Home eCommerce Success News & Updates eCommerce sales tax compliance in 2025: What online sellers need to know now (table of contents)
October 02, 2025

eCommerce sales tax compliance in 2025: What online sellers need to know now (table of contents)

By Veronica Jeans, Bestselling Author


Table of Contents

eCommerce sales tax compliance in 2025: What online sellers need to know now

The eCommerce sales tax landscape in 2025 is more aggressive and complex than ever before. The grace period has ended—states are actively auditing businesses with penalties reaching 39% in some jurisdictions, while 408 rate changes in just the first half of 2025 created unprecedented compliance complexity. Three major trends define this year: states eliminating transaction thresholds to simplify compliance, expanding taxation to digital services and platform fees, and deploying sophisticated technology to identify non-compliant sellers.

For eCommerce business owners, these changes mean the cost of non-compliance now far exceeds the investment in proper systems. States like California, Maine, Washington, Wisconsin, Illinois, and Massachusetts are leading aggressive enforcement efforts with unlimited lookback periods and penalties that can exceed the tax owed. Meanwhile, Washington implemented the largest service tax expansion in state history in October 2025, Maryland began taxing IT services at 3%, and Texas controversially started taxing marketplace seller fees. The message is clear: automation and proactive compliance are no longer optional for growing online businesses.

The 2025 legislative wave reshapes obligations across states

This year marks the most significant evolution in sales tax policy since the Wayfair decision, with changes affecting every eCommerce business model. Fifteen states have now eliminated transaction-based thresholds entirely, shifting to revenue-only criteria that simplify compliance for high-volume, low-dollar sellers. Utah made this change effective July 1, 2025, joining Alaska (January 2025) and states like Colorado, Indiana, Louisiana, and Washington that removed transaction counts earlier.

The $100,000 revenue threshold has become the national standard, adopted by 39 of 45 sales tax states. Only a handful maintain higher barriers: California, Texas, and Tennessee require $500,000, while Alabama and Mississippi set the bar at $250,000. New York uniquely requires both $500,000 in sales AND 100 transactions. This consolidation around $100,000 makes nexus monitoring more predictable, but businesses must still track both revenue and transactions in the 16 states that maintain dual criteria.

Maryland's July 2025 implementation of a 3% tax on IT services represents a watershed moment for the digital economy. The tax applies to application software publishing, data processing, web hosting, information services, computer systems design, and custom software—previously exempt categories now generating substantial state revenue. The rate structure adds complexity: SaaS faces 6% tax for individual use but only 3% for enterprise systems. This distinction requires careful customer classification and may inspire other states to target digital services.

Washington State's October 1, 2025 expansion dwarfs other changes, adding retail sales tax to advertising services, custom website development, IT services, live presentations, custom software development, investigation and security services, and temporary staffing. Called "the largest tax increase in Washington state history," this $9.4 billion revenue package affects over 90,000 businesses and fundamentally alters what constitutes taxable activity in one of the nation's highest-tax jurisdictions.

The first half of 2025 saw 408 local rate changes—a 24% increase over 2024—with county rate changes up 42% and district rates climbing 23%. Florida provided relief by permanently exempting disaster preparedness supplies, event tickets, and state park admissions, while repealing its commercial rental property tax (the only state that had one). Mississippi reduced grocery tax from 7% to 5%, and Kansas completely eliminated its 2% grocery tax. Louisiana moved in the opposite direction, increasing its state rate from 4.45% to 5.0% as a temporary rate expired.

Economic and physical nexus requirements demand constant monitoring

Economic nexus created by the Wayfair decision now applies universally across all 45 sales tax states, but the critical distinction between marketplace and direct sales determines actual obligations. Twenty-three states include marketplace facilitator sales when calculating threshold achievement, while 22 exclude them—meaning Amazon, eBay, and Etsy sales may or may not count toward your nexus depending on location. Illinois, for example, excludes marketplace sales from thresholds but considers FBA inventory as creating physical nexus if used for both marketplace and direct sales.

