What is economic nexus?

The South Dakota v. Wayfair Supreme Court ruling marked a drastic shift in tax law precedent and established a new definition of nexus. Before Wayfair, nexus depended on a company’s “physical presence” in the state. But in a post-Wayfair world, if your business sells goods in any state — even if you don’t have a physical presence in that state and the transaction is online only — you may be obligated to register in that state and collect sales tax if you exceed the “economic nexus” threshold.

With economic nexus now defined by different thresholds across jurisdictions, retailers must follow nexus laws in all 50 states, not just where they have physical operations. Add in the widespread use of drop-shipping post-Wayfair, and the situation becomes even more complex. For retailers operating digitally, indirect tax software tools are essential for maintaining compliance with economic nexus laws and meeting states’ varied sales tax requirements.

To dig deeper, visit the original article on the Thomson Reuters blog.