Economic nexus is a tax law concept that has become increasingly important in the United States, particularly concerning sales tax collection. Before the Supreme Court’s landmark ruling in the 2018 case of South Dakota v. Wayfair, Inc., states could only require businesses to collect sales tax if they had a physical presence, or “nexus”, in that state. However, the Wayfair decision changed this longstanding principle, introducing the concept of economic nexus. Under this new approach, a business can be required to collect sales tax based on its economic activity within a state, such as reaching a certain threshold of sales or transactions, even if it doesn’t have a physical presence there.
Sage 100 and Sales Tax
Sage 100 has basic sales tax collection capabilities though it requires maintaining an everchanging set of tax tables by state and jurisdiction. This can be a time-consuming task for almost any business. Fortunately, automated tools maintain, compute, and file sales tax returns on your behalf. One such tool is Avalara which integrates entirely with Sage 100 and can compute sales tax on every transaction.
Automating your Sales Tax Computations
The specific thresholds for establishing an economic nexus vary by state, but generally, they include gross sales or transaction volume. For example, many states have adopted South Dakota’s threshold, which requires out-of-state sellers to collect and remit sales tax if they have more than $100,000 in sales or 200 transactions in the state in a year. These laws aim to level the playing field between online and physical retailers and to ensure that states receive the sales tax revenue to which they’re entitled, even from online and out-of-state transactions.
However, implementing economic nexus laws across the U.S. has presented significant challenges for businesses, tiny businesses, and those that sell online. Businesses are now required to track their sales and transactions in every state and collect and remit sales tax in those states exceeding the economic nexus threshold. This can be complex and burdensome, particularly given the wide variation in state sales tax rates and rules. To assist with this, many businesses are turning to tax automation software and consulting services to help them navigate the complexities of economic nexus.
During July, one provider of sales tax automation is hosting a free webinar to review the current state of economic nexus five years after the Wayfair decision.
Learn more about economic nexus at Avalara’s free July 6, 2023 webinar – register here