Economic nexus requires online businesses to collect sales tax in states where they meet certain sales thresholds, even without a physical presence. Most states have a $100,000 sales revenue threshold, but some like Alabama ($250,000), California ($500,000), and New York ($500,000) have higher limits.
In addition to sales revenue, several states also have transaction volume thresholds, typically 200 transactions. For example:
| State | Sales Revenue Threshold | Transaction Volume Threshold |
|---|---|---|
| Alabama | $250,000 | - |
| Alaska | $100,000 | 200 |
| Arkansas | $100,000 | 200 |
| California | $500,000 | - |
| New York | $500,000 | 100 |
To stay compliant, regularly review sales data by state, use sales tax software for automated tracking and alerts, and monitor legislative updates. Once meeting a state's threshold, promptly register and begin collecting sales tax, typically within 30-60 days.
Key Takeaways:
- Track sales closely to identify approaching thresholds
- Automate tracking with sales tax software and set up alerts
- Stay updated on changing economic nexus laws
- Register promptly after meeting a state's threshold
- Consider seeking professional guidance for complex compliance
Related video from YouTube
State Economic Nexus Thresholds
Here are the economic nexus thresholds and registration requirements for various states in 2024:
Alabama
| Threshold | Details |
|---|---|
| Sales Revenue | $250,000 in retail sales |
| Registration | Required by the next transaction after crossing the threshold |
Alaska
| Threshold | Details |
|---|---|
| Sales Revenue | $100,000 in sales |
| Transaction Volume | 200 transactions |
| Note | Alaska has no statewide sales tax, only local sales taxes in certain areas |
| Registration | Required on the first day of the month following 30 days after crossing the threshold |
Arizona
| Threshold | Details |
|---|---|
| Sales Revenue | $100,000 in gross sales |
| Registration | Required within 30 days after crossing the threshold |
Arkansas
| Threshold | Details |
|---|---|
| Sales Revenue | $100,000 in taxable sales |
| Transaction Volume | 200 transactions |
| Registration | Required by the next transaction after crossing the threshold |
California
| Threshold | Details |
|---|---|
| Sales Revenue | $500,000 in gross sales |
| Registration | Required on the date the threshold is crossed |
Colorado
| Threshold | Details |
|---|---|
| Sales Revenue | $100,000 in retail sales |
| Registration | Required on the first day of the month after 90 days from crossing the threshold |
For each remaining US state, the following information will be provided:
- Sales revenue threshold amount (if applicable)
- Transaction volume threshold amount (if applicable)
- Any other key requirements like taxable vs. gross sales, retail vs. all sales, etc.
- Registration deadline after crossing the economic nexus threshold
Tracking Economic Nexus Thresholds
Review Sales Data Regularly
Frequently check your sales figures in each state to avoid unexpectedly exceeding economic nexus thresholds. Review your sales data at least quarterly, if not monthly or more often. This allows you to identify states where you may be approaching the thresholds and take steps to comply.
Use Sales Tax Software
Sales tax automation software like TaxJar and Avalara can streamline tracking economic nexus thresholds across multiple states. These solutions integrate with your sales platforms and automatically calculate your sales data for each state's rules. This eliminates manual effort and provides real-time visibility into your nexus obligations.
Set Up Threshold Alerts
Within your sales tax software or internal systems, set up alerts or notifications to flag when your sales are nearing a state's economic nexus threshold, such as 75% or 90% of the limit. These alerts allow you to prepare for compliance requirements like registering for sales tax permits and beginning to collect and remit sales tax.
Monitor Legislative Updates
Economic nexus laws and thresholds change as states update their regulations. Regularly review legislative updates from state tax authorities and organizations like the Streamlined Sales Tax Governing Board. Staying informed ensures you can adjust your processes promptly when rules change, preventing any lapses in compliance.
