Corey L. Rosenthal, JD, and Ashley Spina, JD, LLM

Most CPAs are aware of the sale/use tax implications of the infamous Supreme Court decision in Wayfair almost five years ago. This article will revisit some of the transaction thresholds in multiple states and explore whether these benchmarks for determining sales tax economic nexus will continue prospectively.


In 1992, the Supreme Court in Quill Corp. v. North Dakota [504 U.S. 298 (1992)] held that a “state cannot require an out-of-state retailer to collect sales/use tax unless the retailer has a ‘substantial’ nexus with the taxing state; that is, a physical presence.” As a result of the changing economy and the increase of online sales, many out-of-state businesses with significant revenue into a state were able to avoid collecting and remitting sales tax under this physical presence requirement, for example, online retailers like Wayfair and Amazon. In 2016, South Dakota enacted the country’s first economic nexus provisions for sales tax; the law required out-of-state businesses with no physical presence in the state to register for and collect sales tax if the business had more than $100,000 in gross sales, or had at least 200 separate transactions. At the time the law was drafted, South Dakota did not have the authority under the U.S. Constitution to impose such a tax on out-of-state retailers.

As expected, the legal battle over South Dakota’s economic nexus provisions made its way to the Supreme Court of the United States [South Dakota v Wayfair, 585 U. S. ____ (2018)]; for the first time since 1992, a tax case was set to make history. As some expected, the Court sided with South Dakota and overturned the long-standing physical presence requirement for sales tax, which then allowed all states to tax out-of-state businesses that make remote sales into a particular state (if the threshold requirement was exceeded and left unchanged the physical presence requirement).

In June 2018, the Wayfair decision became the law of the land; within a few months, many states implemented various thresholds ranging from $100,000 to $500,000 and/or 200 transactions. In 2019 and 2020, almost all states had enacted similar economic nexus provisions. Only five years have passed since Wayfair and states are already amending their economic nexus provisions to properly reflect business activity in their state.

Current Developments

As of January 2024, all states that impose a sales tax have adopted some form of economic nexus for sales tax. There are essentially three ways that states have drafted the regulations: 1) sales threshold; 2) sales or transaction threshold; and 3) sales and transaction threshold. Sales threshold states, such as Arkansas, Florida, Idaho, Massachusetts, and Texas, disregard a transaction threshold, meaning if an outof-state business exceeds the sales thresholds, such business has established economic nexus in the state. States such as Arkansas, Michigan, and Vermont have adopted a sales or transaction threshold approach. Only two states, Connecticut and New York, require an out-of-state business to exceed both sales and transaction thresholds.

It is important to note that the Supreme Court did not explicitly hold in Wayfair that the $100,000 or 200-transaction threshold was the standard to determine substantial or sufficient economic contacts; rather, the Court merely held that the economic nexus threshold drafted by South Dakota did not impose an undue burden on interstate commerce. Like any new law or regulation, it can take time to see the real-life impact on taxpayers; many tax professionals have argued that the transaction threshold places an undue burden on small businesses. For example, a business that sells t-shirts, even if such t-shirts cost $10 each, will be required to register, collect, and remit sales tax if such business makes more than 200 transactions into the state, coming nowhere near the $100,000 threshold.

Reasonable people (or states) can differ on their opinion of “fair” or “undue burden,” and whether a transaction threshold is an undue burden for a small business. In 2023, states started moving away from the transaction threshold, not only due to the undue burden it places on small businesses, but also the undue burden it places on states to ensure compliance. In the above example, the business selling t-shirts had taxable sales of $2,000 into South Dakota; assuming an average combined rate of 6.4%, the state would stand to collect a mere $164.

One might question whether the purpose of Wayfair was to require an out-of-state business with an annual tax payment of $164 to South Dakota to register, collect, and remit sales tax. If such business does not comply with the economic nexus provisions, should a state use its already thin resources to try to collect $164 in sales tax when such efforts could be redirected at large corporations with hundreds of thousands, if not millions, in unpaid sales tax? If the cost to a state to track down businesses who are noncompliant is less than the amount they can potentially collect, should something change?

Many states have already come to the conclusion that change is needed; as of January 2024, approximately 20 states have amended their economic nexus thresholds to remove the transaction threshold, including Colorado, North Dakota, Washington, and now even South Dakota. Some states applied the changes retroactively, while other states made the change effective on date of passage.

It will certainly be interesting to see what happens throughout 2024. Will more states move away from the transaction threshold, or will states increase the transaction threshold? The authors’ bet is on the former.

Clearly, CPAs need to continue to monitor these multistate sales/use tax developments in order to properly advise clients.

Corey L. Rosenthal, JD, is a principal at CohnReznick LLP, New York, N.Y.
Ashley Spina, JD, LLM, is a senior manager, transactional advisory services, at Value360.