Every new year brings a fresh set of tax changes and compliance requirements. Staying up to date with these regulations can be overwhelming, and failing to comply can lead to costly mistakes and time-consuming audits. Fortunately, UltraCart offers built-in tools and integrations to help you track and comply with these requirements seamlessly.
However, for the most accurate sales tax calculations—especially at the local jurisdiction level—we recommend using a dedicated tax solution like Avalara, TaxJar, or Sovos. These services provide dynamic sales tax calculations based on specific addresses rather than general zip codes and can even handle tax filings for you.
To support you even further, Avalara has created a comprehensive guide and is hosting a must-attend webinar to help you navigate the evolving tax landscape in 2025. We highly recommend downloading their 2025 Tax Guide and signing up for the 2025 Tax Changes Webinar to get the expert insights you need to ensure your business stays compliant and thrives this year.
Helpful Resources from Avalara:
- Download Avalara's 2025 Tax Changes Report: Get Your Copy
- Sign up for the Avalara 2025 Tax Changes Webinar: Register Here
Key 2025 Tax Updates and Highlights
Below are some of the most important tax updates for 2025 that could affect your business.
1. General Sales Tax and Nexus Issues
Economic Nexus Thresholds:
Economic nexus laws require businesses to collect and remit sales tax based on their economic activity in a state. The thresholds vary:
- Some states base the threshold on total sales revenue.
- Others use both revenue and the number of transactions.
Elimination of Transaction Thresholds:
Several states are eliminating the 200-transaction threshold in 2025:
- Alaska: Eliminating the 200-transaction threshold as of January 1, 2025.
- New Jersey: Following suit later in 2025.
Many other states have already made this change, meaning you could have nexus and be required to collect sales tax even if your sales volume is low.
Safe Harbors for Small Businesses:
Some states offer safe harbors that protect small businesses from registering until they reach a certain sales threshold.
- California and Texas: No registration is required until you reach $500,000 in sales within a 12-month period.
Physical Presence Nexus:
Physical presence still creates nexus. This includes:
- Having a physical location, such as a store, office, or warehouse.
- Storing inventory in a fulfillment center or third-party warehouse.
- Employing remote workers in a specific state.
Remote Employees:
Even one remote employee working in a different state can create nexus. Many states count telecommuting employees as contributing to nexus for sales tax purposes.
Sales Tax Compliance Complexity:
The U.S. has over 10,000 sales and use tax jurisdictions, each with its own tax rates and rules. It’s essential to have automated tools or a service to stay compliant across different regions.
Sales Tax Rate Changes:
Stay alert to local and state sales tax rate changes. For example:
- Louisiana: State sales tax rate will increase from 4.45% to 5%, effective January 1, 2025.
Sourcing Rules:
Sourcing rules dictate how taxes are applied:
- Some states base the tax on the shipping origin, others on the destination, and some use both.
- Illinois: Changing sourcing rules as of January 1, 2025, for out-of-state retailers with a physical presence, requiring them to collect taxes based on the delivery address.
2. Sales Tax Holidays
Sales Tax Holidays:
Sales tax holidays provide temporary exemptions for specific goods but can be tricky to manage:
- In 2024, there were 39 sales tax holidays across 19 states and Puerto Rico.
Varying Rules and Exclusions:
Each tax holiday has unique rules, timelines, and eligible product lists.
Planning is Crucial:
Plan ahead to avoid errors and ensure you’re prepared for sudden changes to sales tax holiday guidelines.
3. Digital Goods and Services
Taxation of Digital Products:
Some states are implementing or considering taxes on digital goods and services such as:
- Streaming music and videos
- E-books and digital images
- Software downloads
New Digital Product Tax in Louisiana:
Starting January 1, 2025, Louisiana will begin applying sales and use taxes to many digital products.
Digital Services Tax (DST):
Some governments are implementing Digital Services Taxes (DST) to offset revenue losses from reductions in income and property taxes.
- Example: Canada’s DST applies to online advertising services, social media platforms, marketplace services, and user data revenue.
Stay Ahead of 2025 Tax Changes
Navigating tax changes can be complex, but with the right tools and resources, you can stay compliant and grow your business confidently.
Don’t miss out on Avalara’s valuable resources:
Download the 2025 Tax Changes Guide for a detailed breakdown of this year’s tax regulations.
Sign up for the Avalara Webinar to hear expert advice on best practices for managing tax compliance in 2025.
With UltraCart’s robust integrations and Avalara’s expert guidance, you’ll be ready to handle whatever the 2025 tax season brings!
Would you like help integrating Avalara with your UltraCart store? Contact Us for more information!
Important Disclaimer: UltraCart Managed Tax Rates
UltraCart offers UltraCart Managed Rates as a free, convenient option for U.S. sales tax. However, please keep in mind:
- UltraCart Managed Rates are provided by Avalara and are accurate only at the zip code level.
- Some addresses within a zip code may have higher rates due to local tax jurisdictions.
- For more precise tax calculations at the address level, use an API-based integration like Avalara or TaxJar, which can calculate rates specific to the customer's exact address.
- The UltraCart Managed Rates are only available for businesses operating in the United States.
To learn more about configuring sales tax in UltraCart, check out our Sales Tax Help Doc.
For the most accurate and comprehensive solution, we strongly recommend using a dedicated sales tax service such as Avalara or TaxJar. These solutions:
- Dynamically determine whether you’ve reached the nexus threshold that requires tax collection in a state.
- Calculate the correct state and local jurisdiction rates.
- Offer the option to file sales tax returns on your behalf (for an additional fee).
Understanding Sales Tax Nexus
Sales tax nexus refers to the connection between your business and a state that establishes your obligation to collect sales tax. Nexus is used to determine whether a business has a substantial presence in a state, which would require them to collect and remit sales tax on sales to customers in that state.
Types of Nexus:
- Physical Presence Nexus: Having a physical location (office, warehouse, store) or inventory in a state.
- Employee or Agent Nexus: Employing remote workers or having agents working within a state.
- Property Ownership Nexus: Owning real estate or inventory within a state.
- Economic Nexus: A significant amount of revenue or a specific number of transactions in a state.
Determining Nexus:
To determine whether your business has nexus in a state, consider these factors:
- Revenue Generated: High revenue in a state can trigger economic nexus.
- Number of Sales: A large volume of sales to customers in a state may create nexus.
- Employee or Agent Presence: If you have employees or agents in a state, nexus may apply.
- Physical Assets: Owning property such as real estate or storing inventory in a state can create nexus.
Failing to collect sales tax in a state where you have nexus can result in penalties, fines, and audits. It's critical to understand the sales tax laws in every state where you do business to avoid costly consequences.
Final Recommendation: Consult a Tax Professional
Sales tax compliance is complex and varies by state. We strongly recommend consulting with a CPA or tax professional to ensure that your specific business circumstances are fully compliant with federal, state, and local tax laws.