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What is Sales Tax Trailing Nexus, and How Does it Affect Your eCommerce Store?

  • Jun 1, 2016 | Suzanne Kearns

In the ever-changing world of nexus, states are continuing to try expand upon the original Quill Supreme Court ruling that says a seller must have some kind of physical presence in a state in order to be obligated to collect and remit sales tax for that state. And one of the ways states are doing that is with trailing sales tax nexus. Let’s take a look at it and see if it affects your business.

What Is Trailing Nexus?

Many people think that if you trigger nexus in a state, you no longer have nexus once that trigger is removed. For example, if an out-of-state seller has a salesperson in a state, which would trigger nexus, and they decided to let that salesperson go, they might believe they were no longer obligated to collect sales tax for that state. And while that used to be true, some states are passing laws that say once a seller establishes nexus in a state, the obligation to collect and remit sales tax stays in effect for a period of time.

Experts say that about half of states have some sort of trailing nexus provision, but it’s not always published in the statutory regulations. Instead, many states use administrative publications, regulations, and informal policies to implement the rule, which makes it that much more difficult for sellers to keep up. Here are some examples of how states deal with sales tax trailing nexus.

Trailing Nexus Examples From Five States

Here are examples of how five states decided to write their trailing nexus laws.

  • Washington. In Washington State, if you stop an activity that created nexus for your business, you will continue to have nexus for the remainder of that year, plus one additional calendar year.
  • California. The California State Board of Equalization cites an example of a bookstore that triggered nexus by physically distributing coupons in the state. Once the seller left the state, it continued to realize sales from those coupons, and the state says it is entitled to any lingering sales generated from a nexus-triggering activity. To collect sales tax on those sales, California requires sellers who stop a nexus activity to continue to collect and remit sales tax for the remaining quarter, plus an additional quarter.
  • Texas. In the past, sellers that had nexus in Texas were required to continue to collect sales tax for a full year after ceasing the nexus activity, but the state has changed its tune. That law has been retroactively eliminated, and now when a seller ceases activities that trigger nexus, the obligation to collect sales tax ends.
  • Michigan. According to the Michigan Department of Treasury, once a seller has established nexus, they are required to collect sales tax from that date until the end of that month, plus an additional 11 months.
  • Minnesota. If you do business for four days within a 12 month period in this state, you trigger nexus. According to the State’s law, you are then obligated to collect and remit sales tax starting on the fourth day and then continuing for the following 11 months.

Trailing nexus is not an easy concept, and because not many states put their laws in easy-to-find publications, you should contact each Department of Revenue in the states you do business in to learn about your obligations. You can use this list published by the IRS to find the DOR office in each state.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Suzanne Kearns
Avalara Author Suzanne Kearns