New Jersey’s proposed elimination of the 200-transaction threshold for economic nexus highlights a growing positive trend among states to simplify sales and use tax compliance and close revenue loopholes.
Introduced in December of last year, the bill raises an important question: why haven’t more states abandoned transaction thresholds—and should 2025 be the year we see the end of this outdated mechanism, nationwide?
Why Transaction Thresholds Should Go
The 200-transaction threshold, gleaned from the Supreme Court’s decision in South Dakota v. Wayfair, was a well-intentioned attempt to ensure out-of-state sellers contributed their fair share to the states from which they enjoy economic benefits—but it was never carved in stone. And the model quickly revealed its shortcomings.
The threshold injects unnecessary complexity into sales tax compliance, which is felt most acutely by small businesses. Sellers must navigate a maze of state-specific rules, tracking both revenue and transaction counts to avoid penalties—a task that grows exponentially burdensome for those operating across multiple states. The lack of uniformity in state transaction value or count thresholds has not been doing any favors to remote sellers, either.
The proposed New Jersey amendment wisely simplifies the criteria for taxation: sellers would only need to account for gross revenue to trigger tax collection responsibilities. Those sellers doing more than $100,000 in gross revenue in the Garden State would be required to collect sales and use tax, and those under that mark and not bearing any physical nexus to the state would not. This approach aligns more directly with actual economic impact, removing the arbitrary transaction threshold and ensuring a fairer application of state laws.
Eliminating transaction thresholds also closes a loophole so obvious it shouldn’t even be considered a loophole: high-value transactions, as long as they number less than 200 and come in under $100,000 in total, would not be subject to the tax despite potentially having a vastly larger economic effect on the state as against a couple hundred $1 transactions. Tying tax liability to gross revenue ensures that those liabilities reflect actual economic activity, leveling the playing field between small sellers and their larger counterparts.
This balance also better reflects the balance between the burdens placed on sellers and the rights of state to collect taxes from economic activity within their borders. Simplified compliance frameworks reduce administrative headaches for businesses, especially those without in-house tax expertise or the resources to outsource compliance.
A Broader Need for Uniformity
As more states take action to simplify the sales and use tax landscape, the benefits of uniformity become more apparent. A patchwork of state-specific thresholds creates friction of interstate commerce and necessitates an entire cottage industry of sales and use tax calculation services. If more states converge on revenue-based thresholds or adopt uniform nexus standards, the marketplace becomes easier to navigate for all participants—and transaction costs come down.
A simplified, revenue-only approach also furthers the modernization of tax systems, aligning them with the market realities of the digital age. Tax laws designed for brick-and-mortar businesses, like transaction thresholds that might reflect actual visits to the state by customers, are ill-suited to ecommerce—and ending the transaction nexus concept represents a much needed update.
Looking ahead to 2025, New Jersey’s move, if adopted, could signal a turning point. With economic conditions pressuring states to secure steady revenue streams and budget crunches abounding, expect more legislatures to revisit their nexus laws in the year to come. The trend toward revenue-only thresholds could gain momentum, as it simplifies not only compliance for businesses but also enforcement for state departments of revenue.
In the interim, businesses should closely monitor these state-level developments and advocate for further reforms that promote simplicity, fairness, and competition—while balancing the need for reliable state revenue streams. Ending transaction thresholds is ultimately just one part of the larger simplicity and uniformity puzzle, but it is an important one.
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