Published June 23, 2026
5 Multistate Sales Tax Risks Your Tax Team Is Probably Missing
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Your tax team is diligent, experienced, and thorough. But in 2026, the most dangerous multistate sales tax risks aren't the obvious ones. They're the routine business activities that quietly create unexpected tax nexus triggers before anyone realizes there's a problem.
A technician sent to install equipment in another state. A consultant visiting a client site for a week. A leasing arrangement that crosses state lines. These everyday operations can generate sales tax audit exposure that surfaces months or years later, often during an audit when the penalties have already compounded.
Here's what you need to know: Most tax teams aren't missing these risks because they're careless. They're missing them because the rules keep changing, and the activities creating liability often happen outside the finance department's line of sight.
In this guide, we'll walk through five specific multistate sales tax risks that frequently slip through the cracks, including real examples of how they create unexpected filing obligations. You'll learn what triggers nexus in ways your team might not be tracking, how to identify exposure before an auditor does, and when it makes sense to bring in expert support. Whether you're managing compliance in-house or evaluating your current process, this breakdown will help you protect your business from surprises you didn't see coming.
Your sales team closes a deal in a new state. Your operations team sends a technician to install the equipment. Everyone celebrates the win. But nobody flags the tax implication: that single installation visit may have just created nexus in a state where you've never filed a return.
Physical presence nexus remains one of the most straightforward triggers in sales tax law. When your employees, contractors, or representatives perform work in a state, you're often considered to be "doing business" there. And in 2026, states are getting more aggressive about tracking these activities.
Here's what typically creates physical presence nexus:
The challenge is that these activities often happen without any notification to the tax team. Operations schedules the visit. The technician completes the work. Finance never hears about it until an auditor asks why you've had employees in their state for the past three years without registering.
A real scenario we see frequently: A manufacturing company sends installation technicians to customer sites across 12 states. Each visit lasts two to three days. The company has economic nexus analysis in place, but nobody is tracking physical presence. During an audit, the state identifies employee travel records and assesses back taxes, penalties, and interest for four years of unreported activity.
What you can do about it:
The fix here isn't complicated. It's about creating visibility between operations and finance before the activity happens, not after an auditor finds it.
Consulting visits feel different from installation work. They're advisory. They're temporary. They don't involve tangible products. So they must be lower risk, right?
Not necessarily. Many states consider consulting services performed within their borders to be taxable, and the physical presence of your consultant can create nexus regardless of whether the service itself is taxable.
This creates a two-part problem:
Training visits carry similar risks. If your team travels to a client site to conduct training, you're performing a service in that state. Some states tax training services. Others don't. But either way, the physical presence can trigger broader obligations.
Where tax teams typically miss this:
Consider this example: A SaaS company sends implementation consultants to client sites for two-week onboarding sessions. The software itself is sold remotely, and the company tracks economic nexus carefully. But the consulting visits create physical presence in states where the company hasn't registered. When the state audits, they assess tax on all software sales to customers in that state, not just the consulting fees.
Questions to ask your team:
The goal is to connect the dots between your service delivery model and your compliance obligations. If your people are in a state doing work, you need to know about it.
Leasing arrangements create some of the most overlooked multistate sales tax risks. The rules vary dramatically by state, and the tax treatment often depends on factors that aren't immediately obvious.
Here's the honest truth: leasing is complicated because you're dealing with questions about where the property is located, where it's used, who owns it, and how the payments are structured. Get any of these wrong, and you're looking at unexpected tax nexus triggers that can span multiple states.
Common leasing scenarios that create exposure:
The location question is critical. Many states tax leases based on where the property is used, not where the lessor is located. If you lease equipment to a customer in State A, but they use it in States B and C, you may have nexus and collection obligations in all three states.
A scenario we encounter regularly: A company leases specialized equipment to construction firms. The equipment moves from job site to job site, crossing state lines multiple times per year. The lessor collects tax based on the customer's billing address, but the states where the equipment is actually used assess additional tax, penalties, and interest during an audit.
What makes leasing particularly tricky:
Steps to reduce your exposure:
If leasing is a significant part of your business model, this is one area where a focused review can prevent substantial audit adjustments down the road.
Storing inventory in a state creates nexus. This isn't new. But the ways businesses store inventory have changed dramatically, and tax teams don't always have visibility into where products are actually sitting.