Physical nexus triggers immediately obligate businesses to collect tax regardless of sales volume. Remote employees have become the most common unexpected trigger post-COVID, with a single work-from-home employee creating instant nexus in most states. Amazon FBA sellers face particularly complex situations: inventory stored in Amazon warehouses creates physical presence in all distribution states, typically 20+ locations. The distinction matters enormously—if FBA inventory serves strictly marketplace orders where Amazon collects tax, some states like Illinois provide relief. If the same inventory fulfills direct website orders, full physical nexus obligations apply.

Trade show attendance, previously a minor consideration, now demands attention as states define even 1-2 days of selling activity as nexus-creating. Texas explicitly states that physical presence for just one day in a 12-month period establishes nexus. Florida requires more than 2 days or 3+ transactions. Drop shipping arrangements where in-state third parties fulfill orders can create nexus, though rules vary significantly by state. Affiliate relationships, click-through commissions from in-state partners, and even company-owned equipment temporarily in a state all serve as potential triggers.

Trailing nexus provisions in states like California mean businesses cannot immediately deregister when sales drop below thresholds. California requires continued collection for the remainder of the year plus the following year, even if the threshold isn't met in year two. This "sticky nexus" creates ongoing obligations that outlast the triggering activity.

Marketplace facilitator laws shift responsibility but create new complexity

All 45 sales tax states plus Washington D.C. have enacted marketplace facilitator laws, fundamentally transforming tax collection for platform sellers. When selling through Amazon, eBay, Etsy, Walmart Marketplace, or similar platforms, the marketplace handles calculation, collection, remittance, and filing for those transactions. This provides enormous relief for third-party sellers, effectively outsourcing compliance for a major revenue channel.

The critical error businesses make is assuming marketplace facilitator laws eliminate all obligations. Sellers remain fully responsible for: sales through their own websites, in-person sales at trade shows or pop-up shops, sales through non-facilitator channels, B2B transactions in some cases, and registering in states where they have independent nexus from physical presence. The marketplace only covers sales it facilitates—every other revenue stream requires separate compliance.

Mississippi expanded facilitator requirements in July 2025 to include third-party booking companies for hotel taxes, while Tennessee clarified that local occupancy tax applies to the first 30 days of short-term rentals regardless of total stay length. Juneau, Alaska now requires marketplace facilitators to register and collect both sales tax and hotel bed tax. These expansions demonstrate states' commitment to comprehensive facilitator coverage.

Texas introduced the most controversial change effective October 1, 2025: marketplace seller fees are now subject to sales tax. Listing fees, commissions, data processing charges—all the costs platforms charge sellers—now face 8.25% tax. For a seller generating $60,000 in annual sales on eBay with typical 15% fees, this adds approximately $450 in additional annual costs. This represents a fundamental shift in what constitutes taxable activity, treating platform fees as taxable services rather than business expenses.

The multistate nature of facilitator laws creates recordkeeping complexity. Businesses must track which sales occurred through facilitated channels versus direct channels, maintain separate revenue records, avoid double-reporting marketplace sales on their own returns, and keep marketplace tax collection documentation for audit defense. Most states provide separate line items on returns to distinguish facilitated from direct sales.

Digital goods and SaaS face expanding but inconsistent taxation

The taxability of digital products remains one of the most complex and rapidly evolving compliance areas. Twenty-eight states plus D.C. now tax digital goods—including digital audio works, streaming video, ebooks, software downloads, mobile apps, and digital photographs. Louisiana joined this group effective January 1, 2025, implementing one of the most comprehensive digital goods expansions in recent years, covering digital audio/audiovisual works, digital books, digital codes, apps, games, and digital periodicals.

