Sales tax rules are constantly changing, and 2026 has brought significant developments for businesses selling software, digital products, streaming services, and other taxable goods and services across state lines.
From California's expansion of sales tax to SaaS and downloaded software to the continued elimination of economic nexus transaction thresholds, these changes can affect how businesses determine taxability, calculate sales tax, collect and remit tax, and maintain compliance.
Here are some of the key sales tax legislative updates businesses should be aware of in 2026.
California to Tax Downloaded Software and SaaS
One of the most significant sales tax changes coming in 2026 is California's expansion of its sales and use tax to certain digital products.
Beginning January 1, 2027, California will impose sales and use tax on certain digital products, including electronically delivered prewritten software and software accessed remotely, including SaaS. Custom software remains exempt.
Historically, electronically delivered software and SaaS were generally not subject to California sales tax. The change represents a significant expansion of the state's taxable base and will affect many technology companies selling to California customers.
The legislation also establishes new sourcing rules for digital products. For remotely or electronically delivered products, sales will generally be sourced based on the customer's billing address.
Businesses selling software or SaaS into California should begin evaluating their products, customer data, billing systems, and tax collection processes well before the January 2027 effective date.
Learn more about this change here.
Colorado Aligns State Treatment of SaaS and Digital Products
Colorado presents a unique sales tax environment because of its home-rule cities.
Historically, Colorado's state-administered sales tax treatment of downloaded software and SaaS differed from the treatment in many of its home-rule jurisdictions. More than 70 home-rule cities administer their own sales taxes, meaning businesses could face different rules depending on where their customers were located.
Beginning January 1, 2027, Colorado will align its state-level treatment with the home-rule approach by taxing downloaded software, SaaS, and other digitally delivered products.
For technology companies selling throughout Colorado, the change should make the overall taxability landscape more consistent. However, businesses still need to understand local requirements and sourcing rules when determining their obligations.
Learn more about this change here.
Washington Continues to Expand Taxability of SaaS-Related Services
Washington has long been one of the states with a broader sales tax base for services.
The state has also expanded the types of services associated with SaaS that can be subject to sales tax, including certain configuration and services related to taxable software.
For businesses selling SaaS and related services in Washington, it's important to evaluate the entire transaction, not simply whether the primary product is classified as SaaS.
When software, implementation, configuration, consulting, or other services are bundled together, the taxability of each component can become more complicated.
States Continue to Expand the Taxation of Streaming Services
Streaming is another area where businesses are seeing changes in sales tax treatment.
Historically, many states did not tax streaming services in the same way they taxed tangible goods. As consumer behavior has shifted from physical products to digital and subscription-based services, states have increasingly expanded their tax bases to include streaming and similar services.
For example, Maine has imposed sales tax on certain streaming services, while Utah has expanded the scope of taxable streaming and subscription-based services.
Businesses should also be aware that streaming isn't always treated as a traditional sales tax issue.
In some states, streaming services may instead fall under a different tax category. Florida, for example, imposes Communications Services Tax on certain communications and streaming-related services. Depending on the jurisdiction, the applicable tax can be significantly different from the state's general sales tax.
Don't assume that a service is nontaxable simply because it isn't subject to a state's general sales tax.
Maryland: SaaS and Multiple Points of Use Exemptions
Maryland began taxing SaaS in 2025, with a reduced rate applying to certain business-use transactions.
One complication arises when a business purchases SaaS in one state but has users located across multiple states.
Some states allow businesses to use a Multiple Points of Use (MPU) exemption certificate to allocate SaaS purchases among jurisdictions based on where the software is actually used.
Maryland's process is more involved.
Businesses seeking this exemption generally need to:
- Register with the state.
- Apply for authorization.
- Receive approval before using the exemption.
- Provide the required certificate to the vendor before the purchase.
- Reapply periodically, with authorization generally lasting two years.
This is an important distinction from traditional exemption certificate processes, where certificates may sometimes be provided after a transaction has occurred.
Businesses with distributed workforces should understand the MPU rules before purchasing SaaS rather than trying to correct the tax treatment after the fact.
Economic Nexus: More States Eliminate the 200-Transaction Threshold
Since the U.S. Supreme Court's decision in South Dakota v. Wayfair, many states have used economic nexus thresholds to determine when remote sellers are required to collect sales tax.
The common standard has historically been $100,000 in sales into the state or 200 transactions.
That second threshold has increasingly come under scrutiny because it can capture businesses selling a large number of inexpensive products without generating significant revenue.
In 2026, several states have moved away from the 200-transaction threshold.
Illinois
Effective January 1, 2026, Illinois eliminated its 200-transaction threshold for remote retailers and marketplace facilitators. The remaining threshold is $100,000 in cumulative gross receipts from sales of tangible personal property to Illinois purchasers.
