Updated – Originally published February 5th, 2025
Managing sales tax can feel overwhelming—especially as your business grows and expands into multiple states. Each state has its own sales tax rates, filing deadlines, and compliance rules. One of the most commonly misunderstood rules is trailing nexus.
Trailing nexus can require your business to continue collecting and remitting sales tax after you’ve left a state or fallen below its nexus threshold. In this guide, we’ll explain what trailing nexus is, how it works, which states enforce it in 2025, and how to stay compliant—without the stress.
Trailing Nexus: Simple Definition
Trailing nexus (sometimes called residual nexus) means a business may still be required to collect and remit sales tax for a period of time after it no longer meets a state’s physical or economic nexus thresholds.
Sales Tax Nexus Basics
Sales tax nexus determines whether your business has a legal obligation to collect and remit sales tax in a state. Nexus is created when your business reaches a minimum level of activity in a state, and it’s your responsibility to understand when you’ve crossed that line.
There are two primary types of sales tax nexus:
Physical Nexus
Physical nexus is created when your business has a tangible presence in a state. This can include:
- A store, office, or warehouse
- Inventory stored in the state
- Employees or remote workers living in the state
Many businesses are surprised to learn that a single remote employee can establish physical nexus—even if the business owns no property there.
Economic Nexus
Economic nexus is created when a business reaches a certain level of sales or transactions in a state, even without a physical presence. These thresholds vary by state and are typically based on:
- Total revenue in the state
- Number of transactions in the state
Because nexus rules differ in every state, tracking your activity across state lines is essential. For many businesses, nexus impacts strategic decisions about hiring, expansion, and where to sell products or services.
How Trailing Nexus Works
Trailing nexus comes into play after a business no longer meets a state’s nexus threshold—but isn’t immediately released from its sales tax obligations.
Why States Use Trailing Nexus
States recognize that economic activity doesn’t stop instantly. Even if a business closes a physical location or dips below an economic threshold, prior activity can continue to generate revenue. Trailing nexus allows states to collect sales tax on this continued economic impact.
How Long Trailing Nexus Lasts
The duration of trailing nexus varies by state. Some states require collection through the end of the calendar year, while others require businesses to remain registered until they formally withdraw their sales tax license.
Trailing Nexus vs. Regular Nexus
- Regular nexus: Your obligation begins when you exceed a threshold.
- Trailing nexus: Your obligation may continue after you fall below that threshold or leave the state.
Trailing Nexus Laws by State (2025 Update)
Sales tax laws change frequently, so it’s important to stay current. As of 2025, the following states have clear trailing nexus rules.
States With Trailing Nexus
- California trailing nexus: Remote businesses with economic nexus must continue collecting sales tax for the entire calendar year following the year they fall below the nexus threshold.
- Colorado trailing nexus: Remote sellers are required to collect sales tax for the entire calendar year following the year they no longer meet economic nexus.
- Michigan trailing nexus: Businesses with physical nexus must collect sales tax for 11 months after nexus ends. Remote sellers with economic nexus must collect for the entire following calendar year.
- Missouri trailing nexus: Businesses maintain nexus until they formally withdraw their sales tax registration.
- Washington trailing nexus / Washington State trailing nexus: Businesses must collect sales tax for the entire calendar year following the year nexus is no longer met.
- Wisconsin trailing nexus: Even after falling below nexus thresholds, businesses must collect and remit sales tax through the end of the year.
States WITHOUT Trailing Nexus
The following states have expressly stated that trailing nexus does not apply:
- Connecticut
- District of Columbia
- Florida
- Idaho
- New York
States With Unclear or Unspecified Trailing Nexus Rules
Many states have not explicitly addressed trailing nexus in their statutes or guidance. In these states, it’s generally accepted that trailing nexus does not apply—but this can change. This uncertainty is why searches like trailing nexus states and what states have trailing nexus remain so common.
Examples of Trailing Nexus in Action
Economic Nexus Trailing Example
A remote seller exceeds $100,000 in sales in a state during 2024, creating economic nexus. In 2025, sales fall below the threshold—but the state requires collection for the entire 2025 calendar year under trailing nexus rules.
Physical Nexus Trailing Example
A business closes its warehouse in a state in June. Even though physical nexus ends, the state requires continued collection for several additional months due to trailing nexus.
Trailing Nexus for Income Tax
Trailing nexus is most commonly discussed in the context of sales tax, but similar concepts can apply to income tax trailing nexus. Some states may continue to assert income tax filing obligations even after a business exits the state. Income tax trailing nexus rules vary widely and should be reviewed separately from sales tax requirements.
How Long Does Trailing Nexus Last?
| State | Duration | Applies To |
| California | Full following calendar year | Economic nexus |
| Colorado | Full following calendar year | Economic nexus |
| Michigan | 11 months (physical) / Full year (economic) | Physical & economic nexus |
| Missouri | Until registration is withdrawn | All nexus types |
| Washington | Full following calendar year | Economic nexus |
| Wisconsin | Through end of calendar year | All nexus types |
Why Trailing Nexus Matters for Remote Sellers
Trailing nexus is especially important for:
- E-commerce businesses
- Remote sellers
- Businesses with remote employees
- Sellers of digital goods and services
As digital commerce continues to grow, states are paying closer attention to remote activity—and trailing nexus allows them to extend tax obligations beyond the moment nexus technically ends.
How to Stay Compliant With Trailing Nexus
Track Activity in Every State
Monitor revenue, transaction counts, and physical presence in each state where you operate.
Maintain Required Records
Strong recordkeeping is essential:
- Sales receipts: keep for at least seven years
- Invoices: keep for at least seven years
- Exemption certificates: keep permanently
- Sales tax returns: keep permanently
Deregistration Isn’t Instant — Know Your State Rules
Canceling your sales tax license doesn’t automatically end your obligation. Trailing nexus rules may still apply—even after deregistration.
Do You Need a Sales Tax Expert?
Trailing nexus adds yet another layer of complexity to sales tax compliance. When you’re operating in multiple states, staying compliant requires clarity, organization, and ongoing attention.
At The Sales Tax People (formerly Peisner Johnson), real accountants and consultants help you understand your nexus footprint, manage trailing nexus exposure, and simplify your sales tax process—so you can focus on growing your business with confidence.
Simplify your sales taxes. Protect your business. Discover peace of mind.Schedule a free What’s Next? consultation to get clear answers and a plan you can trust.
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