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Texas Trailing Nexus Rule Is Eliminated


 Trailing nexus in Texas has been eliminated retroactively.

It has long been said that it is best to not mess with Texas. Certainly that is true when it comes to sales and use tax compliance. It takes very little to trigger nexus with Texas. Send a sales representative to one trade show and bam! You have nexus. Adding insult to injury, the state’s trailing nexus policy has long ensured that out-of-state sellers continue to collect and remit tax “for twelve months after it last engaged in business in Texas.”

The long arm of Texas trailing nexus has reached out-of-state sellers since at least 1985. Yet trailing nexus has recently been retroactively eliminated. According to the Texas Register,

“Subsection (b)(2) is further amended to delete the statement that an out-of-state seller who has been engaged in business in this state continues to be responsible for collection of use tax on sales made into this state for 12 months after the seller ceases to be engaged in business in this state. The comptroller has determined that this requirement, which is sometimes referred to as "trailing nexus" or "deemed nexus," is contrary to the physical presence test articulated in Quill v. North Dakota, 504 U.S. 298 (1992).”

Moving forward, “an out-of-state seller will only be responsible for collection of Texas sales and use tax until the seller ceases to be engaged in business in this state.” Out-of-state sellers must maintain documentation verifying the cessation of nexus for at least four years after nexus with Texas has ceased. Read, in full, the announcement regarding the amendment.

34 TEX. ADMIN. CODE § 3.286(b)(2) now reads as follows:

“Each out-of-state seller who has nexus with this state and is engaged in business in this state must apply to the comptroller and obtain a sales and use permit. An out-of-state seller is responsible for the collection and remittance of sales and use tax on all sales of taxable items made in this state until the seller ceases to have nexus with this state. An out-of-state seller ceases to have nexus with this state when the seller no longer has, and on longer intends to engage in activities that would create, nexus with this state. For example, an out-of-state seller who enters the state each year to participate in an annual trade show does not cease to have nexus with this state between one trade show and the next. In contrast, an out-of-state seller who discontinues the product line that it marketed and sold in this state, and who does not anticipated entering the state to solicit new business, has ceased to have nexus with this state. An out-of-state seller is required to maintain, for at least four years after the out-of-state seller ceases to have nexus with this state, all records required by subsection (i) of this section, including sufficient documentation to verify the date on which the out-of-state seller ceased to have nexus with this state. For more information regarding reporting periods, refer to subsection (g) of this section.”

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.