Seventeen states continue to exempt digital goods from sales tax: Alaska, California, Delaware, Florida, Illinois, Kansas, Massachusetts, Missouri, Montana, Nevada, New Hampshire, New York (except prewritten software), North Dakota (except prewritten software), Oklahoma, Oregon, South Carolina (except cloud services), Virginia, and West Virginia (except streaming). Five states have mixed treatment with conditional taxation based on product type or delivery method.

SaaS taxability presents particularly challenging classification questions. Approximately 25 jurisdictions tax SaaS, including Alabama, Arizona, Connecticut (at 1% for business use), Hawaii, Iowa (unless business use), Massachusetts, Minnesota, Mississippi, New Mexico, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, Washington D.C., and Wisconsin. Indiana confirmed in 2025 that SaaS is considered a non-taxable service, not tangible personal property or a digital product.

The determining factors for SaaS taxation vary dramatically by state: whether use is permanent versus subscription-based, whether software is downloaded versus cloud-accessed, whether the customer is B2B versus B2C, and how the state defines "software" versus "service." Connecticut taxes downloaded software at 6.35% but cloud-based SaaS at 1% if used for business. Idaho only taxes digital products if permanent use rights are granted, exempting subscriptions. Georgia requires that permanent use rights be transferred for taxation to apply.

Digital content creators selling courses, ebooks, music, or streaming content must navigate this patchwork carefully. Delivery method matters in some states—downloads treated differently than streaming access. Product type creates variation—audio versus audiovisual versus books taxed inconsistently. Platform selection impacts obligations if Patreon, Teachable, or Gumroad facilitates transactions. The Louisiana and Georgia expansions demonstrate that states actively target this revenue source, with more likely to follow.

Filing requirements and frequencies shift with volume

States assign filing frequencies based on tax liability, with high-volume sellers filing monthly, moderate sellers quarterly, and low-volume businesses annually. Five states implemented filing frequency changes effective July 1, 2025: Hawaii, Kentucky, Maryland, Utah, and Virginia. Businesses must monitor state communications closely, as changed frequencies directly affect penalty exposure—missing even one return at a new frequency triggers late filing penalties.

Virginia consolidated all sales tax filers onto Form ST-1 in April 2025, replacing Forms ST-9, ST-8, ST-7, and ST-6. While streamlining long-term, this transition required system updates and process changes for thousands of businesses. Direct pay permit holders can now file electronically using the consolidated form. Most states require filing by the 20th of the month following the reporting period, with quarterly filers facing April 20, July 20, October 20, and January 20 deadlines.

Zero returns must be filed even with $0 tax collected—this represents one of the most common and costly mistakes. States expect returns on schedule regardless of liability, assessing penalties ($10-100 minimum) for missing returns even at zero tax due. Automated filing services eliminate this risk entirely, automatically submitting required returns across all registered jurisdictions.

South Dakota suspended its tax collection allowance credit from July 1, 2025 through June 30, 2028—a vendor discount that previously provided 1.5% of tax due (maximum $70 per return) for electronic filers. This suspension represents a revenue-raising measure that removes an incentive for compliant businesses. Other states maintain vendor discounts, but Illinois capped its retailer discount at $1,000 per month (previously 1.75% unlimited) effective January 2025.

Illinois offers a tax amnesty program from October 1 through November 15, 2025, forgiving penalties and interest for outstanding liabilities covering tax periods after June 30, 2018 but before July 1, 2025. This limited window provides relief for businesses with past exposure, though participation requires full disclosure and payment of base tax owed. Such programs appear periodically and represent valuable opportunities for voluntary compliance.

Six states lead aggressive audit and enforcement campaigns

California, Maine, Washington, Wisconsin, Illinois, and Massachusetts represent the highest-risk audit jurisdictions for eCommerce sellers in 2025, based on enforcement activity, penalty severity, technology deployment, and auditor aggressiveness. California's Statewide Compliance and Outreach Program (SCOP) conducted 66,091 permit checks in FY 2023-24, generating 513 audit referrals and collecting $127.2 million. The state employs automated data matching and predictive analytics to identify high-risk businesses, operates on a deliberate 3-year rotation targeting largest accounts, and maintains unlimited lookback periods for physical nexus cases.

