Notifying a State That You No Longer Have Nexus
- January 30, 2016 | Mark Berens
When an out-of-state business owner decides to permanently exit their host state, that triggers (or, unless they want to go full-on criminal, should trigger) a few courtesy calls. One of these is to that state’s department of revenue (or other agency that collects taxes) to let them know that the owner’s nexus is no longer. For the most part, knowing that your nexus has vanished is no mystery.
4 Ways to Know Nexus Has Left the Building
This subhead is certainly one clue -- you left your building or your building left you -- but there are several others:
- You closed or sold your business. This includes brick-and-mortar shops and ecommerce sites.
- You have no physical location, storage, or employees. You no longer have a main office, satellite office, warehouse, or employee(s) in the state.
- You have no customers. Your sole customer or customer base in the state has left and there’s no indication new ones will replace them.
- You no longer have inventory in an Amazon Fulfillment Center. This is the tricky one: For some states, having inventory in an Amazon Fulfillment Center triggers nexus, while in others it won’t. Therefore, this may or may not affect nexus standing.
If you think you meet the above criteria, for the most part you just have two more steps ahead of you in the notification process.
Step 1: Get the State’s Green Light
While deciding that you no longer have nexus on your own may be relatively easy and clear, getting the state to agree with your assessment may not be. While they can’t deny certain hard facts as outlined above, they certainly have interest in keeping you legitimately registered as a tax source and, therefore, may (1) make you prove that your nexus doesn’t exist or, (2) invoke their trailing nexus provisions (business activities that continue to give you sales after your nexus ends). Either way, though the final decision as to your nexus status is made by the state, not you, don’t let that deter you from making your claim -- just be sure to have all your facts supporting termination of nexus in order.
Step 2: Make It Official
Once you and the state have reached agreement, officially notifying them that you no longer have nexus is often as simple as making a phone call to the state’s department of revenue, filling out an online form, or checking the “Final Return” box on your last tax return. While some states may have additional forms to complete or may even send a post-closing questionnaire, for the most part your nexus is gone and you no longer need to file or remit sales taxes there. Congratulations.
Notifying a state that you no longer have nexus is relatively simple process in itself, but is really just one step in the more involved process of closing your business. Remember: it’s the state’s call, not yours, when it comes to making the final determination of your nexus status. That being said, it’s a good idea for any out-of-state business to be proactive: they should periodically check their nexus status or hire a tax accountant to do so -- this status can change over time just enough to affect your need to file sales tax returns.