What are the Laws for Collecting Internet Sales Tax in Your State?

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As of June 21, 2018, the United States Supreme Court changed the laws regarding the collection of sales tax by internet sellers. The Supreme Court ruling in South Dakota v. Wayfair Inc., established that individual states can require ecommerce retailers to collect state sales tax on the goods they sell. The ruling overturned previous law which made the consumer responsible for paying sales taxes to the state, rather than through the retailer.

The former legislation meant that states were only able to tax sales by businesses which had a physical presence in the state. In the wake the new legislation, retailers that have an economic activity — known as an economic nexus — in a state can be obliged collect sales tax.

If you sell items online, it is important you keep track of the different rules for different states, as each state has its own rules and procedures for the collection of internet sales tax.



List of States With Internet Sales Tax

To give you a helping hand, check out the following information on laws for collecting internet sales tax in the different states.

States with Economic Nexus

Certain states have enacted economic nexus standards, which requires businesses that have a selling connection to that state other than a physical presence to collect sales tax on remote commerce. These states include:

  • Alabama
  • Hawaii
  • Illinois
  • Indiana
  • Kentucky
  • Maine
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • New Jersey
  • Nevada
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • Rhode Island
  • Vermont
  • Washington
  • Wisconsin

Thresholds for Economic Nexus

As well as being aware of the states that have enacted economic nexus standards, you should be conscious of the different states’ thresholds for economic nexus.

TaxJar offers insight into the gross revenue thresholds, which, if retailers hit, make them subject to sales tax collection laws.

$10,000 a Year Sales Threshold

$100,000 a Year Sales Threshold

  • Arkansas
  • California
  • Colorado
  • Hawaii
  • Illinois
  • Indiana
  • Lowa
  • Kentucky
  • Louisiana
  • Maine
  • Maryland
  • Michigan
  • Minnesota
  • Nebraska
  • New Jersey
  • Nevada
  • North Carolina
  • North Dakota
  • Rhode Island
  • South Carolina
  • Utah
  • Vermont
  • Washington
  • Washington D.C.
  • Wisconsin
  • Wyoming

$250,000 a Year Sales Threshold

  • Alabama
  • Connecticut
  • Georgia
  • Mississippi

$500,000 a Year Sales Threshold

Economic Nexus and B&O Tax

The states of Washington imposes a Business and Occupation (B&O) Tax that is levied on gross income rather than net income, as well as Economic Nexus, which online retailers should be aware of.

States with Affiliate or Click-Through Nexus

Affiliate or click-through nexus refers to an in-state business receiving a commission for referring a specified amount of sales to out-of-state sellers through a website link.

The states with an affiliate of click-through nexus include:

  • Washington
  • Idaho
  • California
  • Nevada
  • Utah Colorado
  • Kansas
  • Oklahoma
  • Texas
  • Minnesota
  • Iowa
  • Missouri
  • Arkansas
  • Louisiana
  • Illinois
  • Tennessee
  • Alabama
  • Georgia
  • North Carolina
  • Virginia
  • West Virginia
  • Ohio
  • Michigan
  • Pennsylvania
  • New York
  • Maine

States with Use Tax Reporting for Non-Collecting Sellers

As Avalara notes, a small but increasing number of states impose rigorous use tax notice and reporting requirements on non-collecting vendors. While use tax notice and reporting requirements differ from state to state, they are designed to make it so onerous for a business not to collect that they voluntarily tax their sales instead.

The states with use tax reporting for non-collecting sellers are:

  • Washington
  • Colorado
  • South Dakota
  • Oklahoma
  • Iowa
  • Louisiana
  • Alabama
  • Georgia
  • Kentucky
  • Pennsylvania

Streamlined Sales Tax (SST) states

Streamline Sales Tax (SST) is an effort to simplify and lessen the burden of sales and use tax collection, administration and compliance that is made by certain states, local governments and the business community.

SST arose in response to efforts made by Congress to permanently prohibit states from collecting sales tax on internet retailing.

There are currently 23 full member states that adhere to the SST and Use Tax Agreement. These states include:

  • Arkansas
  • Georgia
  • Indiana
  • Iowa
  • Kansas
  • Kentucky
  • Michigan
  • Minnesota
  • Nebraska
  • Nevada
  • New Jersey
  • North Carolina
  • North Dakota
  • Ohio
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Utah
  • Vermont
  • Washington
  • West Virginia
  • Wisconsin
  • Wyoming

States that Tax Marketplace Sales

A number of states have recently created legislation which requires a marketplace facilitator to collect and remit sales tax on behalf of the transactions their third-party sellers make. These states include:

  • Washington
  • Arizona
  • South Dakota
  • Oklahoma
  • Iowa
  • Minnesota
  • Alabama
  • South Carolina
  • Virginia
  • Pennsylvania

For an overview on state laws regarding internet sales tax, check out the following infographic by Hotwire Global.

Image: Shutterstock






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