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Mattress World鈥檚 recent closure, due in part to owner Sherri Hines owing nearly $2 million in uncollected Washington sales tax, is a wake-up call for other Oregon companies with similar business dealings to the north, according to a trio of Portland attorneys.

Tonkon Torp鈥檚 Michael Millender, who specializes in business taxation, said Washington鈥檚 economic nexus law determines when an out-of-state retailer must collect sales tax. The nexus is the minimum threshold of contact between an out-of-state company and a state, which determines when the company is required to collect sales tax and pay the state. Generally, the out-of-state retailer must have some sort of physical presence in a particular state before it is required to pay sales tax.

Economic nexus laws arose during the late 1950s. Washington enacted a change to its nexus law in June 2010 that goes beyond the traditional physical presence standard. Now, any company that earns more than $250,000 by selling products within the state or earns 25 percent of its property, payroll or gross receipts within the state must pay sales tax.

鈥淪tates take a variety of views on what it means to cross that threshold, and Washington happens to be fairly aggressive,鈥� he said.

In Mattress World鈥檚 case, the nexus kicked in when Washington residents purchased products from stores in Oregon, and then Mattress World delivered those products using company trucks. The company trucks established a physical presence, Millender said.

Another example of the economic nexus is when companies that are based in Oregon begin traveling to trade shows to offer samples of their products or do demonstrations. This activity could potentially establish a nexus, and those companies would then be required to collect sales tax in states where the trade shows were held, Millender said.

If, on the other hand, a company is selling products online or through catalogs and uses a common carrier such as FedEx or UPS to deliver the products, no such nexus is created.

Mitch Baker, a partner at Fisher & Phillips鈥� Portland office who specializes in employment law, says the nexus law orbits his core practice because it doesn鈥檛 directly relate to employment law matters. It does, however, come into play when employees work as delivery drivers for a company.

鈥淚f employees are delivering products to Washington, they need to know to collect sales tax from customers there,鈥� he said.

Baker added that he was intrigued by the taxation impacts that surfaced when Mattress World announced it was closing its doors. 鈥淭his is a really interesting issue, and I鈥檓 curious to see how it鈥檚 going to play out,鈥� he said.

Barran Liebman鈥檚 Iris Tilley said that while Washington鈥檚 economic nexus law has been in effect for some time, it is gaining more attention because of the state鈥檚 determination to ensure out-of-state companies adhere to it.

鈥淚t is increasing in commonality because there is so much more enforcement. States are trying to raise revenues in any way we can, so it鈥檚 being noticed more,鈥� she said.

Tilley said she advises clients that are Oregon-based companies to record everything separately when they do business in Washington. She also recommends they learn as much as possible about the taxation requirements related to out-of-state sales so that their footprint outside their home state is a positive, lucrative experience rather than a financial nightmare.

Millender echoed that sentiment, noting his clients have various levels of awareness about their sales tax responsibilities when they do business outside of Oregon. The economic nexus issue could be a double-edged sword for companies that are expanding their reach.

鈥淚t鈥檚 crucial for Oregon businesses to think about the issue when they鈥檙e growing, particularly as they start to engage in sales and marketing activities in other states that could create nexus,鈥� he said.

Tax specialists note that Washington鈥檚 success in collecting revenues with its updated economic nexus standard and more aggressive enforcement policy has more states looking at how they collect taxes. It is expected that nearly every state in the country will adopt a similar standard within the next few years.