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Navigating the future: Key sales tax trends and changes to watch in 2025

by Sarah Craig October 21, 2024

Sales tax laws and regulations are constantly evolving, making tax compliance a significant challenge for sellers. While you are busy preparing your online store for the new year, it’s important to be aware of tax trends and legislation that could impact your strategy in the new year. 

If you’re looking for a comprehensive guide to sales tax compliance, our free 2025 sales tax trends and changes guide outlines the six steps to compliance for 2025. 

1. New tax rules for digital services

Sales tax laws were initially designed for tangible personal property, but as digital services grow, many states are updating their tax codes to include offerings like SaaS or digital goods. Currently, 25 states tax SaaS services, with an additional seven taxing SaaS when software downloads are required.

The list of states that tax digital goods and services continues to grow. Starting July 1, 2024, Vermont will tax remotely accessed prewritten software. Nebraska and Tennessee have introduced bills to tax digital advertising, while California recently passed a bill making digital advertising and data extraction taxable. More states, like Illinois, Massachusetts, New York, and Washington, D.C., are exploring legislation to tax data collection services in 2025.

While expanding into new markets with digital services can be easier due to the absence of shipping logistics, businesses must navigate varying taxability laws to remain compliant. These tax changes often occur rapidly, leaving little time for preparation. That’s why many businesses turn to a sales tax solution like TaxJar, which automatically updates taxability rules to ensure correct tax collection on the latest digital offerings.

2. Marketplace rules and definitions

Since the onset of marketplace facilitator laws, defining a marketplace for sales tax purposes has been a challenge. To make this easier for businesses, California has updated their definition of a marketplace, stating that any business that manages the fulfillment, payment, or storage of goods for sales is a marketplace facilitator. This broadens the scope of a marketplace in California from the original definition of a marketplace as a “a person who contracts with marketplace sellers to facilitate for consideration, regardless of whether deducted as fees from the transaction, the sale of the marketplace seller’s products through a marketplace operated by the person or a related person.”

Florida has made similar efforts to reduce confusion for food delivery platforms, like Uber Eats or Grubhub, requiring the platform and the food provider to determine who is responsible for collecting sales tax on the items. 

As marketplace definitions and regulations change, it will become clear who is responsible for collecting and remitting tax. In most cases, the marketplace will take on more tax responsibility, easing the burden for sellers, and increasing compliance efforts for marketplaces.

3. Rate and taxability policy changes

State tax authorities are adjusting rates to address economic challenges like inflation and budget deficits, with over 500 local sales tax rate changes in 2024 alone. Washington D.C. and Nebraska have introduced bills to raise their state sales tax rates, while Oklahoma has enacted legislation for local county tax increases.

Additionally, more than 70 product taxability changes have occurred this year as states reassess taxes on essential items to lighten consumers’ financial burdens. For instance, South Carolina, Kansas, and Oklahoma have reduced or eliminated sales tax on groceries or menstrual hygiene products.

Navigating these rate and taxability changes makes sales tax compliance complex, especially with new tax types like Minnesota’s retail delivery fee, which went into effect in 2024. Although it’s not a sales tax, it applies to taxable purchases, and New York has proposed similar legislation, suggesting more states may follow.

These frequent and sudden changes demand that businesses stay vigilant and update their checkout processes accordingly. TaxJar simplifies this task by automatically adjusting rates to ensure accurate sales tax collection.

4. Simplification and harmonization 

Sales tax is regulated at the state level, with each state creating its own laws. Some states, like Alabama, Alaska, Arizona, Colorado, and Louisiana, allow home rule cities to manage their own sales taxes, defining their own rules and often requiring additional seller registrations. This means businesses may need to file multiple returns within a single state.

Despite the challenges posed by home rule states, Colorado has passed laws to simplify compliance. One law states that cities not using the simplified Colorado sales and use tax system (SUTS) can’t require remote businesses to collect sales tax. Additionally, Colorado bill SB24-025 introduces measures to harmonize state and local tax administrations. 

Many states are moving to remove transaction thresholds from economic nexus requirements, streamlining compliance for sellers. In 2024 alone, Wyoming, Indiana, and North Carolina made this change, with Utah introducing similar legislation.

While these tax simplification measures benefit e-commerce businesses, companies must remain vigilant about various filing processes across jurisdictions and quickly adapt to new legislation.

Prepare for the year ahead

Sales tax moves quickly, so trying to keep up with the changing laws and trends can be daunting. TaxJar makes compliance easier, by managing all the different aspects, including keeping you updated on where you have nexus, registering for sales tax permits, and automating sales tax filing and remittance. To learn more about TaxJar and get started automating your sales tax compliance, start a free, 30-day trial today.

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