As businesses expand within the U.S. market, understanding the complexities of sales tax compliance has never been more critical. In 2025, companies will face ongoing challenges as states refine their tax policies, broaden their taxable bases, and streamline tax collection processes. Staying ahead of these changes is vital for maintaining compliance and operational efficiency.
This article explores key sales tax developments expected in 2025 and provides strategic insights to help businesses adapt to this dynamic regulatory environment.
Understanding Nexus: The Cornerstone of Sales Tax Obligations
Nexus is the foundation of a business’s obligation to collect sales tax. A company establishes nexus with a state through physical presence—such as owning property, having employees, or storing inventory—or by exceeding economic thresholds. Most states define economic nexus as exceeding $100,000 in gross sales or conducting 200 transactions within the previous or current year.
However, recent legislative trends indicate that the 200-transaction threshold is being phased out in several states. For instance, Indiana, Louisiana, North Carolina, South Dakota, and Wyoming have all eliminated this threshold, with more states expected to follow in 2025. This shift increases the importance of monitoring sales activity to ensure compliance.
Additionally, court rulings highlight the need for businesses to carefully monitor physical nexus. For example, Washington State recently upheld a tax assessment against sellers using the Fulfillment by Amazon (FBA) program, ruling that inventory stored in-state created a physical nexus. Similarly, companies leveraging third-party distributors, such as in Arizona, must evaluate their supply chain activities, as these could inadvertently trigger nexus obligations.
Key Action Items:
- Assess your supply chain and distribution strategies for potential nexus liabilities.
- Stay informed about state-specific legislative updates and court decisions affecting nexus.
Marketplace Facilitator Laws: Expanding Responsibilities for Platforms
Marketplace facilitator laws have reshaped the landscape of sales tax compliance by shifting the responsibility of tax collection from individual sellers to platform operators. These laws are now in effect in all states that impose sales tax, as well as the District of Columbia, and apply to a growing range of taxes and fees, including retail delivery fees and prepaid wireless fees.
Businesses operating on digital marketplaces must determine whether they qualify as marketplace facilitators under varying state definitions. Court cases have demonstrated that states aggressively enforce tax obligations, even retroactively. Additionally, marketplace facilitators need to evaluate whether their commissions or fees are subject to taxation as data processing services, which some states, such as Texas, have recently begun scrutinizing.
Key Action Items:
- Analyze your role on digital marketplaces to determine applicable tax obligations.
- Review the classification of your commissions and fees to identify potential tax liabilities.
Taxability Trends: Digital Products and Software Under Scrutiny
As states seek to diversify revenue streams, taxation of digital products and software continues to expand. Recent developments include laws in Kentucky, Maryland, and Vermont imposing sales tax on software as a service (SaaS). Starting in January 2025, Louisiana will also tax SaaS and specific information services under defined conditions.
This trend extends beyond SaaS, with some states considering taxes on data-related services. For example, Virginia is evaluating legislation to tax services like software applications and data storage. Additionally, states are increasingly exploring taxes on consumer data collection, adding another layer of complexity for businesses.
Key Action Items:
- Monitor proposed legislation on taxing digital products and services.
- Evaluate your offers to determine if new tax laws apply to your business activities.
Conclusion: Preparing for the Sales Tax Landscape of 2025
Sales tax compliance is evolving rapidly, with significant changes expected in 2025. Businesses must proactively adapt to shifting nexus definitions, expanding marketplace facilitator responsibilities, and the growing taxability of digital products.
By implementing robust compliance strategies, leveraging expert guidance, and staying ahead of legislative changes, companies can maintain agility and reduce risk in this dynamic tax environment.
At TaxDo, we specialize in simplifying sales tax compliance and helping businesses navigate complex sales tax landscapes. With our sales tax automated platform and expertise, you can confidently adapt to the U.S.’s ever-changing sales tax regulations and focus on what matters most growing your business. Contact us today to learn how we can support your success.