Putting recent sales tax changes into context

Recently, there was an article making the rounds about record growth in U.S. sales tax rates and rule changes in 2025.

Headlines like that can feel unsettling at first glance. More rules. More changes. More complexity layered onto a system that already feels hard to keep up with.

But it’s worth pausing before reacting, because this kind of news is pointing to something structural rather than something sudden.

Sales tax changes are a symptom, not a surprise

Sales tax rules don’t change in a vacuum.

States rely heavily on sales tax revenue, and when there’s fiscal uncertainty, pressure often shows up through new rates, expanded tax bases, and more granular rules. That pattern isn’t new, and it isn’t specific to any one year.

What is changing is the pace.

As commerce becomes more digital and more cross-border, states are continually adjusting their systems to catch up. Those adjustments aren’t always elegant, but they’re part of an ongoing evolution rather than a breakdown.

More rules don’t automatically mean more burden

It’s easy to assume that more sales tax rules automatically translate into more work for businesses.

In practice, the impact depends on how a business is set up.

For businesses with a stable foundation, incremental changes tend to be absorbed quietly. Rates update. Definitions shift. Filings continue. It’s not always pleasant, but it’s manageable.

For businesses without that foundation, each change can feel personal and urgent.

This isn’t about doing more, it’s about doing enough

News about rising rates and expanding rules can create the impression that businesses need to constantly chase compliance perfection.

That’s not realistic, and it’s not necessary.

What works better is a proportional approach. Understanding where sales tax is material. Paying attention where it matters most. Letting lower-impact areas remain monitored rather than optimized.

That mindset doesn’t ignore compliance. It keeps it sustainable.

A system that’s still evolving

Sales tax in the U.S. has always been fragmented, and it’s still evolving. The pace of change can be frustrating, but it’s also predictable.

For businesses, the goal isn’t to stay ahead of every rule change. It’s to build enough structure that change doesn’t derail focus.

When that structure exists, headlines about record growth in sales tax rules don’t feel alarming. They feel like confirmation of something you already know: this system moves, and your job is simply to move with it.

How to know if your sales tax setup is actually in good shape

Sales tax doesn’t offer much positive reinforcement.

When things are going well, nothing happens. When something is wrong, it often shows up late, without context, and with a lot of urgency. That makes it hard to know where you actually stand.

The good news is that you don’t need a perfect setup to be in a good place. You just need a few signals that help you understand where you fall on the spectrum, from no setup at all to something closer to best practice.

No real setup yet

Having no sales tax setup at all usually means you are delaying the inevitable cost, stress, and cleanup.

You don’t really know where you have nexus. You don’t know your exposure. You’re not collecting or remitting tax. Or, in some cases, you’re collecting tax but not remitting it, which is actually a step worse.

This stage isn’t about negligence. It’s usually about growth happening faster than systems. But it is not a comfortable place to stay for long.

An unsteady setup

An unsteady setup feels chaotic.

Filings happen inconsistently. Numbers don’t quite make sense, but no one has time to dig in. Sales tax lives in a corner of the business that no one feels confident owning. Notices get opened late, or not at all.

If this feels familiar, the goal isn’t to fix everything at once. It’s simply to move toward stability.

A “pretty good” setup

A “pretty good” setup, my very technical designation, is stable.

Returns are getting filed. Payments are going out. Notices are being opened and handled. No one is scrambling at the last minute every single filing period. The tax being collected and remitted each month is logical and broadly consistent with how the business operates.

That alone puts you ahead of where many businesses assume they should be.

Being in pretty good shape also means you have a working sense of where your exposure lives, even if you don’t know every detail. You can explain, at a high level, how sales tax flows through your business. You roughly know which states matter most. Your software outputs generally make sense when you look at them. You understand the taxability of what you sell and who you sell to.

You’re not guessing blindly.

When notices come in, they’re annoying, not terrifying.

These aren’t glamorous benchmarks, but they are a strong indicator that your setup is in pretty good shape.

What best practice tends to look like

A best practice setup doesn’t mean zero risk. It means intentionality.

There’s a clear owner for sales tax, even if it’s not their full-time role. The business periodically checks whether product taxability, customer exemptions, and sales channels still match reality. Nexus exposure is reviewed when the business changes, not only when a notice arrives.

There’s also a sense of proportion. Not every issue is treated as urgent. Not every state gets the same level of attention. Decisions are made with an understanding of materiality and risk, not fear.

Best practice feels calm. Not because nothing can go wrong, but because when something does, the business knows where to look.

Confidence comes from clarity

The businesses that feel the calmest about sales tax are rarely the ones with the most elaborate systems. They’re the ones who understand their setup well enough to trust it.