Third-party logistics providers, Amazon FBA, regional fulfillment centers, and consignment arrangements all create potential nexus triggers. If your products are in a state, you likely have an obligation to register and collect tax there.
Here's where tax teams typically lose track:
The challenge with third-party logistics is that you may not know where your inventory is at any given time. Fulfillment providers optimize for shipping speed, not tax compliance. They move products between warehouses based on demand patterns, and you may not receive detailed location reports.
A common example: An ecommerce company uses a fulfillment provider with warehouses in eight states. The company tracks economic nexus thresholds but doesn't realize their inventory has been distributed to all eight locations. Each state where inventory is stored has nexus, regardless of whether sales to that state exceed economic thresholds.
Amazon FBA creates specific challenges:
What you can do:
The fix here is about information flow. Your tax team needs to know where inventory is stored, and that information needs to come from operations, logistics, and any third-party partners who handle your products.
The shift to remote work created a wave of new nexus questions that many businesses are still sorting out. If you have employees working from home in states where you don't have an office, you may have created nexus without realizing it.
This isn't theoretical. States have been clear that remote employees can create physical presence nexus, and they're actively auditing businesses that haven't registered in states where their employees live.
The basic rule: An employee working in a state, even from their home, can establish nexus for their employer. This applies to full-time employees, part-time employees, and in some cases, independent contractors.
What makes this complicated in 2026:
A scenario we see often: A company hires a remote customer service representative in a new state. HR processes the paperwork, but nobody notifies the tax team. The employee works from home for two years before an audit reveals the company has had nexus in that state the entire time.
Questions to ask across your organization:
Some states have provided relief. A few states have created temporary or permanent safe harbors for remote workers, particularly for employees who relocated during the pandemic. But these provisions vary widely, and many have expired or been modified.
Building a sustainable process:
The goal is to make sure your tax team knows where your people are working. In a remote-first environment, that requires intentional communication between HR, operations, and finance.
The five risks above share a common thread: they create liability that often isn't discovered until an audit. By then, you're dealing with back taxes, penalties, and interest that could have been avoided with earlier detection.
Here's the good news: you can find these issues before an auditor does. It takes some coordination across departments, but the process isn't complicated.
Sales tax compliance can't live entirely within the tax department. The activities that create nexus happen in operations, sales, HR, and logistics. A quarterly review that brings these teams together can surface issues before they become problems.
Topics to cover in a cross-functional review:
You don't need complex systems to track nexus-creating activities. Simple triggers built into existing workflows can provide the visibility your tax team needs.
Examples of effective triggers:
If you haven't reviewed your nexus footprint recently, now is a good time. A comprehensive nexus study looks at all the ways your business might have created obligations, not just economic thresholds.
A nexus health check typically includes:
Some businesses can manage multistate compliance in-house. Others benefit from expert guidance, especially when they're dealing with complex fact patterns or potential past liability.
You might benefit from expert help when:
At The Sales Tax People, we start every engagement by understanding your specific situation. Our "What's Next" call is a free consultation where we assess your needs, answer your questions, and help you understand your options. No pressure, no commitment. Just a conversation to help you figure out what makes sense for your business.
The multistate sales tax risks we've covered aren't edge cases. They're happening right now in businesses like yours, often without anyone realizing until an audit letter arrives. On-site installations, consulting visits, leasing arrangements, third-party fulfillment, and remote employees are all creating unexpected filing obligations that compound over time.
Here's the reality: the longer these gaps go unaddressed, the more expensive they become. Back taxes, penalties, and interest add up quickly. A $50,000 exposure today can become a $150,000 problem in three years.
But you don't have to wait for an auditor to tell you where you stand.
Your next steps:
At The Sales Tax People, we help businesses identify their nexus footprint, understand their options, and build a path forward. Our approach always starts with listening to your specific situation, not pushing a one-size-fits-all solution.
Curious what your next best step is? Schedule a free "What's Next" consultation with our team. We'll assess your needs, answer your questions, and help you understand what makes sense for your business. No fees, no pressure, no commitment. Just a straightforward conversation about where you stand and what you can do about it.
