Have you noticed the sales tax complexity in recent years?
A few years ago, most small business owners only worried about collecting sales tax in their home state. Today, that’s no longer enough.
Sales tax has become one of the fastest-changing areas of business compliance, and if you’re selling products or services across state lines, understanding the basics can help you avoid costly surprises.
What is Nexus?
Nexus simply means a connection between your business and a state that creates a tax obligation.
Years ago, a business generally needed a physical presence in a state, such as an office, warehouse, or employee, before it had to collect sales tax there.
That changed in 2018 when the U.S. Supreme Court ruled in the South Dakota v. Wayfair case.
The decision allowed states to require businesses to collect sales tax even if they don’t have a physical location in the state. Instead, many states now use what’s called economic nexus.
What is Economic Nexus?
Economic nexus is based on how much business you conduct in a state. If your sales exceed certain thresholds, you may be required to register, collect, and remit sales tax there.
This means a business can trigger tax obligations in states where the owner has never even visited.
Continued Complexity
According to recent data from Vertex, there were 681 sales tax rate changes and new rates implemented across the United States, Puerto Rico, and Guam in 2025 alone. The average combined sales tax rate also increased from just under 10% in 2024 to more than 10.15% in 2025.
For a small business, these changes can lead to incorrect invoices, inaccurate shopping cart calculations, missed tax collections, penalties, and audit notices.
Digital Products and Services
Many business owners still assume that if nothing physical is being shipped, sales tax doesn’t apply.
Unfortunately, that assumption can create problems.
States are increasingly taxing items such as:
- Software subscriptions
- Cloud storage services
- Data processing services
- Website and online tools
- Digital downloads
- Information technology services
- Software-as-a-Service, commonly known as SaaS
For example, Maryland expanded its sales tax rules to include certain information technology services. Louisiana expanded taxation of digital products. Other states are evaluating similar changes.
As technology continues to evolve, states are adapting their tax laws to capture more digital transactions.
Online Sales
Many online sellers use platforms that collect and remit sales tax on their behalf. While that can simplify compliance, it doesn’t automatically eliminate all sales tax responsibilities.
Businesses that sell through both marketplaces and their own websites often need to understand how each type of sale is treated.
Most Common Sales Tax Mistakes
Many businesses:
- Only register in their home state
- Ignore economic nexus thresholds
- Assume all online sales are automatically covered
- Believe services are never taxable
- Assume digital products are exempt from sales tax
- Fail to maintain proper exemption documentation
The challenge is that sales tax exposure is often transaction-based. Small errors repeated over hundreds or thousands of transactions can become significant liabilities.
What Does This Mean for Your Business?
First, recognize that sales tax is no longer just a local issue. If you’re selling products, services, subscriptions, software, or digital offerings across state lines, sales tax deserves attention.
Second, understand where your customers are located and how much business you’re doing in each state.
And finally, don’t assume that because something is digital or service-based that sales tax doesn’t apply.
The rules are changing quickly, and staying informed can help protect your business from unexpected tax bills, penalties, and compliance headaches down the road.
The businesses that pay attention to sales tax complexity today are often the ones that avoid costly surprises tomorrow.
If you are unsure if you are handling sales tax correctly, or you’d like assistance managing your bookkeeping and sales tax filings, we’re here to help. Reach out to us at 310-534-5577 or contact@abandp.com.