They know which parts matter most. They know which issues can wait. They’re not aiming for theoretical perfection. They’re aiming for clarity.

If you can explain your setup, spot obvious drift, and respond when needed, you’re probably in better shape than you think.

When your setup is solid, sales tax fades into the background. That’s the goal for most. 

What sales tax software can’t know about your business

Yesterday I wrote about why sales tax software is necessary but not sufficient. Today I want to dig into the part that software simply can’t see.

Sales tax software is very good at working with the information it is given.

Software does not observe your business. It does not ask questions. It does not get uncomfortable when something looks off. It simply processes inputs and applies rules.

When those inputs are clean and complete, the results are usually fine. When they are not, things quietly drift.

The first blind spot is product taxability.

Sales tax software relies on product mappings. Someone has to decide how each product or service is classified in the system. Is it taxable. Is it exempt. Is it partially taxable. Does the treatment change by state.

Those decisions are rarely straightforward. Definitions vary. Edge cases are common. And businesses evolve over time. New products get added. Old ones change. Bundles appear. Shipping gets handled differently. Repairs get handled differently.

Software does not revisit those decisions unless someone tells it to.

Another blind spot is customer behavior.

Software can store whether a customer is marked as tax exempt, but it cannot tell you whether that designation is accurate. It cannot know whether an exemption certificate is missing, expired, invalid for a particular state, or inappropriate for the type of transaction.

It also cannot sense patterns.

It does not notice when a large percentage of customers are marked exempt without documentation. It does not get uneasy when the same exemption is applied across multiple states with very different rules. It does not flag when exemptions are being used to paper over operational friction.

That kind of awareness only comes from review.

Sales channels add another layer of complexity.

Marketplace rules vary by state. Some platforms collect and remit tax on your behalf. Some do not. Some do so only in certain jurisdictions. Software can be configured to account for this, but it depends entirely on how sales are tagged and how channels are mapped.

If something is misclassified, software will not question it.

One-off and non-routine transactions are another common problem.

A large enterprise sale. A custom contract. A refund processed outside the normal workflow. A refund of sales tax only, without a product refund. A manual journal entry. These transactions often behave differently from day-to-day sales, and they are easy to mishandle in automated systems.

Humans recognize when something is unusual. Software does not.

Finally, software does not understand risk.

It does not know which states matter most to your business. It does not know which states are more compliance-aggressive. It does not know where your exposure is material versus theoretical. It does not know when a decision is low-risk but noisy, or high-risk but unlikely.

That context lives outside the system.

None of this means sales tax software is ineffective. It means it is limited.

Software is excellent at volume. It is not good at nuance.

The businesses that struggle most with sales tax compliance are not the ones without software. They are the ones who assume software replaces understanding.

The businesses that do best treat software as an engine, not a brain. They review outputs. They sanity-check inputs. They periodically step back and ask whether what the system is producing still matches how the business actually operates.

Sales tax compliance is not about perfection. It is about awareness.

Software helps you scale. Awareness helps you stay grounded.

Why sales tax software is necessary but not sufficient

At some point, almost every growing business reaches the same conclusion about sales tax.

“I think we need software.”

That conclusion is usually correct.

Once you are selling into multiple states, manually calculating rates, tracking thresholds, and preparing returns becomes unrealistic. The system is too fragmented, the rules change too often, and the margin for error is too small. Software is not a luxury at that stage.

But here is the part that is often misunderstood.

Sales tax software does not solve sales tax compliance. It supports it.

That distinction matters more than most businesses realize.

Sales tax software is very good at doing exactly what it is designed to do. It can calculate rates at checkout. It can aggregate transaction data. It can prepare return files. It can even submit filings on your behalf.

What it cannot reliably do is verify that your product and taxability inputs are correct, even though those inputs are the foundation of the system. It cannot consistently identify outlier or non-routine transactions that flow into the software incorrectly. It cannot confirm whether a customer is truly tax exempt or simply marked that way in the system. More broadly, it cannot understand your business.

Those gaps require human oversight.

This becomes especially obvious during nexus analysis. Many platforms offer dashboards that flag where you have “economic nexus.” Those tools are useful starting points, but they are blunt instruments. They often rely on simplified assumptions about what counts toward thresholds and when registration is required.

In practice, those assumptions can be wrong or incomplete.

I have seen businesses register too early based on software alerts, creating filing obligations in states where they had little or no taxable exposure. I have also seen businesses rely too heavily on automation and miss notices, filing errors, or registration gaps because they assumed everything was being handled.

When something goes wrong, the liability does not sit with the software provider. It sits with the business.