Washington State imposes the nation's highest penalties—up to 39% combined penalty structure that can make payback nearly impossible for small businesses. Combined with the highest sales tax rates in the country (state plus local), aggressive marketplace facilitator enforcement, and the new services expansion, Washington presents extraordinary risk. The state removed its transaction threshold in 2019, maintaining a $100,000 revenue-only requirement, and also imposes Business & Occupation (B&O) tax adding complexity beyond sales tax.

Wisconsin charges the highest interest rate in the nation at 18% annually, compounded with standard penalties to create devastating exposure. Maine and Massachusetts both aggressively pursue late registrants—businesses that crossed economic nexus thresholds in 2018-2020 but delayed registration. Both states use third-party data sources to identify non-compliant sellers and have reputations for pursuing even short compliance gaps.

Illinois collaborates extensively with surrounding states, requesting sales data from 8-9 jurisdictions and sharing findings. This multi-state coordination increases audit risk across entire regions—an Illinois audit can trigger investigations in Indiana, Wisconsin, Iowa, Missouri, and other neighboring states. The state's 48 municipal rate changes in first half of 2025 create additional compliance complexity.

States employ sophisticated technology to identify non-compliance. 1099-K matching represents the primary audit trigger, comparing gross receipts reported by payment processors to sales tax returns. Discrepancies—especially significant ones—immediately flag businesses for investigation. Automated cross-referencing connects sales data to federal tax returns, predictive analytics uses historical data to identify high-risk patterns, and stratified sampling digitally reviews complete purchase data during audit periods.

Pre-audit questionnaires and business activity surveys increasingly precede formal audits. States send these to unregistered businesses suspected of crossing nexus thresholds, requesting 3 years of sales data by state. Ignoring these accelerates audit likelihood, while responding can demonstrate compliance if sales remain below thresholds. The Multi-State Tax Commission facilitates data sharing among member states, creating audit cascades when one state's investigation reveals exposure in others.

Penalties and interest create exponential exposure

Standard penalty structures range from 5-25% of tax due, with failure-to-file penalties of 10% or $50-100 minimum per unfiled return, late filing penalties of 5-10% per month (typically capping at 25-30%), and base penalties starting at $10-50 even with zero tax due. Interest accrues daily on unpaid tax at rates ranging from 3-18% annually until paid in full, with Wisconsin's 18% rate representing the extreme.

California assesses 10% standard late filing/payment penalties, but adds 25% if fraud or intent to evade is found. The state imposes an additional 50% penalty for failure to timely remit collected sales tax if unremitted amounts exceed 25% of total liability for the period (reasonable cause defense available). Criminal penalties apply for willful failure, potentially resulting in business closure.

Mississippi classifies willful sales tax evasion as a felony with fines up to $100,000 for individuals, $500,000 for corporations, and imprisonment up to 5 years. Texas maintains a 4-year standard lookback period but unlimited lookback if underreporting exceeds 25% or returns weren't filed. States can pursue successor liability against business purchasers for sellers' unpaid taxes up to the purchase price, with California and others authorized to hold funds in escrow.

The Sales Tax Institute estimates that 3-4 year liability equals approximately 140% of base tax owed, accounting for base tax, 10-25% penalties, 7-9% interest compounding annually, and possible additional penalties for specific violations. One documented case from New Jersey showed $46,000 in owed tax for a single year growing to $70,000 total with penalties and interest—a 52% increase. Multi-year exposure grows exponentially as interest compounds and penalties stack.

Payment plans allow extended terms (Texas offers up to 60 months) but require extensive financial disclosure, don't stop interest accrual, and aren't available in all states. Penalty abatement requires proving "reasonable cause," typically doesn't include interest waiver, and rarely achieves total liability reduction. Financial insolvency must be proven—difficult for operating businesses. The message is clear: compliance costs far less than remediation.

