The (short) Story Behind Economic Nexus

In 1992 the US Supreme Court in the case of Quill Corp. v. North Dakota, reaffirmed the “physical presence” standard. This meant that before sales tax nexus could be established, there had to be some sort of physical presence within a State. These standards lasted for decades and while a certain complexity existed for some businesses, those rules were generally manageable.

Now, on June 21, 2018, the U.S. Supreme Court ruling South Dakota v. Wayfair overturned the physical presence standard and established new standards for “substantial nexus”.

Tax laws just became a whole lot more complex.

The new ruling paved the way for States to enact “economic nexus”, which allows States to mandate tax obligations based on certain thresholds in gross sales and/or transacted volumes. Businesses are now required to calculate, collect and remit taxes if these threshold are met, regardless whether they have physical presence in that state or not.

The best way to minimize your tax obligation is to ensure you collect and validate all of your tax exemption certificates accurately and renew them on time.  Consider partnering up with a tax service provider who fits your business needs in terms of usability, cost and commitment.

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