2024 Sales Tax Changes: What Your Business Needs to Know

Sales tax is a handful for any business—especially with the ongoing changes we see happen each year. So, we’ve analyzed and consolidated some of the important 2024 sales tax changes that could impact your business. Check it out… 

Sales Tax Audits Have Increased YoY

Are audits increasing year-over-year and where? Last year, we noted about 4% of our client base had been involved in an audit. This metric seems to be holding steady this year, with a marginal 0.5% increase seen in 2024.

For context, in late 2021, less than 1% of our clients were in an active audit and in 2023, that number increased to 4%.

Of our client base involved in an audit during the 2024 calendar year, we’ve also seen that 92% of businesses were audited in a state other than their home state—another increase from 2023.

What Does this Mean for Businesses? 

It means the chances of your business being audited has increased year-on-year. A 4.5% chance is still not a high chance, but it is an increased chance, which highlights the importance of having your sales tax affairs in order.

Why Are Audits Increasing?

We can’t say for sure, but what we do know is that 2024 was forecast to have a drop of about 5% in state tax revenue, with sales tax revenue noticeably slowing down since the post-Covid surge. As a result, it’s possible that we’re seeing states ramp up their audit efforts to recoup lost revenue.

States with the Highest Audit Rates

We continue to see the same notable states, like California, Illinois & Washington auditing at a higher frequency than other states:

Although not an audit, we have also noted a few states who continue to reach out to registered businesses with nexus questionnaires. The states will sometimes refer to these as “office audits” or internal audits and they typically result in a business being required to backdate a permit, and file additional historical returns. It’s always possible that these outreach efforts could result in an audit.

The states we frequently see this in are:

• Arizona
• Illinois
• Maine
• New Jersey
• Washington
• Wisconsin

Use Tax is Closely Scrutinized During Audits in All States

On any taxable purchase or giveaway your business makes where you have not paid sales tax at the point-of-sale, use tax is due. And it’s an area that the states are looking at closely during audits. With this in mind, it’s important to remember that while you are most likely tracking your income by state, you should also track your expenses by state.

Common items on which use tax may be due:

• Promotional items, giveaways, samples, freebies
• Marketing items sent to customers such as catalogs & brochures
• Inventory items pulled for business use
• Fixed Assets such as machinery, furniture, equipment, computers, etc.
• Equipment repair performed out-of-state

All of our clients currently undergoing an audit in their home state have faced use tax liability scrutiny during the audit process. In other words, states appear to be looking closely into this! Keeping track of where purchases are being used, by state, could potentially save costs in the event of an audit.

An example of this scenario in practice is as follows: 

A company purchases 13 software licenses and there are only two users located in the state being audited. If the business has kept thorough records of the purchase and the users, for this state’s audit they may only owe tax on the cost of two software licenses, instead of the total invoice amount.

Many States Are Eliminating Sales Tax Transaction Count Thresholds

To determine if a business meets the requirements to collect and remit sales tax, most states consider either the business’s sales volume or number of transactions. Typically, these thresholds are either around $100,000 in sales or 200 transactions (though these thresholds do fluctuate by state). 

The $100,000 sales threshold is fairly straightforward for most businesses, but the 200-transaction threshold can hit hardest on smaller businesses that sell a lot of low-dollar item goods. In this scenario, a business may only have $10,000 or less in sales to a particular state but have well over 200 transactions, thus meeting economic nexus in that state. 

Because of this tricky dynamic, several states have repealed or relaxed sales tax registration regulations this year, offering significant relief to remote sellers. These changes are expected to reduce the burden of registering for sales tax permits, as well as filing returns and being under the microscope of state revenue departments. 

States that have removed the transaction count threshold, or will very soon, include a few new additions, like:

• Alaska (effective January 2025)
• Indiana
• North Carolina
• Wyoming

Colorado & Minnesota Roll Out Retail Delivery Fees

In the last couple of years, some states implemented a Retail Delivery Fee to help fund transportation infrastructure. This fee charges retailers that ship products to customers in their state a minor fee for each delivery over a certain threshold. And some of the thresholds around these fees shifted in 2024. 

