Key takeaways
- Wayfair reshaped sales tax rules: Businesses must now collect and remit tax based on economic nexus, not just physical presence.
- Thresholds vary by state: Most use a $100,000 sales threshold, but others like California and New York set higher or dual thresholds.
- Proactive compliance prevents penalties: Regularly monitoring nexus status with expert and tech support helps businesses avoid costly fines and audits
In short: Since the 2018 Wayfair ruling, US states can tax remote sales based on economic nexus, not just physical presence. Most states use a $100,000 sales threshold, while California and New York use $500,000. Clients who miss nexus rules risk fines, penalties and audits, so CPAs and advisors need to track each state's rules.
Sales tax rules have recently changed and are likely affecting your clients—here’s what you need to know to better serve them.
The 2018 Wayfair ruling set the stage for states to tax remote sales based on economic nexus. A physical presence in a state is no longer the only reason to collect sales tax there.
Advisors and CPAs need to know how sales tax rules have changed and what this means for their clients. A thorough understanding of sales tax rules helps accountants save clients from fees and penalties for sales and use tax noncompliance.
How Did Nexus Move From Physical Presence to Economic Nexus?
Businesses that sell through an e-commerce platform must now track economic nexus themselves. They must work out when they trigger economic nexus in a state. Then they must register with that state and collect and remit sales tax on sales there.
Depending on the jurisdiction, economic nexus can be set in two ways. One is a certain number of transactions in a state. The other is exceeding a dollar amount of revenue from sales in that state.
Each state has its own economic nexus criteria, so checking for economic nexus is easier said than done. It takes careful attention and time. This creates a big compliance risk for remote sellers, which could lead to tax problems and penalties later.
How Have Monetary and Transactional Thresholds Changed?
After the Wayfair ruling, the threshold for economic nexus in a jurisdiction changed. Now, most states follow South Dakota’s economic nexus threshold of $100,000 or more in sales. Some states also count separate transactions. South Dakota's original test also included over 200 separate transactions, but the state dropped it on July 1, 2023.
Some states have other thresholds. Keep in mind that these can change every year:
- Arizona’s threshold is $100,000 in sales with no minimum transaction volume
- California’s threshold is $500,000 in sales with no minimum transaction volume
- New York’s threshold is $500,000 in sales AND 100 transactions
Online business owners must know whether they have physical nexus, economic nexus, or both. This applies even if they only dabble in e-commerce alongside a brick-and-mortar store. Businesses can easily get confused, especially if they aren’t well organized and sell online in many states.
The best way for a business to be sure of its nexus status is to work with an accountant or tax advisor. A professional can help save companies from fines and penalties for noncompliance.
How do you check whether a client has economic nexus?
Compare the client's sales into each state with that state's threshold, over the period the state uses. Repeat the check every quarter.
- Map sales by state. List the client's sales and number of transactions for each state it ships to, including sales through marketplaces.
- Use each state's measurement period. States measure over different periods. New York, for example, looks at the immediately preceding four sales tax quarters.
- Count the right sales. Check what each state includes. New York counts both taxable and exempt sales of goods delivered into the state, and includes marketplace sales.
- Register on time. Once a threshold is met, deadlines start. In New York, the business must register within 30 days and begin collecting tax 20 days after that.
- Record the result. Keep your calculations so you can show an auditor when nexus began.
Worked example: New York
A client sold $520,000 of goods delivered into New York over the last four sales tax quarters, through 140 separate sales. It has passed both tests: over $500,000 in sales and more than 100 sales. It must register and start collecting New York sales tax.
If the same client had made only 90 sales, it would not have nexus. New York requires both tests to be met, as its nexus guidance explains. For a state-by-state view, see our guide to economic nexus by state.
What Fines and Penalties Apply?
Businesses that don't comply with economic nexus laws can face fines, penalties and sales tax audits from multiple jurisdictions. Companies should check their status every quarter, because some states apply nexus during the year, not just annually.
A failure to file can be unintentional, but it’s common, even though it is easy to avoid. Ignoring or dismissing nexus rules can lead to civil and criminal statutes.
Civil statutes mainly apply to a failure to file and a failure to pay. These count as two separate violations. So businesses can end up with two penalties, each ranging from 1 to 25 percent of the sales tax they owe. That can be sizable.
Finally, criminal penalties can apply if a company fails to pay taxes with the clear intent to evade payment. They can also apply if sales tax has been collected but not remitted to the right jurisdictions.
How Can You Deliver SUT Compliance to Clients?
Businesses can easily avoid fines and penalties if they learn how to comply with sales and use tax rules. But navigating sales tax laws across every taxing jurisdiction takes a lot of resources and is needlessly hard. The patchwork of rules, rates, exemptions, forms and filing deadlines can make manual compliance a full-time job.
With the right advisor and technology, companies can remove much of the sales tax compliance burden. LumaTax makes it easy for CPAs and advisors to deliver SUT compliance profitably and at scale. Our software identifies whether nexus has been reached and the best way to move forward.
How Taxually handles this
Taxually’s LumaTax runs a nexus analysis on your sales, helps you register in the states where you must collect, and prepares and files multi-state sales tax returns, including Canadian GST/HST. LumaTax is currently available to enterprises and accounting firms. For the full workflow, read how to automate US sales tax filing in every state.
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Frequently asked questions
What changed after the Wayfair ruling?
The 2018 South Dakota v. Wayfair decision allowed states to tax remote sales based on economic nexus, even if a business has no physical presence in the state.
What is economic nexus?
Economic nexus is established when a business exceeds a state’s sales or transaction threshold—typically $100,000 in sales, though thresholds vary by state and some also count transactions.
Which states have different thresholds?
Examples include California ($500,000 in sales, no transaction minimum) and New York ($500,000 in sales and 100 transactions). Businesses must review each state’s criteria individually.
What are the penalties for noncompliance?
Businesses that fail to register, collect, or remit sales tax may face civil or criminal penalties—ranging from 1–25% of unpaid tax—and even audits across multiple jurisdictions.
How can advisors help clients stay compliant?
By regularly monitoring nexus status, advising on state thresholds, and using automation tools like LumaTax to streamline multi-state compliance and prevent costly errors.
