Navigating the ever-changing landscape of sales tax compliance can be a challenging endeavor for businesses. As sales patterns evolve and business circumstances change, it's crucial to stay on top of your sales tax obligations, even when you no longer meet the criteria for nexus. This is where Peisner Johnson comes in. With expert guidance and a personalized approach, Peisner Johnson can assist you in understanding and managing trailing nexus, ensuring your compliance with sales tax laws.
First, let’s cover our bases. What exactly is trailing nexus? Trailing nexus refers to the requirement imposed by certain states that businesses must maintain their sales tax permit and continue to comply with sales and use tax laws, even after they no longer meet the nexus criteria. While each state has its own specific regulations, the underlying principle remains the same - nexus obligations can persist beyond the initial nexus-establishing activities.
For example, the state of Washington states that nexus continues even after a person ceases the activities that originally established nexus. This concept of trailing nexus is applicable to all taxes reported on the excise tax return, including retail sales tax. Similarly, Michigan declares that once nexus is established, it shall exist for a seller for the remainder of the month and the following 11 months after the second contact in the state.
If a remote business stops engaging in activities that create a connection to a state for sales tax purposes, the state cannot demand the business to maintain its sales tax registration indefinitely. Nonetheless, there can be a lingering nexus, which may persist for weeks, months, or even years.
Economic nexus is triggered when a seller, without a physical presence in a state, reaches specific economic thresholds. Many economic nexus standards are calculated based on the immediate previous year or the current/preceding calendar year. Consequently, businesses typically need to retain their sales tax registration for the year following the establishment of economic nexus, even if their sales during that time fall below the economic nexus threshold.
Deciding when to cancel your sales tax registration can be a challenging decision, as it requires careful consideration of future sales projections. If you can confidently predict that you will no longer meet the sales tax nexus threshold in a tax jurisdiction and have no intention of re-establishing nexus in the long term, cancellation may be appropriate. Reasons for cancellation may include business closure, change of ownership, or the enactment of marketplace facilitator laws that shift the responsibility of tax collection and remittance to the marketplace.
However, it is essential to contact the state authorities to confirm that you no longer have nexus. Never assume that your nexus obligations have ended, as states are reluctant to surrender sources of revenue.
Trailing nexus can significantly impact online sellers because their sales are typically spread across multiple states, and sales volumes in each state can vary. For instance, after experiencing a strong year of sales in one state, they might encounter a year of lower sales in the same state.
For online sellers with a customer base covering the entire country, it’s advisable to maintain their sales tax registration even if their sales temporarily fall below the economic nexus threshold. According to the Miles Consulting Group, businesses should consider the long-term perspective and attempt to predict future sales in each state. Choosing to file zero returns for a period could be a better strategy than deregistering and then re-registering once sales pick up again, as states value consistency in tax compliance.
On the contrary, if an online seller is certain that they do not have sales tax nexus with a particular state and have no plans to establish it in the future, the best course of action could be to deregister or let their registration expire. Ultimately, each business will have to assess its individual circumstances and make the decision that aligns with its specific needs and goals.
The initial stage in identifying trailing nexus involves determining whether your business has sales tax nexus, which can be established through physical presence, economic activities, or other means. As nexus can be established in unforeseen ways, conducting a nexus review is likely the most appropriate starting point.
Maintaining compliance with sales tax regulations, especially when dealing with trailing nexus, is a complex and time-consuming task. Peisner Johnson offers the expertise, experience, and personal touch necessary to guide businesses through the intricacies of sales tax compliance. By partnering with Peisner Johnson, you can rest assured that your sales tax obligations are handled efficiently and accurately, allowing you to focus on what matters most - the success and growth of your business. Contact Peisner Johnson today and experience the difference of having a trusted ally in your sales tax compliance journey.
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