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Which States Still Base Economic Nexus on Your Transaction Volume?

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Economic nexus is the magic phrase that state revenue and tax departments use to determine if you or your client’s business should be filing sales tax returns and remitting payments on a regular basis. After the U.S. Supreme Court’s landmark Wayfair decision, states quickly adopted thresholds for establishing economic nexus that heavily target online retailers and e-commerce businesses. States generally base these economic nexus thresholds on your gross sales, number of transactions, or a combination of the two.

Over time, some states have removed transaction volume as a method of determining economic nexus, and instead rely solely on your gross sales figure. South Dakota is the most recent example of this trend with removal of its 200-transaction criteria effective July 1, 2023. However, many states still use transaction volume, which can trip up online retailers and e-commerce businesses that don’t track this metric correctly. This article lists which states still use this method for economic nexus and key issues to consider when determining your sales tax compliance obligations from state to state.

The Following States Use Transaction Volume to Determine Economic Nexus

Approximately half of U.S. states use transaction volume to measure a retailer’s qualification for economic nexus. In nearly all these states, 200 or more separate transactions is the magic number. However, note that states like Connecticut and New York combine the transaction with gross sales as their measurement method. In other words, you need both the specified transaction total and the stated sales revenue to have economic nexus. Another wrinkle with using transaction volumes as a nexus tool is knowing which of your transactions you need to include or exclude from the total, an issue we explore in the next section.

You can check out our state sales tax guides for more details on a state’s nexus requirements and related information.

Which Transactions Count for Economic Nexus?

Determining your transaction volume for economic nexus is not as easy as counting your sales or deliveries to customers within a state. You must also know which of those transactions qualify for the count. Specifically, you need to consider the following issues when assessing registration responsibilities:

  • Exempt sales: Whether the property being sold into a state is taxable or not could affect the need to include it in the transaction or sales totals. This issue becomes even more complex when applied to items where taxability is unclear in the states (e.g., SaaS products or construction work).
  • Marketplace sales: These are sales conducted through a facilitator such as Amazon. Like exempt transactions, some states exclude marketplace sales from the threshold (e.g., Arizona) while other states include them (e.g., Connecticut).
  • Reporting period: Most states specify when you need to register for a sales tax permit or license when your transactions exceed the threshold. Some states require registration immediately while others give you a month, quarter, or year to file.

When Should You Review Your Transaction Volume in a State to Measure Economic Nexus for Sales Tax?

If you sell and deliver property into states and are not registered to collect and remit sales tax, you need to review your transactions and gross receipts volume on a regular basis. This could be at the end of each month or quarter and be mindful that states could look to your sales over the following timeframes depending on their rules:

  • The prior calendar year
  • The current calendar year
  • The previous 12-month period
  • The prior 4 calendar quarters
  • The end of your business’s fiscal year

However, most states take the approach of looking at your sales and transactions from the prior or current calendar year.

What Can I Do If I Have Economic Nexus But Have Not Been Filing Sales Tax Returns?

When you have economic nexus in a state but are not registered for sales tax, the state could contact you about an audit or request more information through an economic nexus questionnaire. This often happens after the revenue department receives sales information about your company from a third party, such as another state agency or a marketplace facilitator.

One of your better defenses in these situations is to consider the benefits of participating in the state’s voluntary disclosure program. Most states offer this resource to settle your outstanding tax liability by disclosing the owed amount and agreeing to register for future sales tax returns and payments. The benefits of this program usually include a limited lookback period (potentially decreasing tax owed), a waiver of accrued interest, and a potential waiver of other penalties. However, the merits of a voluntary disclosure agreement will vary from state to state based on your specific circumstances, which is why consultation with our sales tax professionals is an important first step.

Address Your Company’s Economic Nexus Concerns with Sales Tax Helper Today

Don’t let concerns about economic nexus and out-of-state sales tax liabilities hang over your company’s future success. A proactive approach to your sales tax compliance in the new era of online retail can give you peace of mind in the event of an audit and minimize the financial risks of interest and penalties that can come from years of nonpayment. Schedule a consultation with Sales Tax Helper today to discuss your sales tax needs. We provide economic nexus studies to help you determine potential registration obligations and help with the voluntary disclosure process if necessary. Businesses that have already received notice from the revenue department may consider our audit defense and sales tax litigation services.

Contact our sales tax professionals today.

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