Automation tools range from free to enterprise solutions

The sales tax software market offers solutions for every business size and budget, with distinct leaders in different segments. TaxJar dominates the small-to-medium eCommerce space with its intuitive interface, strong multi-channel support, and transparent pricing. Starting at $19/month for 200 orders, Professional at $99/month, and Premium at custom pricing, TaxJar provides real-time calculations across 11,000+ U.S. jurisdictions, economic nexus monitoring with threshold alerts, AutoFile for automated filing and remittance, and native integrations with Shopify, Amazon, WooCommerce, eBay, and Etsy. Users consistently rate it 9.2/10 for ease of use (highest among competitors) and 9.0/10 for support quality. The 2025 updates included enhanced economic nexus dashboards and improved Shop App marketplace exemption support.

Avalara serves the enterprise market with comprehensive features but steeper learning curves and controversial pricing. The platform offers AvaTax for real-time calculations, 1,400+ pre-built integrations, CertCapture for exemption certificate management, and global tax support across 80+ countries. Volume-based pricing isn't publicly listed, with typical enterprise costs reaching thousands to tens of thousands annually. Sales tax registration costs $349 per location, with additional charges for filing, returns, and premium features. Users rate it 3.9-4.0/5 stars overall with frequent complaints about complex pricing, 3-6 month implementation timelines, and customer support issues (6.7/10 rating). However, a Forrester study showed 90% increases in tax research efficiency, and April 2025 brought a new Shopify integration replacing the legacy version.

Shopify Tax provides native integration for Shopify merchants with compelling economics: completely free for stores under $100,000 in global sales, then 0.25-0.35% per order (capped at $0.99/order) above that threshold, with a $5,000 annual maximum per region. Automated filing costs $50 per return for Plus merchants, $75 for standard plans. January 2025 updates enabled automatic Shop App tax collection for U.S. orders, while April changes deprecated the old AvaTax integration requiring merchant decisions between Shopify Tax or new Avalara integration.

Anrok has emerged as the SaaS and digital business specialist, purpose-built for software companies and subscription models. The platform offers end-to-end automation across 80+ countries, real-time economic nexus monitoring, HRIS integrations with Rippling to track employee nexus, complex subscription support, and API-first architecture. Transparent usage-based pricing charges nothing for non-taxable transactions—a major advantage for SaaS businesses with many exempt B2B sales. Users rate it 4.5/5 stars with particular praise for white-glove implementation (days not months) and SaaS tax expertise.

TaxCloud serves budget-conscious businesses with free starter and significantly cheaper premium tiers compared to TaxJar or Avalara. As a Streamlined Sales Tax program member, it provides real-time calculations, economic nexus tracking, exemption certificate management, and audit support (premium). Multi-account management helps accountants serving multiple clients. Vertex targets multinational enterprises with advanced reporting, global tax content covering 200+ countries, and SAP, Oracle, and Microsoft Dynamics integrations at price points reaching $100,000+ annually for complex implementations.

Platform choice should align with business model and scale. Micro businesses under $100k should use Shopify Tax if on Shopify (free tier) or TaxCloud Starter. Small businesses $100k-$1M benefit from TaxJar Starter/Professional or Shopify Tax with automated filing. Medium businesses $1M-$10M need TaxJar Premium, Avalara, or Anrok depending on complexity. Large enterprises above $10M require Avalara, Vertex, or Sovos. SaaS companies at any scale should seriously consider Anrok for its specialized capabilities.

