If you’re running a business in the United States, you’ve probably noticed it: a tidal wave of sales tax notices and audits hitting mailboxes and inboxes. It’s not your imagination — it’s a very real trend. So, what’s fueling this surge? And, more importantly, how can you brace yourself? It all boils down to the following key factors, creating a much more aggressive environment for sales tax enforcement.
States Are Hungry for Revenue
Let’s be frank: states need money, and they’re turning to sales tax as a major cash cow. Economic shifts and various tax reforms have left many state budgets looking a little lean, and they see sales tax as a prime way to beef them up.
This means:
- Broadening the Tax Base – States are constantly expanding what’s considered a taxable sale. Think beyond physical goods — we’re talking about a wider range of services and digital products, like your favorite streaming services, software-as-a-service (SaaS) and other digital goodies. For instance, Louisiana jumped on this trend in early 2025, expanding its sales tax to digital products and services.
- Rate Changes and New Local Taxes – While a few places might have tweaked rates downward, far more have hiked them up or rolled out new local sales taxes. All these frequent changes make navigating the sales tax landscape a real headache.
- Retail Delivery Fees – Get ready for more complexity! States are increasingly eyeing retail delivery fees, adding yet another layer of potential non-compliance for businesses.
The Ever-Present Shadow of Wayfair
Remember the 2018 Supreme Court decision, South Dakota v. Wayfair, Inc.? It was a game-changer, allowing states to demand that out-of-state businesses collect sales tax based on their economic activity, even without a physical presence. While businesses have had some time to adjust, the ripples are still spreading.
This means:
- Evolving Nexus Thresholds – States are constantly tweaking their economic nexus thresholds, sometimes simplifying them. For example, states like South Dakota and Louisiana have dropped the 200-transaction rule, focusing solely on sales volume, meaning your business needs ironclad systems to track sales across every state.
- Marketplace Facilitator Laws – Virtually all states with sales tax now have these laws in place, meaning platforms like Amazon, eBay and Etsy are on the hook for collecting and remitting sales tax on behalf of third-party sellers. While this practice lightens the load for some individual sellers, it means state tax authorities now have a goldmine of data on online sales.
- Increased Scrutiny on Remote Sellers – States are actively hunting down businesses that meet economic nexus thresholds but haven’t registered or are incorrectly remitting sales tax. Consider yourself warned!
Tax Authorities Are Armed With Tech and Data
Gone are the days when tax agencies relied solely on manual audits. They’re now armed with advanced technology and data analytics, allowing them to pinpoint discrepancies and potential non-compliance with laser precision.
They’re now capable of:
- Sophisticated Algorithms – Tax authorities are using souped-up audit algorithms to flag irregularities, making it a breeze for them to spot businesses with inconsistent filings or deviations from industry averages.
- Data Matching – Agencies can now cross-reference data from all sorts of sources, including federal tax filings, third-party information and those marketplace facilitator reports. Doing so helps them quickly identify underreported income or sales tax liabilities.
- Targeted Audits – Thanks to tech advancements, audits are more targeted and efficient. They’re zeroing in on high-risk industries (think e-commerce, SaaS and retail) and businesses that show unusual filing patterns.
More Funding, More Muscle for Enforcement
The IRS and, by extension, state tax agencies are getting a shot in the arm with increased funding and personnel. This translates to a renewed focus on tax enforcement, meaning more resources are being dedicated to identifying and auditing businesses for non-compliance.
Common Audit Triggers
Beyond these big-picture trends, certain actions and situations are practically an invitation for a sales tax audit, such as:
- Late or Inconsistent Filings – Consistently filing your sales tax returns late or with wild swings in reported sales is a giant red flag.
- Poor Record-Keeping – Inadequate or incomplete documentation, especially missing exemption certificates, leaves your business wide open.
- A High Volume of Exempt Sales – If you’re claiming a disproportionately high number of exempt sales, you’re likely to catch their eye.
- Industry Risk – Some industries are just naturally higher risk due to complex sales tax scenarios (e.g., manufacturing, wholesale and businesses dealing with both taxable and non-taxable items).
- Third-Party Information – Information from audited vendors or customers, or even whistleblower reports, can kick off an audit.
- Significant Business Changes – Big changes like mergers, acquisitions or sudden revenue spikes/drops can trigger scrutiny.
What You Can Do Now
The clear message here is that sales tax notices and audits are on a major upswing, and you need to be proactive.
Here’s what you should do:
- Regularly Review Nexus Obligations – Stay on top of economic nexus thresholds and physical nexus considerations in every state where you operate or make sales.
- Automate Your Sales Tax Compliance – Investing in sales tax automation software can aid in accurate calculations, handling rate changes and timely filings across multiple jurisdictions.
- Maintain Meticulous Records – Keep comprehensive and organized documentation for all your sales, exemptions and remittances — no excuses!
- Conduct Internal Compliance Reviews – Periodically review your sales tax processes. It’s better to find and fix potential issues yourself than to have an auditor find it for you.
- Stay Informed on Tax Law Changes – Tax laws are always shifting. You absolutely must monitor updates to help ensure ongoing compliance.
- Consult With Tax Professionals – For complex situations or multi-state operations, seeking expert advice is crucial for minimizing audit risk and helping to ensure accurate reporting.
The sales tax enforcement landscape is getting smarter and tougher. With audits and notices on the rise, now’s the time to assess your exposure and strengthen your compliance strategy. At Creative Planning Business Services, we help businesses stay ahead of evolving tax regulations and minimize audit risk. Whether you need help navigating economic nexus thresholds, implementing automated sales tax solutions or reviewing your current compliance processes, our team of experienced professionals is here to support you. Contact us today to schedule a consultation and help fortify your business against the rising tide of sales tax enforcement.
