The spatial Markov model is a Lagrangian random walk model, widely and successfully used for upscaling transport in heterogeneous flows across a broad range of problems. It is particularly useful at early or pre-asymptotic times when many other conventional upscaling approaches may not be valid. However, as with all upscaled models, it must have its limits. In particular, the question of what the smallest scale at which it can be legitimately applied, without violating implicit assumptions, remains. Here we address this issue by considering one of the most classical transport upscaling problems: Taylor dispersion in a bounded shear flow. We demonstrate that the smallest scale for the spatial Markov model depends on the transverse width of the domain, the variability of the flow field as quantified by a coefficient of variation, and the competition of longitudinal and transverse diffusion coefficients. We show that this scale is a factor of the Peclet number smaller than the classical Taylor dispersion scale, meaning that for advection-dominated systems where Peclet numbers are large, this model can be applied at much smaller scales than classical Taylor-Aris dispersion theories.