Multi-state compliance requires systematic approach

Phase 1 demands comprehensive nexus understanding. Physical nexus triggers include offices, warehouses, stores, employees (including remote workers), inventory storage (FBA warehouses, 3PL centers), trade shows, contractors, sales representatives, and property ownership. Economic nexus requires tracking both revenue and transaction counts by state, with thresholds measured in "current or previous calendar year" or "preceding 12 months" depending on state. Best practices include quarterly audits of all business locations, tracking remote employee locations, monitoring 3PL and FBA warehouse states, automated nexus tracking software, alerts at 80% of thresholds, reviewing nexus before expansion, and documenting nexus determination decisions.

Registration strategy requires understanding timing—some states require registration before crossing thresholds or making first sales. The 2022 NAICS code update split old eCommerce code 454110 into 42 specific retail categories, making correct classification critical. States assign filing frequencies at registration (monthly, quarterly, or annual), some permits expire while others don't, and costs range from free to $100. Common mistakes include registering in unnecessary states (collecting tax without permits is illegal), using wrong NAICS codes, failing to register in required states, and not understanding de-registration or "trailing nexus" requirements.

Product taxability determines correct calculations. Understanding origin-based versus destination-based sourcing (most states use destination), knowing which products are taxable versus exempt by state, classifying products correctly using product tax codes, and handling shipping/handling charges appropriately all affect calculation accuracy. Shipping is generally taxable if the product is taxable but may be exempt when separately stated and optional. Rooftop-level accuracy requires full addresses—ZIP code-only calculation creates errors within multi-rate ZIP codes. Exemption certificates must be collected and validated for tax-exempt sales, stored securely for audit defense, tracked for expiration, and verified for customer eligibility.

Filing and remittance best practices include understanding assigned frequencies, filing zero returns even with $0 collected, tracking deadlines that vary by state (20th, last day, etc.), setting reminders 7 days in advance, and maintaining detailed transaction records with exemption documentation for 3-7 years depending on state requirements. Automated filing eliminates human error, prevents missed deadlines, handles multi-state complexity, and reduces administrative burden for typical costs of $50-75 per return—easily justified by penalty avoidance.

Ongoing compliance requires continuous monitoring of nexus quarterly, tracking approaching thresholds, monitoring legislative changes, updating tax rates automatically, reviewing exemption certificates annually, subscribing to state revenue department updates, consulting with tax professionals annually, and maintaining organized audit-ready records. Marketplace facilitator rule complexity demands tracking which sales occurred through facilitated versus direct channels, maintaining separate revenue records, avoiding double-reporting marketplace sales, and keeping marketplace tax collection documentation.

Critical mistakes expose businesses to severe consequences

Nexus misunderstanding represents the most fundamental error—assuming no nexus without physical presence ignores economic nexus in all 45 sales tax states. FBA sellers commonly overlook that inventory in 10+ warehouse states creates physical nexus. Prevention requires regular nexus audits and automated monitoring. Tax-collected-not-remitted constitutes the "cardinal sin," prompting severe penalties, potential criminal fraud charges, and business closure risk. Collecting tax from customers then using funds for business expenses instead of remitting ranks as the most serious violation.

Registration failures expose businesses to backdated obligations. Not registering after crossing thresholds creates retroactive tax plus penalties plus interest liability. Conversely, over-registration in states without nexus creates unnecessary ongoing filing obligations, wasting time and money. Exemption certificate failures leave sellers liable for uncollected tax in audits—without valid certificates, businesses must pay tax retroactively on "exempt" sales plus penalties averaging 30%.

Product taxability mistakes often stem from applying uniform rates to all products when taxability varies by category and state. Clothing exemptions in Pennsylvania and New Jersey (under $110) contrast with California taxation. Groceries face generally exempt or reduced rate treatment except prepared foods. Shipping and handling rules vary by state, depending on line-item separation and whether charges are optional. Jurisdiction identification errors using ZIP code only miss rooftop-level accuracy requirements—rates vary within ZIP codes.

