $100,000 or 200 or more separate transactions
Wyoming	7.1.2017 (under an injunction until further notice)	More than $100,000 or 200 or more separate transactions

South Dakota v. Wayfair doesn’t give states carte blanche

While the ruling does allow states to tax businesses based on economic and virtual connections, it doesn’t necessarily give them carte blanche.

The Supreme Court found that “South Dakota’s tax system includes several features that appear designed to prevent discrimination against or undue burdens upon interstate commerce.” These are:

1. South Dakota affords small merchants “a reasonable degree of protection” from taxation. Remote vendors must have more than $100,000 in gross revenue from South Dakota sales, or 200 or more separate transactions of the same in the current or previous calendar year to trigger a tax collection obligation.
2. The law ensures no obligation to remit the sales tax may be applied retroactively.
3. South Dakota is a member of the Streamlined Sales and Use Tax Agreement, which reduces administrative and compliance costs by requiring a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures, and more. It also provides sellers access to sales tax administration software paid for by the state, and sellers that use such software are immune from audit liability.

States with remote sales tax policies at odds with any of the above could be vulnerable to legal challenges should they try to enforce them. But states with South Dakota–style economic nexus laws are well positioned.

It will take time for the full implications of the South Dakota v. Wayfair ruling to be felt. In addition, Congress could get involved; a bill that would prevent states from taxing most remote sales has already been introduced. Furthermore, measures that would expand state tax authority (e.g., the Remote Transactions Parity Act and the Marketplace Fairness Act) have long been on the table but held in committee.

In the meantime, businesses that sell in multiple states should track changing state nexus laws and develop a plan to ensure compliance. Find helpful resources here. 

More questions? Read our full FAQ (download PDF)

 

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Scott Peterson is Avalara’s Vice President of U.S. Tax Policy and Government Relations. Prior to Avalara, he was the first Executive Director of the Streamlined Sales Tax Governing Board – an organization devoted to making sales tax simpler and more uniform for the benefit of business. Scott also spent 10 years as the Director of the South Dakota Sales Tax Division and 12 years providing research and legal writing for the South Dakota legislature.