Understanding and Calculating Economic Nexus Thresholds for Sales and Use Tax

While a few states such as Hawaii and Vermont already have active economic nexus provisions in place for sales and use tax, remote sellers are anxiously working to comply with a number of states whose economic nexus provisions go into effect on October 1, 2018.

The states of Alabama, Illinois, Indiana, Kentucky, Michigan, Minnesota, New Jersey and Wisconsin all have laws that go into effect on October 1 for remote vendors meeting certain economic thresholds. As such, it is critically important for remote sellers to understand and calculate the thresholds correctly to ensure they are properly registered and filing sales tax returns in the required jurisdictions. All of the above states, with the exception of Alabama and Minnesota, use thresholds of $100,000 in sales or 200 individual transactions.  However, not all states calculate their thresholds in the same way.  

For instance, most of the states use an annual figure, such as the previous or current calendar year’s sales. If you are a remote vendor who exceeded either of $100,000 in sales or 200 individual transactions in 2017 or 2018, you will need to register and begin collecting sales tax in the following states by October 1, 2018: Indiana, Kentucky, Michigan, New Jersey and Wisconsin.  

Illinois and Minnesota calculate their thresholds a little differently, they use the 12- consecutive-month rule. In Illinois, remote sellers at the end of September will need to calculate their thresholds for the past 12 months to see if they exceed the $100,000 in sales or 200 individual transactions thresholds. When calculating the thresholds for Illinois, remote vendors are not to include sales for resale, sales from out of state that require registration with an Illinois agency (motor vehicles, trailers, aircraft, watercraft, etc.) or occasional sales.  

If remote sellers have met the threshold for the past 12 months in the period ending September 30, 2018, they must register and begin collecting sales tax on October 1, 2018. For remote vendors not meeting either threshold, they must perform the same calculation at the end of the next quarter to see if they exceed either of the thresholds for the 12- month period ending December 31, 2018. Remote sellers meeting either threshold must begin collecting sales tax on the first of the following month (January 1, 2019); those who do not meet either threshold must repeat the process at the end of the following quarter (March 31, 2019). Once the threshold has been met, vendors must register and begin filing returns for at least one year before they can perform the threshold calculations again to see if they still have an economic presence and nexus with Illinois.

Minnesota uses a straight 12-month period for its threshold calculation. As such, remote vendors not meeting the thresholds will have to calculate each month to make sure that they are not approaching the state’s 10 or more transactions totaling $100,000 or 100 or more individual transactions. 

Remote sellers should not assume that all states using the same or similar economic thresholds calculate their thresholds the same way. Remote vendors should check the respective state’s rules to make sure they understand what the economic nexus standard is and how the thresholds are calculated. If you have any questions regarding the proper calculation of a particular nexus threshold, you should consult with your state and local tax professional.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2022 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
What is the FICA Tip Credit and How Can Employers Take Advantage of It?
Deferring Gain on Sale of Vacation Property
Some Things You Probably Aren’t Thinking About as a Dealer When It Comes to the Rise in Interest Rates
Can Solar Power Assist with the Infrastructure Needed to Charge EVs?
Retail, Tax BY Kristyn Stang
Don’t Overlook the Work Opportunity Tax Credit (WOTC)
Accelerating Charitable Efforts Act Under Consideration
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.