Kentucky
Kentucky eliminated its 200-transaction economic nexus threshold effective August 1, 2026, leaving a $100,000 gross-receipts threshold for remote retailers and marketplace providers.
New Jersey
New Jersey has also moved toward eliminating its transaction-based threshold, continuing the broader trend of states relying primarily on revenue-based economic nexus standards.
For businesses selling relatively low-dollar products in high volumes, these changes can affect when a sales tax registration and collection obligation is triggered.
Alabama Changes Treatment of Credit Card Processing Fees
Historically, transaction or credit card processing fees added to a taxable sale could be included in the taxable sales price.
Alabama has enacted legislation changing this treatment. Beginning September 1, 2026, certain credit card processing fees can be excluded from the taxable sales price.
While the financial impact on an individual transaction may be relatively small, the change creates another consideration for businesses' invoicing and tax calculation processes.
Businesses that charge customers separate payment processing fees should review how those fees are configured in their billing and sales tax systems.
Illinois Offers Remote Seller Amnesty
Illinois is also offering a sales tax amnesty opportunity for certain remote sellers.
The program is designed for businesses that have established economic nexus in Illinois but have not properly registered, collected, or remitted sales tax.
Under the program, eligible businesses can come forward and disclose their liabilities while receiving relief from penalties and interest, subject to the program's requirements.
The program is scheduled to run through October 31, 2026.
For businesses that have discovered historical Illinois sales tax exposure, an amnesty program can provide an opportunity to address past liabilities and establish a path toward compliance.
However, eligibility and the potential benefits should be evaluated carefully before taking action.
Pennsylvania Changes Local Sales Tax Sourcing
Pennsylvania has also made an important change for businesses with physical operations in the state.
Historically, certain Pennsylvania businesses used point-of-origin sourcing for local sales tax. Under the new rules, certain transactions will move to destination-based sourcing, meaning local sales tax is determined based on where the product is delivered.
The change primarily affects businesses operating in Pennsylvania that make deliveries into Philadelphia or Allegheny County.
Philadelphia imposes an additional 2% local sales tax, while Allegheny County imposes an additional 1%. Under the updated rules, businesses may need to account for those local taxes based on the destination of the sale rather than simply where their business is located.
Pennsylvania's Department of Revenue has indicated that enforcement of the new sourcing rules will begin October 1, 2026.
For businesses making frequent deliveries, particularly businesses such as construction material suppliers, this change can have a meaningful impact on sales tax calculations and compliance processes.
What These Sales Tax Changes Mean for Businesses
While these legislative changes vary from state to state, they point to several broader trends.
- States are expanding their tax bases
As businesses increasingly sell digital products, SaaS, subscriptions, streaming services, and other technology-enabled offerings, states are adapting their tax laws to capture revenue from those transactions.
- Economic nexus rules continue to evolve
States are increasingly relying on revenue-based thresholds rather than transaction counts. Businesses should regularly review their economic nexus footprint rather than relying on outdated thresholds or assumptions.
- Sales tax compliance is becoming more complex
New taxability rules often come with additional sourcing requirements, exemptions, documentation, and system considerations.
A product that was previously nontaxable may become taxable. A taxable transaction may need to be sourced differently. And an exemption that sounds straightforward may require advance registration or authorization.
- States are becoming more sophisticated at identifying noncompliant businesses
States increasingly have access to data and technology that can help them identify businesses with potential sales tax obligations.
That means businesses shouldn't assume that operating remotely or having no physical location in a state means they are outside that state's sales tax system.
How to Stay Ahead of Sales Tax Legislation Changes
Businesses should regularly evaluate:
- Where they have economic or physical nexus
- Whether their products and services are taxable
- Whether new legislation changes the taxability of their offerings
- Where sales should be sourced
- Whether customers qualify for exemptions
- Whether exemption certificates are properly documented
- Whether billing and tax systems reflect current rules
- Whether historical sales tax exposure needs to be addressed
For businesses operating across multiple states, these reviews can become especially important as states continue to modify their sales tax laws.
Stay Ahead of Changing Sales Tax Requirements
Sales tax legislation doesn't stand still. Changes to SaaS, digital products, streaming services, economic nexus thresholds, sourcing rules, and exemptions can create new obligations, or new compliance risks, for businesses operating across state lines.
Keeping up with legislative changes is an important first step. Understanding how those changes apply to your specific products, customers, and sales activity is the next.
TaxConnex helps businesses navigate sales tax compliance, from determining where tax obligations exist to managing registration, calculation, filing, and ongoing compliance.
If you're unsure how recent sales tax legislation could affect your business, contact TaxConnex to discuss your sales tax obligations.
.png?width=250&height=66&name=TaxConnex_logo_withoutTagline_R%20(1).png){kind=logo}
.png?width=225&height=59&name=TaxConnex_logo_withoutTagline_R%20(1).png){kind=logo}