That is an uncomfortable reality, but it is an important one.

None of this is an argument against sales tax software. Quite the opposite. Software is often the only way small teams can keep up at all.

The problem arises when software is treated as an autopilot rather than a tool.

Sales tax compliance works best when software handles volume and humans handle judgment. When businesses understand what the software can do well, where it is blind, and where review is still required.

The most successful teams I work with are not the ones with the most sophisticated tools. They are the ones who understand their own risk, review their data regularly, and use software as support rather than as a substitute for thinking.

Sales tax is not something you can truly set and forget. But with the right expectations, software can make it manageable instead of overwhelming.

Why “just register everywhere” is rarely the right answer for small businesses

When small business owners ask about sales tax compliance, they are often met with advice that sounds reassuringly simple.

Register everywhere you have nexus.
Be conservative.
Err on the side of caution.

I understand why this guidance shows up. It feels responsible. It removes ambiguity. It gives a clear next step in a system that rarely offers one.

And to be clear, registration is often the right decision, especially once a business has meaningful taxable activity or clear exposure in a state.

The problem is not registration itself. The problem is treating registration as automatic rather than intentional.

Sales tax compliance is not simple. Advice that skips context can quietly create more work and more risk than it resolves.

Registration is not a harmless box to check. Once a business registers in a state, it creates an ongoing relationship with that tax authority. There are filing obligations. There are notices. There is recordkeeping. There is audit exposure. Even when no tax is due, returns still have to be filed.

For some businesses, especially those with minimal taxable sales in a state, registration can increase complexity without meaningfully reducing risk, at least in the short term.

This comes up often with B2B sellers, exempt customers, and marketplace-heavy businesses. On paper, economic nexus may exist. In practice, actual tax liability may be close to zero. The ongoing administrative burden, however, is very real.

A more helpful approach asks better questions.

• Are the sales actually taxable?

• Are customers exempt, and are exemption certificates realistic to manage?

• Are marketplaces already collecting and remitting?

• What obligations begin after registration, not just at registration?

• What does it realistically cost to stay compliant in this state over time?

This is where judgment matters.

Sales tax compliance is not a moral purity test. It is a risk management exercise. Businesses are allowed to think about materiality, proportionality, timing, and tradeoffs.

Small businesses do not need advice designed for companies with internal tax departments. They need guidance that acknowledges how limited time, focus, and resources actually are.

Registering is often the right answer. The mistake is assuming it is always the first answer.

The hidden internal cost of sales tax compliance

When people ask me about the cost of sales tax compliance, they usually mean software pricing or consulting fees.

That part is relatively easy to quantify.

What gets discussed far less is the internal cost. And for many small businesses, that is the part that feels heaviest.

Sales tax compliance rarely sits neatly inside a single role. In small companies, it tends to spill across teams. Finance touches it. Operations touches it. Sometimes founders touch it directly. Often, no one feels fully responsible for it, but everyone feels the interruption.

I have watched capable, thoughtful teams get worn down by sales tax work that feels constant and unrewarding. Tracking thresholds. Updating integrations. Researching taxability. Reconciling reports. Following up on exemption certificates.

None of this work helps the business grow. None of it improves the product. None of it creates leverage.

And yet, it still demands attention.

Implementation alone can take months. Even with software, there is setup, testing, cleanup, and ongoing review. Once things are live, the work does not disappear. Laws change. Rates change. Sales patterns change. Someone has to notice, and someone has to respond.

Exemption certificates are a good example. On paper, they look straightforward. In practice, they are fragile. Documents go missing. Forms are incomplete. Certificates expire quietly. Customers promise to send them but never do. 

Faced with this, businesses make understandable trade-offs. Some absorb sales tax rather than going back to customers. Others delay compliance because they cannot justify the internal disruption right away. I have seen businesses quietly decide that the internal cost of compliance outweighs the likely exposure, at least for a period of time.

That decision is not careless. It is human.

Sales tax compliance does not just cost money. It consumes focus. And focus is one of the most limited resources a small business has.

The goal is not to eliminate that reality or pretend it is easy. The goal is to recognize the internal cost for what it is, plan for it honestly, and build systems that reduce the mental load over time.

Why small business owners lose sleep over sales tax

Sales tax is one of the few areas of compliance that many small business owners find genuinely stressful.

Not because they are reckless. Not because they are trying to avoid tax. But because the rules are fragmented, the consequences can feel outsized, and it is often hard to know with confidence whether you are doing things “right.”

This came up repeatedly in the research I conducted for my Master’s dissertation, which focused on the sales tax compliance burden small businesses face, particularly after remote seller rules expanded. What stood out was not panic or indifference, but uncertainty.

