Washington D.C. Economic Nexus Explained

The Supreme Court case ruling of South Dakota v. Wayfair enabled states to start collecting sales tax from businesses who now qualify for significant presence in their state.

The former Nexus rule was defined through a physical presence in a state, which meant that you qualify for Nexus if you operate a brick and mortar store, employ staff, manage inventory in a fulfillment center, as well as certain other criteria for physical engagements in a state.

However, due to the South Dakota v. Wayfair ruling you are now required to legally obey to certain economic activities in a state as well. Those qualifying economic activities in a state are now referred to as Economic Nexus.

What are Economic Activities?

Simply put, if you pass a state’s economic threshold for total revenue and/or number of transactions in that state, you are now required to register, collect and remit sales tax for that state. It is important to understand that economic thresholds do vary by state, which can make things quite tricky if your business transacts across multiple states.

What are the Thresholds for Economic Nexus in Washington D.C. ?

Revenue threshold: $100,000 in Washington D.C.

OR

Transaction threshold: More than 200 transactions in the state in the current or last calendar year.

Remote sellers in Washington D.C. who exceed the $100K gross sales or the 200 transactions are now required to collect sales tax on sales that ship to Washington D.C. and remit the sales tax to the state.

How do I Minimize my Exposure?

First, ensure you understand your Economic Nexus footprint.

EXEMPTAX offers a free Economic Nexus Test, which will provide you with quick and easy way to understand in which state you could potentially expose your business to sales tax.

Once you are aware of your Economic Nexus exposure, ensure to manage your tax exemption certificates correctly.

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.

If your business qualifies for Economic Nexus in several states, you may want to consider partnering up with a tax service provider who provides you with an online platform to ensure you are prepared for your audit at all times.

Look out for these essential features in a tax service provider:

1. Preset validation rules are ready for you and your team to utilize
2. Free uploads of your paper certificates to keep all items in one place
3. Restricted auditor access to make the audit as quick as possible
4. Quick and easy exposure heat map in real time
5. Automated emails to your customers to keep certificates current

Make sure you evaluate different providers and select a platform, which fits your business needs in terms of usability, cost and commitment. There is no need to spent tens of thousands of dollars per year or lock yourself into a multiyear contract.

EXEMPTAX provides you with a FREE PLAN to ensure you can test drive the full