For instance, Colorado increased their Retail Delivery Fee in July 2024 from $.27 to $.28 per order. This fee only applies to businesses with over $500K in Colorado retail sales.

Minnesota also rolled out a $0.50 Retail Delivery Fee effective from July 2024. This fee applies only to retail deliveries of tangible personal goods valued at $100 or more delivered within the state. 

Fortunately, Minnesota’s Retail Delivery Fee only applies to businesses whose Minnesota sales totaled $1,000,000 or more in the prior calendar year. But, if your business does meet this threshold, it is important to note that this per-transaction fee is only assessed on taxable orders equal to or greater than $100.

Sales channels continue to have a tough time meeting the demands of state-imposed retail delivery fees. Often the impact is felt most by businesses who are forced to pay these fees out of pocket or risk non-compliance due to the fact that the sales channel was not able to collect this from customers.  

Oklahoma, Alabama, Illinois & Michigan Update Sales Tax Exemptions on Food & Groceries

In 2024, we’ve seen a continued effort to reduce the tax burden on essential items, like food and groceries. While there have been changes in many states, not all states have opted to make these exemptions or reductions permanent. 

For instance, legislation in Illinois previously dropped the sales and use tax rate on grocery items to 1%. But in August 2024, Illinois’s Governor signed legislation that repealed this reduced rate, effective January 2026.

Luckily, however, there are still many states rolling out exemptions on Food & Groceries, like:

• Oklahoma - Food & Grocery exemption effective August 29, 2024
• Alabama - Food & Grocery exemption expected September 1, 2025

Additionally, Michigan passed a tax law that more clearly defines food for human consumption (ie: whole foods, like vegetables, meat, and grains) versus prepared food (like pre-prepared sandwiches, microwave meals, and take out). Their reason for this update is because prepared food is often excluded from food and grocery exemptions as it is deemed more of a luxury, whereas whole foods and groceries are, understandably, considered essential to life.

Other 2024 Sales Tax Changes

Massachusetts Implements a Sales Tax Amnesty Program

Massachusetts has authorized an amnesty program, including amnesty from sales and use tax, which waives certain penalties for qualifying individuals and businesses who pay their outstanding tax liabilities and interest. It’s open to eligible taxpayers who have unfiled returns, underreported tax, and/or other unpaid assessments.

This is a great opportunity for businesses concerned about potential outstanding tax liability, as the amnesty program may include reduced look-back periods for non-filers. This is a great alternative to a Voluntary Disclosure Agreement for unregistered businesses to get compliant.

Note: Interested taxpayers must apply for this program between November 1, 2024 and December 30, 2024. 

Maine & Illinois Now Consider Lease & Rental Payments as Taxable Sales

Maine and Illinois have updated sales tax statutes on lease transactions to more closely align with how other states tax lease payments—previously, leases and rental payments weren’t considered taxable sales in these states. Instead, they required a use tax collection on the purchase price of the leased product. Now, both states will treat a lease or rental payment as a taxable sale. These changes will come into effect in January 2025.  

Sales Tax Disaster Relief Programs Are Now Offered in Many States

To address the impact of severe and often catastrophic weather events, many states have implemented measures to reduce the tax burden on businesses and their owners by extending Disaster Relief programs. These programs often offer extended tax filing deadlines, penalty and interest waivers, etc., though the specific relief options vary by state.

This year alone, we have seen disaster relief offered in California, Iowa, Idaho, Kentucky, Louisiana, Michigan, North Carolina, Rhode Island, Tennessee, and Washington.

These changes highlight the complexity that business owners are forced to navigate in this ever-evolving world of sales tax: things change quickly, and a business’s current tax system may need to be adjusted to capture new state changes, rate reductions, exemptions, relief or amnesty programs, etc.

Stay Ahead After Another Year of Change

Sales tax is a shifting tide—we hope this guide will help you get an idea of where some of this year’s changes affect your business. If you need more specific advice, reach out and get a free sales tax plan from one of our experts.