USA Economic Nexus

May 11, 2020

It is extremely difficult to summarize the determination of taxable or non-taxable for all remote sales of products/services listed by US states on a general basis. The most important matter is rather to determine what activities or thresholds trigger a nexus obligation, where you have established nexus, and how it can impact your business.

Numerous U.S. states are trying to force any company with a “presence” in the state to collect, report and remit tax for all sales, however, U.S. states can only require remote sellers to charge sales tax if that remote seller has “sales tax nexus” in that state. Nexus implies that your business has noteworthy “presence” in that state. Here are some of the factors that can build up nexus in a state:

A physical presence – Such as a home office, stockroom, store

Affiliates – Someone who sends clients to your online store for a share of the benefits from a deal

Workforce – Employees, sales reps, and even a few contractual workers can set up nexus

Outsourcing – A circumstance where you have an association with a provider to ship stock to your clients

Stock – If you store merchandise available to be purchased in a state, sales tax nexus is normally triggered. In case you are a seller who utilizes third-party fulfillment services like Amazon FBA, you’ll generally have sales tax nexus in states where your products are stored for sale.

But the most important factor for remote sellers of digital goods (software downloads, digital products such as e-books and games, and SaaS services) is Economic Nexus. While a meaning of “economic nexus” does not exist, the consensus is that a remote seller has economic nexus with the appropriate taxing authority only if it surpasses a specific threshold of sales in a particular U.S. state. Economic Nexus thresholds of each U.S. state can be found at our THRESHOLDS MAP.

However, even if You have “economic nexus” in a state while selling digital goods remotely, in order for You to collect sales tax on such sale, the particular digital goods should be taxable in that state.

U.S. states which tax electronically delivered products or services (digital goods) as of 30th of April 2020 are:

Alabama

Arizona

Arkansas

Connecticut

Hawaii

Idaho

Indiana

Iowa

Kentucky

Louisiana

Maine

Minnesota

Mississippi

Nebraska

New Jersey

New Mexico

New York

North Carolina

Ohio

Pennsylvania

Rhode Island

South Dakota

Tennessee

Texas

Utah

Vermont

Washington

Wisconsin

Wyoming

In the event that your business meets any of the criteria for nexus in a U.S. state and your product is taxable in that state, it will be necessary for you to register for a state sales tax permit and collect sales tax from all buyers in that state. Note that you should never collect sales tax from U.S. purchasers without a state sales tax permit as doing so is viewed as unlawful and can lead to criminal charges.

U.S. states sales tax rates are listed below:

State

State Rate

Range of Local Rates

Alabama

4.000%

0% – 9.0% 

Arizona

5.600%

0 – 7.30% 

Arkansas

6.500%

0% – 5.50% 

Connecticut

6.350% 

0% -1% 

Hawaii

4.000% 

0% – 0.5% 

Idaho

6.000%

0% – 3% 

Indiana

7.000%

0%

Iowa

6.000% 

0% – 2% 

Kentucky

6.000%

0%

Louisiana

4.450% 

0% – 7.75% 

Maine

5.500% 

0%

Massachusetts

6.250%

0%

Minnesota

6.875% 

0% – 2% 

Mississippi

7.000% 

0% – 1% 

Nebraska

5.50%

0% – 2.5% 

New Jersey

6.625%

0%

New Mexico

5.125%

0.125% – 7.75%

New York

4.000%

0% – 5% 

North Carolina

4.750% 

2% – 3%

Ohio

5.750%

0 – 2.25% 

Pennsylvania

6.000%

0% – 2% 

Rhode Island

7.000%

0%

South Dakota

4.500% 

0% – 8% 

Tennessee

7.000% 

1.5% – 2.75% 

Utah

4.850% 

1% – 7.5%

Vermont

6.000% 

0% – 1% 

Washington

6.500%

0.5% – 4.0%

Wisconsin

5.000%

0% – 1.75% 

Wyoming

4.000% 

0% – 4% 

In the event that you have a sales tax obligation triggered but have not been remitting sales tax to the state, you run the risk of being audited and it will only be a matter of time before you’ll be required to pay what you owe or even charged with a criminal offense.

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