Marketplace facilitator confusion causes businesses to assume platforms handle everything when sellers remain responsible for direct website sales, in-person transactions, separate channels, and nexus affects all sales channels. Multi-channel complications arise when different tax handling across channels ignores that nexus on one channel affects all channels—FBA inventory creating nexus impacts Shopify sales too. Platform misconfiguration occurs when businesses assume Shopify or WooCommerce auto-configure correctly without manual verification per state.

Filing frequency errors, not filing zero returns, delayed registration, cash flow mismanagement, underestimating complexity, international tax ignorance, voluntary disclosure ignorance, and inadequate audit preparation all create preventable exposure. Real-world examples demonstrate costs: one FBA seller with $500k revenue unknowingly had inventory in 8 states for 3 years, facing $75,000 in back taxes, penalties, and interest. A medium seller collected $200k in taxes over 2 years but used funds for expenses, resulting in $200k tax due plus $80k penalties and criminal investigation.

Resale certificates prevent double taxation but require careful management

Resale certificates allow businesses to purchase goods tax-free for resale, with sales tax ultimately collected when products are sold to end consumers. Purchasers obtain sales tax permits, apply for resale certificates, provide certificates to sellers at checkout, and document tax-exempt purchases. Sellers validate and store certificates, do not charge sales tax on documented transactions, and maintain organized records for audit defense.

Twelve states plus D.C. require in-state registration and do not accept out-of-state certificates: Alabama, California, Florida, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Mississippi, Washington, and Washington D.C. Florida issues annual certificates expiring December 31 each year. Mississippi provides no separate certificate—the sales tax permit serves as resale documentation.

The Multistate Tax Commission Uniform Sales & Use Tax Resale Certificate (revised October 14, 2022) is accepted by 36 states, allowing a single form across multiple jurisdictions. However, state-specific limitations apply. California limits it to resale only, not other exemptions. Florida requires obtaining a resale authorization number from Florida DOR. Maryland requires the Maryland sales/use tax registration number. Texas restricts use to items for resale within U.S., territories, and possessions.

Certificate expiration periods vary dramatically: annual renewal required in Alabama, Florida, and Georgia; 3-year validity in Connecticut, Illinois, Iowa, Kansas, Puerto Rico, and Vermont; 4-year validity in Massachusetts, Michigan, and Rhode Island; 5-year validity in Maine and Missouri; and indefinite/no expiration in Arizona, Arkansas, California, Idaho, Indiana, Kentucky, Minnesota, Nebraska, Nevada, Utah, and Wyoming (though periodic updates recommended).

Collection best practices require obtaining certificates at the point of sale or as soon thereafter as possible, implementing easy submission methods (mobile, fax, email, upload), and using blanket certificates for recurring purchases when appropriate. Validation requirements include verifying purchaser name/address, seller name/address, sales tax registration/permit number, description of property/services, explicit resale statement, date, signature of authorized representative, and signer's title. Good faith acceptance means questioning certificates if items wouldn't normally be resold by that business type and not accepting if the seller knows or should know property isn't for resale.

Exemption certificate management platforms like Avalara ECM, TaxJar, EXEMPTAX, CERTifyTax, and Zamp provide automated collection via multiple channels, real-time validation, cloud-based secure storage, expiration tracking with renewal requests, integration with eCommerce platforms, and audit-ready reporting. ROI justifies automation through reduced manual processing, minimized human error, lower audit risk, revenue protection from invalid exemptions, and scalability with business growth.

Best practices protect businesses from devastating exposure

Businesses with low exposure should immediately conduct comprehensive nexus reviews across all 45 sales tax states, register upon crossing thresholds without delay, document marketplace facilitator collection from Amazon, eBay, Walmart, Etsy, implement proper sales tax engines from TaxJar, Avalara, or TaxCloud, and verify tax collection settings before going live. Red flags include primarily non-marketplace sales (own website, wholesale, B2B), physical presence in any state, sales exceeding $100k annually in any state, and late registration (crossed nexus 6+ months ago).

