- Do you know about the Supreme Court ruling regarding Economic Nexus Laws?
- Are you a brand, which does inter-state trade and business in different parts of America?
- Have you ever come across the State of Dakota versus Wayfair Nexus legal case?
- Is your business doing more than $100,000 USD worth of business in other states or more than 200 transactions per state?
Every business needs to be aware of new taxation laws and legal regulations that differ from state to state. Ignoring them might result in the cancellation of licenses or higher fines by the authorities. Business needs to pay economic nexus tax.
In this article, we will look at a piece of legislation that has altered the business landscape of America in a radical way- Economic Nexus Laws. We will also be reading about the now-famous State of Dakota versus Wayfair Supreme Court Ruling of June 2018.
What is the meaning of Economic Nexus Laws?
In simple words, ‘nexus’ stands for a connection, which a business might have in a particular state. This, in turn, means that a ‘sales tax’ has to be paid by the business to the legal entity of the state.
In other words, a nexus is a professional and legal relationship between a Taz paying company and a tax collecting legal authority.
In many ways, economic nexus laws owe their origin to huge tech corporations who do millions of dollars’ worth of businesses in states without ever having a physical presence there. The first company that comes to everyone’s mind when it comes to such a business model is Amazon.
Economic Nexus Means businesses that operate in different states of the country, making sales to residents of that state and generating revenues for their business.
One important thing to note about Economic Nexus Laws is that clearly defines the amount and the number of sale transactions and business must have done or generated to quality for the tax. We will be looking at the exact nature of the same in the following section.
State of South Dakota versus Wayfair: Supreme Court Ruling of June 2018
The above-mentioned legislation serves as the watershed for sales tax and nexus laws in America. However, before we come to the actual ruling, it is important to understand the history of the law.
In 1992, the case of economic nexus had come up in front of the Supreme Court. In 1992, Quill Corps and the State of North Dakota had argued for the imposition of nexus laws and new state tax laws before the court.
However, the Supreme Court had ruled in that case that businesses that do not have a physical presence in a state need not pay state tax or nexus tax to state authorities. This continued for the next 26 years when the decision was overturned in June 2018.
The Supreme Court, in light of new businesses (tech giants) operating in states, ruled that businesses who are doing more than $100,000 USD worth of business need to pay economic nexus tax. It also added a new specification of 200 transactions per state.
This meant that states could now collect state tax and nexus laws from businesses that did not have a physical presence in the state. This was seen as a huge piece of legislation that would generate a sizable income in the form of taxes from states.
To date, 30 states in the USA have enacted some form of economic nexus and state tax laws based on the South Dakota versus Wayfair Supreme Court Ruling. While some companies have criticized this move, others have welcomed it as a way of helping states improve their tax generation activities.
Can you name some of the states, which have implemented the nexus laws? Let us know in the comments section below.