What is trailing nexus?

Trailing nexus, sometimes referred to as residual nexus, occurs when a state requires that a business collects sales tax for a duration of time specifically after they no longer meet physical or economic nexus thresholds. The thought process behind this concept is that although your business may no longer be active in terms of physical or economic nexus activity, it doesn’t necessarily mean that no business activity is occurring afterward.

Here are some situations which might lead to having trailing nexus:

• Exceeding the minimum transactional threshold of a state’s economic nexus legislation.

• Transportation of products to a new tax jurisdiction with a vehicle owned by the business i.e. company transport vehicle.

• A company employee or sales vendor attends a trade convention or show.

• Joining an affiliate partnership or referral program which can potentially create presence within other jurisdictions. 

• Having inventory stored in a separate jurisdiction other than where the company is located. 

Keep in mind that these are just a few examples of the numerous nexus trailing causing scenarios businesses may run into! Please consult your CPA or tax advisor for further details.

What about states without definitive trailing nexus laws?

When it comes to US sales tax laws and provisions they are rarely consistent to say the least. Therefore, other states have regulations that are either indirect or nonexistent. If you aren’t sure whether you can inactivate your sales tax permit, double-check with a state & local tax expert or the state tax authority for more information.

As you can see, staying compliant with sales tax can be tricky. Taxually is here to help with that! Our sales tax software will help you stay on track with your nexus provisions and anything else tax related to keep you and your business compliant.