The most common multistate sales tax risks that go undetected fall into five categories. First, use tax on purchases — most tax teams focus on what they collect from customers but miss the tax owed on what the company buys. Second, drop shipping arrangements that create nexus in states where the business has no other presence. Third, exemption certificate gaps — certificates that are expired, incomplete, or simply never collected on B2B transactions. Fourth, product taxability drift — services or products that were correctly classified when the business launched but have since changed in delivery or composition without a corresponding tax review. And fifth, digital activity that exceeds Public Law 86-272 protections, which states are increasingly using to assert income tax jurisdiction over businesses whose only in-state presence is online. Each of these risks compounds quietly — they do not announce themselves until an auditor finds them.
Use tax is the complement to sales tax — it applies when a business purchases goods or services without paying sales tax at the time of purchase and then uses or stores those items in a state that would have taxed the purchase. It applies at the same rate as sales tax and is owed by the buyer, not the seller. Most companies focus their compliance efforts on the sales tax they collect from customers and have robust systems for that. But use tax on the company's own purchases — software subscriptions, equipment, supplies, out-of-state vendor purchases — often falls through the cracks entirely. There is no vendor reminding you that use tax is owed. There is no invoice line item. The responsibility is entirely on your company to self-assess and remit, and most do not have a systematic process for doing so. Use tax is consistently one of the most common and most significant findings in multistate sales tax audits.
Drop shipping creates sales tax risk because it can establish nexus in states where neither the seller nor the customer is located — specifically in states where the third-party supplier who ships the product is based or has warehouse facilities. In a drop ship arrangement, if the supplier ships from a state where your business has nexus, you may owe sales tax in that state on the transaction — even if your customer is located elsewhere. Conversely, if your customer is in a state where the supplier has nexus but you do not, the supplier may be required to collect tax from you as the retailer rather than from your customer. The rules for drop shipping vary significantly by state, and many companies applying a single tax treatment to all drop ship transactions across all states have undetected exposure in multiple jurisdictions.
Exemption certificates are the legal documentation that justifies not collecting sales tax on a transaction that would otherwise be taxable. When an auditor reviews your books, any transaction recorded as exempt without a valid, complete, and current certificate on file can be reassessed as taxable — with penalties and interest from the original transaction date. The gaps that most commonly surface in audits include certificates that were never collected in the first place on early B2B transactions, certificates that have since expired without renewal, certificates that were collected but are incomplete or use the wrong form for the applicable state, and certificates that do not match the buyer's stated reason for exemption. For businesses with large volumes of B2B sales, the cumulative exposure from certificate gaps across multiple states can be one of the largest audit findings they will ever face.
Product taxability is not static. A product that was correctly classified as exempt when your business launched may have become taxable — either because the state changed its rules, or because your product changed in ways that alter its tax treatment without your tax team noticing. This is especially common for businesses that have evolved their delivery model from physical to digital, shifted from a one-time sale to a subscription, added services bundled with a product, or expanded into new states with different taxability rules. At least eight states changed digital service tax rules in 2025 and 2026 alone — meaning classifications that were correct last year may be wrong today. The risk is that these taxability changes accumulate quietly across multiple states and multiple product lines, creating a growing liability that only surfaces when an auditor examines your transaction history and finds years of misclassified sales.
Public Law 86-272 is a federal law that limits a state's authority to impose a net income tax on an out-of-state business whose only in-state activity is the solicitation of orders for tangible personal property. It was designed to protect businesses from income tax obligations in states where they have minimal activity. The risk in 2026 is that states are increasingly taking the position that common digital activities — including interactive website features, chatbots, customer portals, online support tools, and analytics — exceed the protection of P.L. 86-272 because they go beyond mere solicitation of orders. The Multistate Tax Commission has issued guidance supporting this interpretation, and several states are applying it aggressively. For multistate businesses that assumed P.L. 86-272 protected their online operations from state income tax, a nexus review that examines digital activities specifically — not just physical presence and economic thresholds — is increasingly important.
Most companies find out in one of three ways — and only one of them is proactive. The proactive path is a voluntary sales tax risk analysis or nexus review, conducted before any state makes contact, which identifies gaps and allows the company to address them through voluntary disclosure with reduced penalties. The reactive paths are significantly more costly. The first is an audit notice from a state tax authority — often triggered by data-matching programs that cross-reference payroll registrations, marketplace sales data, or third-party payment processor records against sales tax filing histories. The second is a business transaction such as an acquisition, merger, or due diligence process, where a buyer's tax advisors surface historical exposure that the seller had no idea existed. In all three cases, the exposure was there all along — the only difference is who found it first, and how much control the business had over the resolution.
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