Sales tax nexus should be a familiar term to any online seller – after all, how it’s applied can affect your business’s tax obligations as well as your bottom line. Nexus refers to the idea that a business must have ties of some sort to a particular state before collecting and remitting sales tax there.
Federal law concerning nexus was established by Quill Corp v. North Dakota (1992). This Supreme Court case stated that a business’s presence within a state must be physical, such as a retail store, warehouse, or one or more employees. To that end, nexus was referred to as “sufficient physical presence.” However, the advent of internet sales and a recent Supreme Court ruling changed everything.
With South Dakota v. Wayfair, Inc (2018), the Supreme Court overturned the Quill ruling that a business’s presence must be established physically. Instead, virtual economic ties to a state are considered as well as the physical presence. If your online business crosses certain revenue and sales transaction thresholds for a state and establishes sufficient economic nexus, you must collect and pay sales tax there regardless of physical location.
How Were Individual States Affected?
Prior to South Dakota v. Wayfair, several states had already established their own economic nexus laws, though many had not enforced them. After the ruling, Illinois online sales tax rules were among the first to change; overall, 31 states eventually enforced existing laws or enacted new ones. With only one exception (Tennessee), these laws and their respective retail thresholds were all effective on or before January 1, 2019.
New ecommerce sales tax rules in Illinois became effective as of October 1, 2018 and current Illinois law states that to collect sales tax online, a business must sell tangible personal property and cross either of the following thresholds:
- Sales revenue greater than or equal to $100,000
- At least 200 separate sales transactions
It’s important to note that only one of the thresholds must be met in order to result in an Illinois state sales tax economic nexus. Two hundred or more transactions that result in revenue below the $100,000 threshold still require a business to charge and remit state sales tax. Similarly, a business that produces $100,000 in online revenue would be required to charge sales tax even if fewer than 200 sales occurred.
Your Business Could See Tax Changes
If your business sells tangible products in Illinois and meets either the revenue or the sales requirement listed above, you will need to collect sales tax online in the state However, other states hold different requirements, and sales tax obligations in those states should be determined separately. Avalara offers a host of tax compliance services to help you with these tasks and others.
Disclaimer: The information in this blog post is provided for general informational purposes only and should not be construed as legal advice from Forix or Avalara.