| Key Points |
|---|
| Review sales data regularly, at least quarterly |
| Use sales tax software for automated tracking |
| Set up alerts for approaching thresholds |
| Monitor legislative updates for rule changes |
sbb-itb-8201525
Economic Nexus Thresholds by State
Sales Revenue Thresholds
| State | Sales Revenue Threshold |
|---|---|
| Alabama | $250,000 |
| Alaska | $100,000 |
| Arizona | $100,000 |
| Arkansas | $100,000 |
| California | $500,000 |
| Colorado | $100,000 |
| Connecticut | $100,000 |
| Florida | $100,000 |
| Georgia | $100,000 |
| Hawaii | $100,000 |
| Idaho | $100,000 |
| Illinois | $100,000 |
| Indiana | $100,000 |
| Iowa | $100,000 |
| Kansas | $100,000 |
| Kentucky | $100,000 |
| Louisiana | $100,000 |
| Maine | $100,000 |
| Maryland | $100,000 |
| Massachusetts | $100,000 |
| Michigan | $100,000 |
| Minnesota | $100,000 |
| Mississippi | $250,000 |
| Missouri | $100,000 |
| Nebraska | $100,000 |
| Nevada | $100,000 |
| New Jersey | $100,000 |
| New Mexico | $100,000 |
| New York | $500,000 |
| North Carolina | $100,000 |
| North Dakota | $100,000 |
| Ohio | $100,000 |
| Oklahoma | $100,000 |
| Pennsylvania | $100,000 |
| Rhode Island | $100,000 |
| South Carolina | $100,000 |
| South Dakota | $100,000 |
| Tennessee | $100,000 |
| Texas | $500,000 |
| Utah | $100,000 |
| Vermont | $100,000 |
| Virginia | $100,000 |
| Washington | $100,000 |
| Washington D.C. | $100,000 |
| West Virginia | $100,000 |
| Wisconsin | $100,000 |
| Wyoming | $100,000 |
This table shows the sales revenue threshold for economic nexus in each state. Most states require businesses to collect sales tax if they have over $100,000 in sales in that state. However, some states like Alabama, Mississippi, California, New York, and Texas have higher thresholds of $250,000 or $500,000.
Transaction Volume Thresholds
| State | Transaction Volume Threshold |
|---|---|
| Alaska | 200 |
| Arkansas | 200 |
| Connecticut | 200 |
| Georgia | 200 |
| Hawaii | 200 |
| Illinois | 200 |
| Indiana | 200 |
| Kentucky | 200 |
| Maryland | 200 |
| Michigan | 200 |
| Minnesota | 200 |
| Nebraska | 200 |
| Nevada | 200 |
| New Jersey | 200 |
| New York | 100 |
| North Carolina | 200 |
| Ohio | 200 |
| Rhode Island | 200 |
| South Dakota | 200 |
| Utah | 200 |
| Vermont | 200 |
| Virginia | 200 |
| Washington D.C. | 200 |
| West Virginia | 200 |
| Wyoming | 200 (ending 7/1/2024) |
In addition to sales revenue thresholds, some states also have transaction volume thresholds for economic nexus. This table lists the states that require businesses to collect sales tax if they have over a certain number of transactions in that state, typically 200 transactions. New York has a lower threshold of 100 transactions.
Wyoming's transaction volume threshold of 200 transactions will end on July 1, 2024.
Key Takeaways
-
Track Sales Closely: Regularly check your sales figures in each state. Missing economic nexus thresholds can lead to penalties and back taxes.
-
Use Sales Tax Software: Automate tracking economic nexus thresholds across states. Set up alerts when nearing a threshold.
-
Stay Updated: Economic nexus laws change. Subscribe to updates from tax authorities to remain compliant.
-
Register Promptly: Once meeting a state's threshold, register for a sales tax permit and begin collecting sales tax, typically within 30-60 days.
-
Consider Marketplace Laws: Some states exclude sales through registered marketplace facilitators from economic nexus calculations. Understand these nuances.
-
Seek Professional Help: Economic nexus laws can be complex for multi-state businesses. Consider consulting a sales tax expert.
Monitor Sales Data
| Action | Details |
|---|---|
| Review Sales | Check sales figures in each state at least quarterly, if not monthly |
| Identify Approaching Thresholds | Spot states where you may be nearing economic nexus thresholds |
| Take Compliance Steps | Prepare to register for sales tax permits and begin collecting tax |
Automate Tracking
| Automation | Benefits |
|---|---|
| Sales Tax Software | Integrates with sales platforms, calculates state sales data automatically |
| Threshold Alerts | Notifies you when sales approach a state's economic nexus limit |
| Real-Time Visibility | Eliminates manual effort, provides up-to-date nexus obligation status |
Stay Compliant
| Compliance Action | Details |
|---|---|
| Monitor Legislative Updates | Review changes to economic nexus laws and thresholds from state authorities |
| Adjust Processes | Update procedures promptly when rules change to avoid lapses |
| Seek Expert Guidance | Consult sales tax professionals for complex multi-state compliance |
FAQs
What is the economic nexus threshold by state?
| State | Sales Threshold |
|---|---|
| Alabama | $250,000 |
| California | $500,000 |
| Colorado | $100,000 |
| Most other states | $100,000 |
The economic nexus threshold, or the sales amount that requires a business to collect sales tax in a state, varies. Most states have a $100,000 threshold, but some like Alabama ($250,000) and California ($500,000) have higher limits. A few states, like Delaware, have no sales tax.
What is the sales threshold for economic nexus?
Economic nexus is triggered when a business reaches a certain sales amount (e.g., $100,000) or number of transactions (e.g., 200) in a state where they have no physical presence. This requires the business to register and collect sales tax in that state.
What is the economic nexus threshold in Alabama?
In Alabama, the economic nexus threshold is $250,000 in retail sales during the previous calendar year. This includes direct sales by the seller, whether taxable or non-taxable, but excludes wholesale and marketplace sales.
