How trailing nexus works - Will's Whiteboard
- Sales and Use Tax
- Apr 26, 2016 | Will Frei
Many companies assume that when they leave a state they no longer have sales tax obligations there. But for a great number of states that's just not true. Watch the video to learn about trailing nexus and how it can impact your business.
Hi, welcome to Will’s Whiteboard. I’m Will.
Many businesses are familiar with the concept of nexus when it comes to sales and use tax, nexus being the connection you have with a location that can give you the obligation to collect and remit sales tax to a certain location. But, some businesses think that if they sever nexus, that connection, in a certain state and leave, they’re done with sales tax. That’s because they’ve never heard of this weird thing called trailing nexus. So what is trailing nexus, and how can it get in your way? That’s what we’re going to talk about today.
So let’s say you have a warehouse in the state of California, or you’ve been working with affiliates there, basically you have nexus, and you decide, “Hey, it’s not worth it to continue those relationships, it’s too hard to manage the business taxes there, we’re going to ship somewhere else and we’ll be done with nexus.” Not so fast. See, the State of California is not quite done with you at that point and in fact many states have this concept of trailing nexus.
What does that mean for you? Well, that means after you sever your connections, you’re going to have to keep records for a number of years, sales tax records. Okay. You could have to file sales tax in that state for up to 12 months or even longer after you sever your connections. And the real kicker, in places like California, you could still have to collect and remit sales tax to the state long after you’re gone.
So, while you may think that you look like this really awesomely drawn car here and this is your exit, boom, you’re out of there and you’re on to growth, you might be looking more like this. Right? You’re leaving some stuff behind. You have some more connection to the state that you have to deal with. So, if you’re severing your ties with a state, you’re going to want to consult a sales tax expert so that trailing nexus doesn’t make a mess of your exit.
Thanks a lot. I’ll talk to you next time.