Description of Sales Tax Thresholds by State

A few years ago, only business owners with physical shops within jurisdictions in the United States are required by law to collect sales tax. Now, every business owner that operates across the country whether online or offline is required to collect and remit sales tax from clients to the state and local government tax collection agencies. This requirement extends to all businesses around the country that transact over a state set revenue threshold with a few exceptions. However, it does not involve states that do not collect sales tax at all.

Before the sales tax threshold is discussed, it is important to understand what sales tax is and the nexus laws.

Sales Tax

In simple terms, sales tax is a mandatory levy that a jurisdiction imposes on the goods and services when purchased by the final consumer. Therefore, sales taxes are ultimately paid for by the final consumer. However, a business that sells the goods or services is responsible for the collection and remittance of the sales tax from their clients to the government agency.

To ensure that the right user pays for the sales tax of the good or service they purchase, series of paper documentation are created to show exactly who is liable for the payment of the tax. As a result, manufacturers and other businesses that purchase goods for the purpose of creating products or services for the consumption of the final consumer do not usually pay for sales tax as long as they have the right tax-exempt documentation or status.

Additionally, some states do not collect sales tax at all. Also, other states allow their local governments to collect additional sales tax from the sale of eligible goods and services.

Nexus Laws

Many state governments pushed to tax these entities because online businesses and stores get away with not paying sales tax on the sale of goods and services on their platforms. The effort was legalized by the American Supreme Court. The case of South Dakota v. Wayfair was the catalyst that completely changed the policies regarding sales tax for online shops and businesses. As a result, Nexus Laws now allow state tax agencies to collect sale taxes from businesses that benefit from the services of a state even if they do not directly sell goods within the jurisdiction. Therefore, having a physical or a digital presence within a state or jurisdiction can lead to the collection of sales taxes for business transactions.

Economic State Nexus Law Threshold

The ruling by the Federal Supreme Court has paved the way for all states to implement their own version of sales tax policies for online businesses. In general, each state may decide to create a total yearly sales threshold above which a business must collect sales tax from their customers. In other states, a threshold of the number of yearly sales is used as a benchmark to activate the mandate of collection of sales taxes. Some states use the combination of both amount and number of sales as thresholds that would be used to ensure the collection of sales taxes. This means that once either of the thresholds is required, a business is forced to register with the state to get a sale tax permit. In some states, all businesses (online or offline) must seek a sale tax permit regardless of the amount, and the number of transactions. However, some states do not collect sales taxes either from online or offline businesses. The table below shows a breakdown of the yearly transaction amount and the number of transactions by state.

S/N	State	Threshold/Year	Number of Sales Threshold/Year
1	Alabama	$250,000	any number
2	Alaska	$100,000	200
3	Arizona	$100,000	any number
4	Arkansas	$100,000	200
5	California	$500,000	any number
6	Colorado	$100,000	any number
7	Connecticut	$100,000	200
8	Delaware	nil	nil
9	D.C.	$100,000	200
10	Florida	nil	nil
11	Georgia	$100,000	200
12	Hawaii	$100,000	200
13	Idaho	$100,000	any number
14	Illinois	$100,000	200
15	Indiana	$100,000	200
16	Iowa	$100,000	any number
17	Kansas	any amount	any number
18	Kentucky	$100,000	200
19	Louisiana	$100,000	200
20	Maine	$100,000	200
21	Maryland	$100,000	200
22	Massachusetts	$500,000	100
23	Michigan	$100,000	200
24	Minnesota	$100,000	200
25	Mississippi	$250,000	any number
26	Missouri	nil	nil
27	Montana	nil	nil
28	Nebraska	$100,000	200
29	Nevada	$100,000	200
30	New Hampshire	nil	nil
31	New Jersey	$100,000	200
32	New Mexico	$100,000	any number
33	New York	$500,000	100
34	North Carolina	$100,000	200
35	North Dakota	$100,000	any number
36	Ohio	$100,000	200
37	Oklahoma	$100,000	any number
38	Oregon	nil	nil
39	Pennsylvania	$100,000	any number
40	Rhode Island	$100,000	200
41	South Carolina	$100,000	any number
42	South Dakota	$100,000	200
43	Tennessee	$100,000	any number
44	Texas	$500,000	any number
45	Utah	$100,000	200
46	Vermont	$100,000	200
47	Virginia	$100,000	200
48	Washington	$100,000	200
49	West Virginia	$100,000	200
50	Wisconsin	$100,000	any number
51	Wyoming	$100,000	200

Description of Sales Tax Thresholds by State

1. Sales Tax Thresholds in Alabama

Once you hit the sales tax threshold, which is $250,000, you must start to pay a 4% sales tax on all goods and services you sell in Alabama. The sales tax applies to both tangible and digital products. However, even before you consider the sales tax threshold, you need to consider whether you have a nexus in Alabama. The word means having a commercial connection with the state. You have a nexus in Alabama if you have some kind of physical presence in Alabama. That can be a store, employees, or sales affiliates. That can also include a significant amount of sales coming from Alabama residents.

2. Sales Tax Thresholds in Alaska

Alaska has a zero percent statewide sales tax, but that does not mean that there is no sales tax. Instead, the 0% state sales tax is just a benchmark that local jurisdictions use to calculate their sales tax. The sales tax in various local governments can be from 0% to 7.5%. You can expect to pay the sales tax at SPD (special purpose district) and city/county/school/transportation. Moreover, you have to monitor the sales tax monthly for any upcoming changes in the tax rate as well as when they are likely to take place. Over 100 municipalities charge between 2% to 5% sales tax. You have to check with each municipality to find out if you have a local or remote nexus.

3. Sales Tax Thresholds in Arizona

In Arizona, you can expect to pay at least 5.6% in-state sales tax and an average of about 2.80% in local sales tax. The minimum local sales tax you can pay is 0%, and the maximum you can pay is 5.6%. The combined state and local sales tax can be as high as 11.2%. The sales tax applies to goods such as furniture, motor vehicles, and home appliances, but groceries, gasoline, some medical devices, and prescription medicine are exempted. The first time a sales tax was collected in Arizona was in 1933.

4. Sales Tax Thresholds in Arkansas

Arkansas has a 6.5% state sales tax, and the local municipalities charge an additional sales tax. The total sales tax can be as high as 12.625%, in municipalities charging the maximum of 6.125% sales tax. The first sales tax in Arkansas was introduced in 1935. Customers that are exempt from paying a sales tax in Arizona include some nonprofit organizations, government agencies, and merchants buying goods for resale. However, sellers must collect an exemption certificate if they don’t charge the buyer a sales tax.

5. Sales Tax Thresholds in California

At 7.25%, California charges the highest state-level sales tax. The maximum sales tax you can pay is 10.50% when you include local/city sales taxes. This sales tax applies to items sold in the state, as well as items bought out of state and used in the state. For online retail businesses, this means they have to charge California residents higher prices. A retail business has a nexus in California if it has a store, warehouse, sales affiliates, and other business representatives in the state. All traders that sell goods to California residents must register with the California Department of Tax and Fee Administration (CDTFA) and pay taxes. California exempts certain foods, prescription medicine, and certain medical devices from sales tax.

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