In that research, 75 percent of small remote sellers said they either currently worry or have previously worried about sales tax audits. More than a third said it is something they think about regularly. That kind of background worry is not common across other tax types.

Most business owners accept income tax, payroll tax, and even property tax as manageable parts of running a business. The rules are not perfect, but the expectations are generally clear. Sales tax tends to feel different.

Sales tax compliance asks businesses to navigate state-specific rules, keep an eye on thresholds that change over time, and make judgment calls with incomplete information. Many sellers are not ignoring their obligations. They are actively trying to understand them while also running a business.

The structure of sales tax enforcement adds to the mental load. Sales tax is a fiduciary tax, which means accuracy matters. For businesses that have not yet registered, potential exposure can also build over time, which makes timing decisions feel heavier than they probably need to be.

What is worth saying, though, is that this stress often eases with structure.

Several business owners I spoke with said their anxiety dropped significantly once they had better tracking in place, clearer documentation, or outside support. The rules did not suddenly become simple. They just became visible.

The system is more complex than it needs to be, but it is the system businesses have to operate within. Spending energy wishing it were different rarely helps. Understanding it well enough to make calm, informed decisions does.

This is why sales tax has a habit of stealing a bit of sleep. It is not the work itself, but the not knowing that tends to follow people home at the end of the day. Once there is clarity around what actually matters, that background noise tends to quiet down.

A practical way to think about economic nexus

Economic nexus is often treated as a bright-line rule in U.S. sales tax compliance. Cross a threshold, register, collect, file.

In reality, it is not a single rule. It is a decision-making framework with long-term consequences.

After the Wayfair decision, each sales tax state enacted its own version of economic nexus. While many states adopted similar headline thresholds, the similarities largely end there.

The differences matter because registration is not a one-time act. It creates recurring compliance obligations that continue even in periods with no taxable sales. Once registered, a business is committing to filings, recordkeeping, and exposure to notices, penalties, and audits.

This is why blanket advice like “register everywhere you have nexus” is often harmful for small businesses.

A thoughtful economic nexus approach requires context. It considers what is being sold, whether customers are taxable or exempt, how sales are routed through marketplaces, and how thresholds are calculated in practice. It also weighs the cost of compliance against the actual tax at issue, rather than treating registration as a purely moral or binary decision.

In practice, there are situations where a business technically meets a state’s economic nexus threshold, but the cost and administrative burden of registration materially outweigh the potential exposure. In those cases, the decision is not about ignoring the rules. It is about evaluating risk, timing, and proportionality.

Economic nexus should be treated as a risk management exercise, not a moral one.

When it comes to sales tax, the goal is not theoretical perfection across every jurisdiction. The goal is informed, defensible decision-making that aligns with a business’s size, risk tolerance, and growth plans.

For small businesses, fear-driven compliance decisions often create more problems than they solve. Clarity comes from understanding how the rules actually work, when registration is truly required, and what obligations follow.

Economic nexus is not about registering everywhere.
It is about knowing when registration makes sense and why.

What the Wayfair Ruling actually changed for online sellers

Before 2018, sales tax obligations were largely tied to physical presence.

If a business had an office, warehouse, employees, or inventory in a state, that state could require the business to collect sales tax. If it did not, the burden technically fell on the customer through use tax, which was rarely enforced in practice.

That framework changed with the Supreme Court’s decision in South Dakota v. Wayfair.

The Court eliminated the physical presence requirement and allowed states to impose sales tax obligations based on economic activity alone. This concept is known as economic nexus.

In theory, the ruling was meant to modernize the tax system and level the playing field between online sellers and brick-and-mortar retailers. In practice, it shifted enormous administrative responsibility onto businesses that had never dealt with multistate sales tax before.

After Wayfair, states moved quickly to enact their own economic nexus laws. While the Court suggested that small businesses should be protected by safe harbor thresholds, it did not require states to adopt uniform rules.

The result is a patchwork of laws that differ by state.

Thresholds vary. Measurement periods vary. Definitions of what counts toward those thresholds vary. Registration timing varies.

For many small and mid-sized sellers, Wayfair did not just create new tax obligations. It created continuous monitoring obligations.

Every sale now carries the potential to trigger new compliance requirements in a state the business has never registered in before.

I’ve written previously about Wayfair’s unintended consequences for small remote sellers. What has become clear in practice is that the ruling exposed businesses to the full complexity of the U.S. sales tax system at scale.

Wayfair did not simplify sales tax.

It multiplied exposure to it.

Why U.S. Sales Tax is the most complicated consumption tax in the world

If you sell into the United States, you are dealing with one of the most fragmented consumption tax systems in the world.

