The state of economic nexus.

• Author: Scaffidi, Donna

On June 30, 2021, Missouri's governor signed a bill (S.B. 153 and 97) establishing sales tax economic nexus provisions in the state. This officially makes Missouri the final jurisdiction, out of all those that levy a sales tax, to set aside the physical presence requirement to determine if a remote seller must register and collect tax on sales made to an instate customer. Missouri's law is not effective until Jan. 1, 2023, giving such sellers a couple more years before they will need to register and collect sales tax in the state. Additionally, Florida's newly enacted sales tax economic nexus thresholds officially took effect on July 1, 2021. Looking back merely a few years, the sales tax landscape for remote sellers was far different. As e-commerce and online shopping continue to gain a significant share of total retail sales, sellers must tread with increasing caution as state and local tax pitfalls await, now more than ever.

Back when the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), on June 21, 2018, tax practitioners recognized that the case would be one of the most important in state tax history. In its decision, the Court overruled 50plus years of precedents, resulting in the expansion of nexus-creating activities beyond a physical-presence standard. The Court examined South Dakota's economic tests for establishing sales tax nexus ($100,000 in sales or 200 separate transactions annually) and found them to be reasonable. The law was determined to be constitutionally sound because it provided a safe harbor for businesses with limited in-state activities; it was not retroactive; and it allowed for participation in the Streamlined Sales and Use Tax Agreement, a system that standardizes taxes to reduce administrative and compliance costs.

Within six months of the Wayfair decision, more than half the states that levy sales tax had enacted some form of economic nexus standard or had legislation pending. Most of them followed the thresholds endorsed by the Supreme Court. However, over the past three years, states have begun to diverge from those original thresholds. Many states dropped the transaction thresholds and now rely solely on sales revenue to determine nexus for remote sellers. Additionally, some state rules measure the revenue thresholds based on "gross sales" made into the state, while others only measure "retail sales" or sales of "tangible personal property," making it tricky...