Learn to Love Sales Tax in 2025

You have the choice to love your sales tax return process. Shocking, we know, but improving your sales tax process can protect and improve your bottom line. As we look at tax year 2025, now is the time to evaluate your past sales tax experience and plan for a more effective and efficient year. 

Learning to love your sales tax process comes with some due diligence and understanding the importance of meeting state nexus requirements. Aligning your sales tax planning strategy with operational plans for growth and new product development is also key to streamlining your sales tax process. 

Sales Tax Planning is Essential 

We know that sales tax is the biggest margin killer when it comes to taxes. If you underpay, you’ll end up loaded with hefty penalties and interest out of your own pocket. You’ll be better positioned for financial success if you correctly collect sales tax at the time of the transaction. 

Unfortunately, sales tax gets overlooked because of its complexity and inconsistent rules across state lines. With dozens of different thresholds, rates, and exemptions determining how you pay sales tax, the states don’t make it easy. Even your internal accounting team can miss sales tax increases and changes that affect your business. To protect yourself and your business, include sales tax planning in annual financial and tax strategy meetings. 

Since every state handles sales tax differently, you must be aware of your nexus in each state. Not only can the tax rates differ, but their threshold for economic nexus, sourcing rules, exemptions, and categorization of goods can affect your sales tax obligations. Knowing how and where your business intends to grow can guide your accounting team toward better sales tax planning. 

What To Look For

Asking the right questions can put you on the right path to successful sales tax planning strategies. Have your accounting and finance teams collaborate with other departments to ensure that you have all the necessary information to clearly map out your areas for growth and improvement and identify risks around sales tax. Consider these questions as a springboard to evaluate your processes and begin your evaluation: 

• Did we accurately collect and remit sales tax in all states where we had nexus?
• Are we monitoring nexus thresholds and registering sales tax permits in new states? 
• Have there been changes to our business activities in any state that might trigger nexus?
• Are we properly categorizing our sales tax in each state? (i.e., SaaS, digital products, e-commerce, food products)
• Has our footprint expanded or decreased in any region? New hires? Manufacturing facilities? Warehouses? 
• Do we plan to hire or lay off employees? 
• Did we/Do we plan to experience any acquisitions in new states?
• Did we/Are we going to any trade shows? What is the taxability of our goods and services in those states? 
• Are our exemption certifications being collected and maintained for exempt sales?
• Have we identified any areas of risk or exposure related to sales tax compliance?

You’ll find that your growth plans are directly related to your sales tax planning strategy. It’s not just about your physical locations either. Depending on the state, your sales tax obligations may include other factors, like volume of sales. So don’t discount states where you have no physical presence. 

Also, during your planning, be sure to discuss any new products in development, as they will need to be categorized correctly in each state. This is often where product development, marketing, and accounting departments lose each other. Get on the same page so you can start with the correct sales tax categorizations. 

If you want to streamline your sales tax return process, also review areas where there has been downsizing. This will help you avoid using precious resources on unnecessary tasks. 

Your Roadmap for Successful Sales Tax Planning

Once you outline your operational goals and objectives for the upcoming year, you can look at their impact on your sales tax process. Even if your business maintains its same level of operations (and in the same states), you need to be aware of changes that will affect you. Consider these three areas as you review your sales tax planning:

Identify States That Are Making Changes

It’s important to make note of any states making changes to their sales tax requirements as you head into the new year. If you’re expanding sales and/or operations into a new state, learn how they structure their sales tax. Some states will look at the following 12 months, while others use the calendar year to determine taxability. 

For instance, the tax regulations for marketplace sellers continue to change as the industry grows. Currently, about 24 states require sellers to reach a threshold of $100,000 or 200 or more transactions to meet economic nexus requirements. Other states have a specific threshold for their state. So, be aware of how that might impact your sales tax strategies. 

Categorize Products Correctly

Understanding the taxability of your goods and services is critical to avoid under- or over-taxing your customers. If you use an automated service to categorize your products and assign sales tax codes, you should regularly review that items are categorized correctly. These automated systems can be fantastic tools for simplifying your processes and are regularly updated with new information, so make sure your inventory is properly categorized. This is especially important when adding new products or services. 

For example, if you primarily deal in food products but start offering tangible goods, you need to ensure that you’re categorizing products according to the state’s sales tax requirements. No one will be happy if you overcharge them for sales tax.  

While you may clearly understand what you do and what you sell, each state's laws could define those things differently. That’s why keeping your tax and accounting team in the loop whenever you add a new product or service to your business is crucial.

Monitor Nexus Thresholds

If growth is on the horizon, you need to monitor nexus thresholds in any state where you are doing business. If you meet those thresholds without registering for sales tax permits, you will get hit with penalties. Even if you are expanding your business to new areas where you won’t hit nexus, be sure to understand that state’s nexus thresholds before you find yourself in a sticky situation. 

This isn’t just for growth, either. Thresholds and obligations can change, so stay current with each state’s nexus requirements. If tracking all of this information restricts you from staying compliant, it’s worth talking with sales tax professionals about how you can better manage your sales tax process.                                                         

Deregister 

Tying up loose ends can help improve your sales tax strategy. You may no longer have economic or physical nexus in certain states and now have the option to deregister. Deregistering your sales tax license can streamline your sales tax return process. 

Using these strategies to plan for the upcoming year and review past performance and financials from the previous year can give you the perspective you need to make smarter decisions about sales tax moving forward. 

Stay Up To Date with Exemption Certificates

Exemption certificates are a large part of your sales tax planning process. By maintaining your exemption certificates, you can keep your business compliant and protected from audit issues or penalties. Plus, no one wants to overpay on taxes, especially your customers. 

The first of the year is a great time to review your exemption certificates because several states issue them with each calendar year. While other states issue exemption certificates that never expire, and you may think you’re off the hook, we strongly recommend renewing every three to four years at the very least. Why are exemption certificates so important?

• They mitigate the risk of penalties and better prepare you for an audit. 
• They are a cost-saving measure for both you and your customers, especially if you have a high volume of tax-exempt sales. 
• They can improve customer relationships (because no one wants to be taxed incorrectly!)
• Legally, they can protect your business in case of a dispute over exempt sales. Regularly renewing them is beneficial, particularly in this instance.

You may be able to manually manage your exemption certificates, which can be cost-effective. However, if you find yourself unable to stay proactive about renewals due to the sheer volume of exemption certificates, consider investing in software tools to automate the process.

Don’t Settle for a Bad Sales Tax Experience  

Ultimately, these strategies are just the beginning of improving your overall sales tax experience. The frustrations and headaches from mismanagement and a lack of information can hinder effective tax strategies that ultimately help your business. 

We don’t want you to bury your head in the sand because sales tax is overwhelming. Instead, use the right tools, information, and people to make sales tax planning a natural part of your overall financial strategy. 
If you’re unhappy with your sales tax process, it’s time to make a change. You can have peace of mind and confidence when it comes to sales tax. Book a free consultation call with The Sales Tax People so we can set you on the path to better sales tax planning solutions.