Voluntary Disclosure Agreements provide critical protection for businesses with high exposure. VDAs reduce lookback periods to 3-4 years versus unlimited, waive penalty amounts entirely, provide registration, settle obligations with states, and prevent audits (once submitted, audit precluded). VDA professional fees of $5k-15k compare extremely favorably to audit exposure easily exceeding $50k-100k in penalties alone. ROI proves positive when penalty exposure exceeds $5K. Critical timing: VDAs aren't available once audits begin.

VDA pursuit makes sense for multiple years of uncollected/unremitted tax, high-dollar exposure states (California, Washington, Texas, New York), pre-Wayfair lag periods (2018-2022), business sale/M&A pending, or after receiving pre-audit questionnaires. Home-rule and complex jurisdictions like Colorado (200+ separate local jurisdictions), Texas (900+ local jurisdictions), California (complex district taxes), and Alaska (100+ local jurisdictions, no state tax) require specialized automation or expert assistance.

Internal audit recommendations include conducting annual nexus reviews across all states, breaking down sales by channel (marketplace, direct, wholesale, exempt), auditing exemption certificates, verifying tax rate accuracy, confirming filing frequencies, and reviewing local tax allocation accuracy. Benefits include identifying issues before state auditors, demonstrating good faith compliance, enabling proactive correction, and reducing penalty exposure through reasonable cause defense.

The 2025 compliance risk matrix identifies highest-risk profiles as nexus in California, Washington, Massachusetts, Maine, Illinois, or Wisconsin with unregistered status in economic nexus states, late registration (2018-2022 gap), high exempt sales percentage without documentation, pre-Wayfair marketplace sales (2018-2019), significant non-marketplace channels, and multi-state physical presence. Such businesses should immediately consider VDAs plus comprehensive nexus reviews. The post-pandemic audit surge represents states' "catch-up" period after deliberately delaying audit activities during COVID, with sustained high activity expected through 2027.

Future compliance demands proactive strategy

The 2025 enforcement landscape requires shifting from reactive to proactive compliance strategies. Technology-driven enforcement using AI and machine learning identifies non-compliance patterns, automated 1099-K reconciliation catches discrepancies, predictive analytics targets high-risk businesses, and real-time data analysis capabilities give states unprecedented visibility. Enhanced state coordination through Multi-State Tax Commission collaboration, Streamlined Sales Tax Governing Board expansion, increased data sharing, and joint audits create interconnected enforcement networks.

Emerging trends include digital services taxation expansion following Maryland's 3% IT tax and Washington's digital ad tax, marketplace facilitator evolution toward compliance verification as all states implement laws, and continued threshold simplification with transaction count elimination. The grace period has definitively ended 6+ years post-Wayfair—states expect full compliance with audit activity accelerating rather than declining, penalties exceeding tax owed through 140% combined exposure over 3-4 years, and top enforcement states requiring special attention and proactive measures.

Recommended immediate actions: conduct comprehensive 50-state nexus reviews, register in all states where economic nexus exists, implement automated sales tax calculation/filing, organize exemption certificate management systems, consider VDAs for states with 2+ year exposure, prioritize compliance in California, Washington, Texas, New York, Massachusetts, and Maine, monitor state communications for frequency changes, and prepare for potential audits in the next 12-24 months. The cost of compliance—typically $1,000-10,000 annually—prevents exposure of $10,000-100,000+ in penalties, back taxes, and interest.

eCommerce businesses in 2025 face the most aggressive and complex sales tax environment in history, but those who invest in proper systems, documentation, and expert guidance now will avoid the devastating consequences facing businesses caught in the growing enforcement wave. The message from states is unambiguous: automated compliance and proactive registration are business imperatives, not optional expenses.

Veronica Jeans

Veronica Jeans

eCommerce Strategist | Shopify Expert | 7-Figure Business Coach

I have integrated my extensive knowledge in the field of eCommerce and Shopify, along with my international financial expertise, to offer up a playbook for generating income online.