Sales Tax Year in Review, Compliance Strategies for 2026

Hard to believe the year is almost over – and it’s also hard to believe just how much change sales tax can stuff into just 12 months. But change did occur, and it’s up to you to stay current and compliant in 2026 with sales tax. 

Here’s an overview to help you get started in such areas as nexus and taxability, your possible sales tax exposure and ways you can protect yourself and make compliance easier in the future. 

Sales Tax Updates to Be Aware of Heading into 2026 

Many important changes happened in the world of sales tax in 2025. If you don’t keep your systems and processes current with the latest information, you could be opening your business up to risk. Here’s a brief overview of some legislation of note that happened in 2025: 

Sales tax nexus 

• Illinois: 200-transaction threshold eliminated January 1st, 2026 

• Louisiana: Revenue from sales of digital products now counts toward economic nexus 

• Utah: 200-transaction threshold eliminated January 1st, 2026

Taxability 

• Illinois: Destination-based sourcing adopted 

• Maryland: SaaS taxable July 1st, 2025 (3% business use; 6% consumer use) 

• Minnesota (proposed): Expand taxable base to professional services 

• Washington: New taxes on services (advertising, IT, web dev, presentations); surcharges now taxable (October 1st, 2025) 

Rate reductions & fee adjustments 

• Alabama: Food sales tax reduced from 3% to 2% (September 1st, 2025) 

• Colorado: Retail delivery fee lowered from 29¢ → 28¢ (July 1st, 2025). 

• Florida (proposed): 0.75-pt reduction to general sales tax; cuts for leases, electricity, amusement & vending. 

• Mississippi: Grocery tax reduced from 7% → 5% (July 1st, 2025); income tax phase-out begins. 

• Minnesota (proposed): Slight rate cut from 6.875% → 6.8% 

Exemptions 

• Alaska: New nonprofit exemption (for 501(c)(3) orgs under $200K budget). 

• Arkansas: Eliminates state tax on food (January 1st, 2026; local taxes remain). 

• Louisiana: Expanded exemptions (nonprofits, healthcare, contractors, vessels, adaptive-driving equipment). 

Compliance / Administrative 

• Colorado: 

• Moving toward streamlined e-filing and simplified reporting processes 

• Vendor’s compensation fee eliminated (January 1st, 2026). 

• Illinois: Expect to see a remote retailer amnesty program in 2026 (Aug-Oct). 

• Louisiana: 

• Paper returns no longer accepted; e-file + e-pay only. 

• Moving toward streamlined e-filing and simplified reporting processes. 

• Dealers now receive vendor compensation for collecting/remitting tax. 

• Nebraska: Bans misleading ads like “tax-free sale” or “we pay your tax.” 

• South Dakota: Suspends electronic filing vendor’s compensation fee (July 1st, 2025 – June 30th, 2028). 

*Keep in mind that this doesn’t cover every update made in 2025 – just a few we deemed important to note 

Terms you need to know 

Let’s examine a few terms that are key to understanding your sales tax compliance. 

Nexus, for example, is your connection to the tax jurisdiction that determines you must abide by their sales tax rules and obligations. This connection can often be created by a certain number of sales in a given state though a period time, such as a year. (We usually advise companies who find themselves with $100,000 or more in sales in a state to examine whether they’ve created economic nexus.) 

The 2018 United States Supreme Court decision with Wayfair opened the door for almost all states to require remote retailers to begin collecting and remitting tax for sales in their states. Some states also have nexus triggers based the quantity of transactions that your company conducts in a state in a year. 

(Five states don’t have a state level sales tax: the “NOMAD” states: Delaware, New Hampshire, Montana, Oregon and Alaska. Within those states lurk smaller tax jurisdictions of cities and towns that may have their own sales tax regulations. Beware of Alaska, especially.) 

Older and most familiar is physical nexus, which can include your company merely having an office or an employee or contractor/subcontractor in a state, or in cases warehousing inventory in a state. We suggest monitoring your physical nexus risk every few months. 

We like to distinguish nexus from taxability. Like nexus, taxability differs by state But it generally includes all tangible personal property unless it’s otherwise exempt. (Louisiana did a taxability change in 2025, for instance, by instituting a sales tax on SaaS.) Services are also generally excluded, but more states are starting to bring services into their taxable base. 

You also need to consider situs, or the location in which a taxing event occurs. It’s easy to determine when the entire transaction occurs at the point-of-sale but is more difficult when the transaction involves numerous sites, as with a SaaS product that may have tens of thousands of seats and users nationwide. 

How to protect yourself 

Let's say that in preparation for your sales tax activities in 2026, you come across some prior exposure in a state where you didn’t properly collective remit sales tax. What do you do? 

You have options to mitigate prior exposure: 

1. Registration and prospective compliance
2. Register and file prior period returns
3. Voluntary disclosure agreement (VDA), a frequently used program to potentially abate penalties and limit the look-back for back taxes owed. 

Review (or create in the first place) a formal system to manage your sales tax registrations, payments, filings, exemption certificates and all other details to handle stay in sales tax compliance. 

Assign least one staffer to handle the project and stress the system’s importance – but make that sure that staffer (who may one day be unavailable) shares with management the log-in and other crucial information concerning accessing sales tax records. (We see this problem a lot.) 

Stay up to date and protected with your sales tax obligations heading into the new year, when we expect to see expanding taxability beyond goods to include software. Elsewhere we’ll see more states drop the transaction threshold for economic nexus. There will be a growing emphasis on electronic filing and compliance automation. 

For more on 2025 and 2026 in sales tax, see our recent webinar, “Sales Tax Year in Review & Compliance Strategies for 2026,” or let TaxConnex manage the burden of keeping up with all the changes and sales tax challenges. Contact us to learn more.