We know that a physical presence in a state can create sales tax nexus (per Quill decision). When does that nexus end? What if you had a sales office and then closed it? What about income tax nexus?
Some state laws specifically say that nexus can continue even after it looks like it ended. This is called “trailing nexus.” It seems odd. But, perhaps if you close your office and continue to fulfill orders from catalogs people picked up in your store when it was open or have a coupon you gave them that expires after you left the state, it makes some sense. Maybe.
For more, see my 21st Century Taxation blog post with some links – http://21stcenturytaxation.blogspot.com/2012/12/trailing-nexus-constitutional.html.
Have you had an auditor raise this issue? How do you advise clients as to when nexus ends?
Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.
Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.
Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.
Prior to joining SJSU, Annette was with Ernst & Young and the IRS.
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