All Sales Tax States Now Have Active Economic Nexus

In the realm of taxation, change is the only constant. As the calendar turns, new tax policies take effect, causing ripples through the business landscape. Whether you're a seasoned entrepreneur or just starting your business journey, staying informed about these shifts is essential. In this article, we delve deeper into the concept of economic nexus, explore the recent changes in Missouri, and look ahead to potential developments in other states.

Economic Nexus: A Transformative Force

Economic nexus has been a game-changer in the world of sales tax. This concept revolves around the idea that businesses establish a tax obligation based on their economic activity in a state, regardless of their physical presence. It all started with the groundbreaking Supreme Court case, South Dakota v. Wayfair, Inc., in 2018. The ruling paved the way for states to redefine their tax structures, marking a shift from the traditional physical presence rule.

In the wake of the Wayfair decision, states began adopting economic nexus laws, reshaping the tax landscape for businesses. The primary trigger for economic nexus is reaching a certain sales threshold or conducting a specific number of transactions within a state. This change was aimed at leveling the playing field between online retailers and brick-and-mortar stores, ensuring fair and equitable tax collection.

Missouri's Evolution: A Case Study

Missouri's recent tax policy changes serve as an excellent case study in understanding the evolving dynamics of economic nexus. In mid-2021, Missouri took a significant step by enacting Senate Bill 1532¹ (SB1532), which came into effect on January 1, 2023. This legislation empowered both the state and local jurisdictions to collect use tax from remote sellers who annually sell and deliver more than $100,000 in tangible goods to Missouri consumers.

The fundamental objective behind SB1532 was to level the playing field for local brick-and-mortar businesses. By requiring remote sellers to collect use tax, the state aimed to protect and support its local retailers. This change was a response to the growing trend of online sales and the need to ensure that all businesses, regardless of their physical presence, contributed their fair share of sales tax revenue.

Furthermore, Missouri's marketplace facilitator laws underwent significant changes. These laws now mandate that marketplace facilitator platforms, such as Amazon, bear the responsibility of collecting and remitting sales tax on behalf of their sellers. This shift has streamlined the sales tax collection process for businesses operating on these platforms, relieving them of some compliance burdens.

Looking Beyond Missouri: Potential Economic Nexus Changes

While Missouri's tax policy changes have garnered attention, they are just one piece of a larger puzzle. Several other states are considering or implementing economic nexus laws, each with its unique approach and thresholds. Among these states, Alaska, a traditionally tax-free state, is exploring the introduction of economic nexus. Alaskan communities have joined forces to establish the Alaska Remote Seller Sales Tax Commission², tasked with providing administration for sales tax collection and remittance.

The potential introduction of economic nexus in Alaska serves as a reminder that the tax landscape can evolve rapidly. As we move forward in the year, it's essential to remain vigilant and informed about these changes, as they can have a substantial impact on businesses of all sizes.

Key Considerations Amid Economic Nexus Changes

As economic nexus laws continue to evolve, businesses must consider several key factors:

1. Diverse Nexus Thresholds: States vary in their economic nexus thresholds. While some states require businesses to collect sales tax after reaching a revenue threshold (e.g., $100,000), others may consider the number of transactions conducted within the state. Understanding your specific state's threshold is crucial to compliance.
2. Coexistence with Physical Presence Rules: It's important to recognize that economic nexus doesn't replace traditional physical presence rules; it supplements them. Businesses must navigate both types of nexus and understand their respective implications.
3. Varied Metrics for Thresholds: States use different metrics for establishing nexus thresholds, including gross receipts, taxable sales, and transaction counts. Some may look at the previous calendar year, while others consider a rolling 12-month period.
4. Remaining Adaptable: With tax laws constantly evolving, businesses must remain adaptable and prepared for potential changes. Staying informed about legislative developments and their impact on your operations is essential.

Seeking Assistance for Compliance

Navigating the intricacies of economic nexus and evolving tax policies can be challenging. If you find yourself needing assistance in understanding your sales tax obligations, you're not alone. Many businesses, both large and small, seek guidance in this complex landscape. Whether you're determining your nexus footprint, evaluating the taxability of your products and services, or dealing with specific compliance concerns, we're here to help.

At Peisner Johnson, we offer free consultative calls to provide you with peace of mind on your compliance journey. Our team of experts is dedicated to assisting you in understanding and fulfilling your sales tax obligations. With our support, you can confidently navigate the ever-changing tax landscape, ensuring compliance and financial stability for your business.