This is not because sales tax is inherently complex.
It is because of how the system is structured.

The U.S. does not have a national sales tax. Instead, sales tax is administered at the state level, with additional layers imposed by counties, cities, and special taxing districts. Today, there are 46 separate state sales tax regimes and more than 12,000 unique taxing jurisdictions.

Each jurisdiction can independently determine:

• What is taxable

• What is exempt

• How tax is calculated

• When tax must be collected

• How and when returns must be filed

Rates are not the real problem. Rates are relatively easy to automate.

The real problem is lack of uniformity.

A product that is taxable in one state may be exempt in another. Shipping may be fully taxable, partially taxable, or exempt depending on the destination. Digital goods, SaaS, services, and bundled transactions are all treated differently across states, often with subtle distinctions that materially affect compliance. Sales tax exemption forms are handled differently across states.

There is also no centralized administration.

Businesses must register, file, remit, and respond to notices separately in every state where they are required to collect tax. Each state operates its own portal, uses its own forms and terminology, and enforces compliance differently.

Globally, this is unusual.

Most countries administer consumption taxes at the national level. Even when rates vary by region, the underlying rules are consistent. Businesses learn one system and apply it everywhere.

In the U.S., remote sellers must learn dozens.

This structural complexity existed long before e-commerce. But it became unavoidable after the 2018 Supreme Court decision that expanded states’ authority to require sales tax collection from out-of-state sellers.

If you want historical context on how we got here, I’ve written about that separately in A Brief History of U.S. Sales Tax. What matters today is this: the system small businesses are expected to comply with was never designed for modern interstate commerce.

Sales tax complexity is not about rates. It is about fragmentation, inconsistent rules, and decentralized enforcement.

Understanding this structural reality is the foundation for every sales tax decision that follows.

A brief history of U.S. sales tax

The Birth of U.S. Sales Tax

The complexities of the United States (U.S.) sales tax system are not new; they have deep historical roots. The U.S. sales tax system was born out of necessity during the Great Depression in the 1930s and expanded to additional states throughout the following decades. From its inception, sales tax has been monitored at the state level rather than federally, with multiple jurisdictions within each state levying taxes on top of the state tax, leading to a complex and varied tax landscape across the country.

The authority of states to impose taxes on interstate commerce has long been limited by the Commerce Clause in the U.S. Constitution. The landmark 1977 case Complete Auto Transit, Inc. v. Brady established that a "substantial" connection must exist between the state and the activity being taxed. However, the definition of what constituted a "substantial connection" was not particularly clear from this outcome, leading to another landmark case in 1992.

The Impact of Quill and Physical Nexus

In the 1992 case Quill Corp. v. North Dakota, the U.S. Supreme Court reinforced the physical presence—known as "physical nexus"—rule, clarifying that a company must have a physical presence, such as offices, warehouses, or employees in a state, for that state to require the company to collect and remit sales taxes. Until that time, states were limited in their ability to require a “remote seller”—an out-of-state seller that does not have a physical presence in the state—to collect and remit sales tax on transactions. Instead, the burden fell on the buyer in those transactions to remit a "use tax" to the state, which had a notoriously low compliance rate.

The Wayfair Ruling and Modern Implications

This all changed on June 21, 2018, when the U.S. Supreme Court overturned the Quill decision in its landmark decision in South Dakota v. Wayfair Inc. et al., commonly referred to as the "Wayfair ruling." The Court overturned the long-standing physical nexus rule, making it lawful for states to require remote sellers to collect and remit sales tax based on "economic nexus," a significant economic connection to a state, in addition to physical nexus. This decision, passed by a narrow 5-4 vote, has had far-reaching implications. Each state has since enacted its own sales tax laws related to economic nexus, adding to the already complex web of regulations that businesses must navigate.

The Wayfair ruling was seen as a logical evolution, reflecting the growing importance of e-commerce and aiming to level the playing field between online sellers and local businesses. Over the past few decades, the U.S. retail landscape has transformed, with online sellers gaining a competitive edge over brick-and-mortar stores due to the absence of sales tax obligations. The ruling sought to address this disparity by allowing states to capture revenue from remote sellers who had a significant economic presence within their borders.

How These Changes Affect Businesses Today

For e-commerce and other remote sellers, understanding and complying with these complex sales tax laws can be daunting. Each state has its own regulations around economic nexus thresholds, and new businesses may struggle to keep up with compliance requirements, especially as they expand their market reach. My work with e-commerce companies has shown me just how overwhelming these changes can be—particularly for those new to navigating U.S. sales tax requirements.