Every new year brings a ton of developments in all varieties of tax. Sales tax – driven by burgeoning eCommerce, dynamic kinds of nexus and a steam of new tech and products that jurisdictions see as lush sources of revenue – again has more than its share of trends on tap for 2025.
Here’s a look at a few.
More tax in more states. New sales taxes scored some wins but hardly ran the table on last election day: Voters in plenty of communities said no to new or increased sales taxes in 2025.
Lawmakers in Louisiana, however, opted to give their state one of the highest combined sales taxes in the nation by passing simultaneous tax cuts on personal and corporate income tax and hiking the state’s sales tax to 5% (at least for the rest of this decade).
Expect more states to follow suit by raising sales taxes to make up for cuts to property, income and other more politically unpopular taxes.
One state, Alaska, may also institute its own state-wide sales tax in the future, encouraged by its widening network of communities that mandate sales tax obligations for online sellers. The governor has long said he’d favor such a tax under the right conditions, though it might not pass in Juneau as soon as next year.
Dropping thresholds. Alaska has become one of the states (in an odd move for a place with no state-wide sales tax) that’s dropping a transaction threshold to ignite economic nexus. New Jersey is reportedly considering a similar move. South Dakota recently eliminated its 200-transaction threshold, joining California, Colorado, Iowa, Louisiana, Maine, Massachusetts, North Dakota, Washington and Wisconsin.
Expect other states to follow as word gets around that transaction thresholds are not only an undue burden on smaller online sellers but offer a poor payoff for tax jurisdictions’ collection efforts.
Groceries. They figured big in the recent national election and expect them to remain a tool for states’ politicians and lawmakers to talk about, especially the subject of eliminating the sales tax on groceries. All but 11 states no longer levy a statewide sales tax on groceries, though many local communities nationwide do. Of those 11 states, five impose a reduced rate and others are preparing to eliminate sales tax on groceries.
Digital. Expect tech (more specifically the myriad delivery methods for voice, data and more) to remain one of the most confusing areas of sales tax. (Consider: Is the maker of a Software as a Service that’s used worldwide supposed to collect the appropriate sales tax from every single user based on users’ locations?) More states are, however, clearly instituting or trying to institute taxes on digital goods and services – including advertising. Expect states to broaden their parameters of “digital,” too, to net more taxable goods.
RDFs. Retail delivery fees started in Colorado in 2022, with a fee (now 29 cents) on every retail delivery made by motor vehicle to a destination in the state. Retailers, online marketplaces and services (almost all of whom were loudly unhappy with the RDF began) must charge the shipping fee. The money went to infrastructure – and the idea quickly went to the capitals of other states like Minnesota. New York might be next.
Call it a tax or call it a fee, other states might call it a good idea to raise revenue as time goes on after the Rocky Mountain rollout.
Physical nexus via inventory. Marketplace facilitators like Amazon are becoming bigger and bigger engines of eCommerce for all sizes of sellers, including those who clearly lack the sales volume to generate economic nexus. But Amazon and the like have hundreds of warehouses and processing facilities in many states – and inventory can be one indicator of physical nexus for a seller.
This question has so far gained little traction, but sooner or later somebody’s inventory is going to trigger nexus in a state where no one in their company has ever set foot.
Simplification. The U.S. has no national sales tax though the idea often finds new life with lawmakers, and the quilt of individual states’ sales tax laws is known worldwide as daunting and confusing (even for American companies). Lawmakers have proposed widespread nexus exemptions for small retailers, some retailers are even suing tax jurisdictions for especially confusing rules and a recent U.S. Senate subcommittee hearing examining relief for small businesses from remote sales tax collection saw testimony that states should take a greater role in simplifying American sales tax.
States probably won’t tackle this in a serious way soon (Illinois has begun to try) but expect this discussion to be around a long time.
Contact us to find out if your business could be impacted by changing sales tax laws and to help alleviate your burden of sales tax compliance.
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