Wayfair v South Dakota – Impact on Small Businesses
If you sell physical products, then you have most likely heard about the case of Wayfair v. South Dakota, which went all the way up to the Supreme Court of the United States this past summer. Prior to the Supreme Court ruling, the law allowed states to collect sales tax from businesses who had a physical presence in the state. The physical presence test could be met several different ways – a storefront, remote employee, regularly traveling to the state for business, plus more.
With the new ruling, states are now allowed to implement an economic activity test (“economic nexus”). Instead of only having a physical presence, which is how many businesses have avoided paying sales tax, states can implement their own economic nexus. There are minimum requirements that states must implement in order to collect the sales tax – a dollar amount, a transaction amount, or both. The sales refer to online orders, phone orders, and mail order sales (if that’s still a thing). So now businesses must pay sales tax to the states in which they have a physical presence, and to the states in which they meet that state’s economic nexus.
As a small business owner, it will be very important to begin monitoring your amount of sales in each state. At a minimum, the states that have implemented an economic nexus, you will have to sell at least $100,000 in that state (sometimes more). There are currently 29 states that have implemented an economic nexus. Below is a comprehensive list of the states and the dates in which you must start paying sales tax.
States implementing an economic nexus
Effective Date
Minimum Requirements
Rate
Alabama
10/1/18
More than $250,000 and additional activities
9.15%
Colorado
12/1/18
$100,000 or more or 200 separate transactions
7.52%
Connecticut
12/1/18
At least $250,000 and 200 or more retail sales and systematic solicitation of sales in the state via the internet or other means
6.35%
Georgia
1/1/19
More than $250,000 or 200 or more retail sales
7.23%
Hawaii
7/1/18
At least $100,000 or 200 or more separate transactions
4.35%
Illinois
10/1/18
At least $100,000 or 200 or more separate sales
8.73%
Indiana
10/1/18
More than $100,000 or 200 or more separate transactions
7.00%
Iowa
1/1/19
At least $100,000 or 200 or more separate transactions
6.82%
Kentucky
10/1/18
More than $100,000 or 200 or more separate transactions
6.00%
Louisiana
1/1/19
More than $100,000 or 200 or more separate transactions
9.45%
Maine
7/1/18
More than $100,000 or 200 or more separate transactions
5.50%
Maryland
10/1/18
At least $100,000 or 200 or more separate sales
6.25%
Michigan
9/30/18
At least $100,000 or 200 or more separate sales
6.00%
Minnesota
10/1/18
10 or more sales totaling more than $100,000 or 100 or more retail sales
7.43%
Mississippi
9/1/18
More than $250,000 and systematic exploitation of the market in the state
7.07%
Nebraska
1/1/19
More than $100,000 or 200 or more separate transactions
6.89%
Nevada
TBD
More than $100,000 or 200 or more separate transactions
8.14%
New Jersey
10/1/18
More than $100,000 or 200 or more separate transactions
6.60%
North Carolina
11/1/18
More than $100,000 or 200 or more separate transactions
6.95%
North Dakota
10/1/18
More than $100,000 or 200 or more separate transactions
6.83%
South Carolina
11/1/18
More than $100,000
7.43%
South Dakota
11/1/18
More than $100,000 or 200 or more separate transactions
6.40%
Tennessee
7/1/17 (under an injunction until further notice)
More than $500,000 and systematic solicitation of sales in the state
9.46%
Utah
1/1/19
More than $100,000 or 200 or more separate transactions
6.78%
Vermont
7/1/18
At least $100,000 or 200 or more individual sales transactions and systematic solicitation of sales from in-state customers
6.18%
Washington
10/1/18 (for remote transactions)
More than $100,000 or 200 or more separate transactions
9.19%
7/1/17 (for B&O tax only)
More than $267,000 of yearly gross receipts sourced or attributed to WA in 2017, $285,000 in 2018 or at least 25% of total yearly gross receipts sourced or attributed to WA
9.19%
West Virginia
1/1/19
More than $100,000 or 200 or more separate transactions
6.38%
Wisconsin
10/1/18
More than $100,000 or 200 or more separate transactions
5.44%
Wyoming
7/1/17 (under an injunction until further notice)
More than $100,000 or 200 or more separate transactions
5.39%
If you’re not sure if you’re going to meet the threshold for a certain state, it’s better to be safe than sorry and collect that sales tax anyway. It will become a burden if you’re not already collecting sales tax for every state. However, with the chaos, hopefully Congress will enact a uniform sales tax provision, but that likely won’t occur for a few years.
If you’re like many small business owners, you have no idea where to start when it comes to taxes. That’s totally fine! If you’re a DIYer and want to teach yourself, you need to take this course by my good friend and tax expert – Kreithchele Barnard. This is an affiliate link, but it’s well worth the $100 price (was $147).
Please check back for updates. And of course, if you’re confused as to whether you need to pay sales tax, please check with your tax advisor. Taxes are something you don’t want to mess up!
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