Once I’ve met nexus in a state, will I always have to file?
by March 29, 2023
Please note: This blog was originally published in 2019. It’s since been updated for accuracy and comprehensiveness.
If you have nexus in Oklahoma, but don’t make any taxable sales in a period, do you still have to file a return? It may sound like a brain teaser, but for sellers – it’s a reality.
The answer to this question depends on whether or not you have a valid sales tax permit in the state. If so, you’ll likely be filing sales tax returns whether you have taxable sales to report or not. Here’s how to manage this scenario.
Zero returns
Sales tax is a source of revenue for states, so they want you to file and pay sales tax consistently, beginning with when you have a valid sales tax permit in their state. If you have not collected sales tax in a taxable period, they still need proof that you don’t have sales tax to remit. That’s where zero returns come in.
A zero return shows that you had no taxable sales generated in the taxable period, and therefore have no sales tax to remit to the state. While it might seem like a waste of time to sellers, it will keep you out of trouble with the state. States use sales tax returns as a way to check in with sellers. When you have a valid sales tax permit in a state, you are expected to file sales tax returns on time, and filing a zero return fills this obligation.
Filing frequency changes
When you applied for a sales tax permit in a state, you were given a filing frequency based on the information you gave at the time. Filing frequencies vary by state and how much revenue your business generates. As a general rule of thumb, higher volume sellers file more frequently than smaller sellers.
Your filing frequency can change as your business changes. The state can decide they want you to file more often, or less, depending on revenue growth or decline. If you begin consistently filing zero returns in a state, you may receive a filing frequency change notice. The state could decide to have you file less frequently since you aren’t generating much sales tax revenue.
When to cancel your sales tax permit
You might be wondering at which point you should consider canceling your sales tax permit. This is where it can get tricky. If your company has made taxable sales in the past, and the nexus creating activity has just stopped, the state may invoke the concept of “trailing” or “residual” nexus which may require that tax be collected and returns filed for six months or longer before they will accept your cancellation permit.
The state will assert this position by arguing that the sales activity (or the other nexus-creating activities your business had) has established a marketplace for your product in their state. They believe this marketplace will continue to generate sales even after these nexus creating activities have stopped. Existing customers may continue to buy products or new customers may be acquired based on historic nexus creating actions.
In some cases, the concept of trailing nexus may arise during an audit rather than immediately after you have filed your final return or submitted a registration cancellation. In those situations, the state may assess sales tax on untaxed sales for a period of time after your final return was filed and assert that the historical sales activities conducted by your company continued to create revenue for your company even after they stopped. If your company’s nexus creating activity in a state was the presence of an employee who had no nothing to do with soliciting sales, then the concept of residual or trailing nexus may not apply.
With all that in mind, canceling your sales tax permit might still be the right move. If the business closes, or the state now has a Marketplace Facilitator Law and allows marketplace sellers with no other sales activity in the state to cancel sales tax permits, it might be the best course of action to cancel your permit in the state.
If you have any questions or concerns about canceling your sales tax permit, we recommend consulting with a vetted sales tax expert.
