Sales tax software can handle a lot of the routine tasks in the early stages, but only if it's set up and monitored properly. Done right, it speeds up calculations and clears basic work.
But once growth accelerates — more sales, more product lines, more states — software alone is no longer enough to protect a business's compliance. It also can’t pinpoint when you trigger nexus, flag local rate changes, or catch use tax obligations created by zero-dollar transactions (that still create tax liability).
Additionally, when things go wrong, audits drag leadership away from priorities, penalties eat into profits, and unexpected liabilities choke cash flow. In these worst-case scenarios, software also isn’t going to help you redo your tax settings, file corrections, or defend you when an audit happens.
The good news is that most pitfalls can be avoided with the right oversight and expertise. Here are six costly sales tax mistakes software won’t catch — and what to do instead:
1. Wrong Product Taxability Settings (Shopify, BigCommerce, QuickBooks)
Many business owners assume product categories in Shopify, BigCommerce, or QuickBooks are set up correctly out of the box. But the same category can be taxed completely differently from state to state, because each state defines those products in its own way — even though your sales channel applies one blanket rule.
For example, Shopify might suggest “food and beverage” for a product like a protein bar or supplement drink. But state definitions can get surprisingly specific — in one state, a bar with a certain amount of flour might be taxed as food, while in another, it’s considered candy. Those same kinds of ingredient-level differences can make a “food and beverage” category trigger the wrong tax treatment, depending on where the sale occurs.
Because each sales channel uses its own internal tax matrix, one wrong category selection can snowball into hundreds of mis-collected transactions before anyone notices. Multiply these differences across more than 12,000 tax jurisdictions, and that can become hundreds of flawed transactions.
Auditors know this, which is why taxability errors are often the first place they look.
Solutions
- Set a reminder to review product tax settings — quarterly at a minimum.
- Run a tax test or sample transaction to see how the platform is actually taxing the item in each state.
- Pay close attention to categories with high variation, like clothing, food, candy, and digital goods.
2. Missed Economic or Physical Nexus Triggers
Nexus is the point where a business becomes responsible for collecting and remitting sales tax in a state — and it often happens sooner than business owners expect.
Today, the most common trigger to watch out for is economic nexus, which came into play after the 2018 South Dakota v. Wayfair ruling. Some states use a $100,000 sales threshold, while others also include a transaction count, like 200 separate sales in South Dakota. In these states, crossing either threshold creates an obligation, even if the business has never set foot in the state.
However, Shopify, Avalara, Amazon, and other platforms only track the sales they can see. If you sell through multiple channels like Amazon, wholesale invoices, phone orders, or secondary Shopify stores, those numbers aren’t combined anywhere automatically. That means a platform may show you “no nexus” simply because half your sales never touch that system at all.
Physical presence also triggers compliance. In other words, inventory stored in Amazon FBA warehouses, remote employees, or even a booth at a trade show can all flip the switch.
Solutions
- Track sales by state monthly and compare them against thresholds.
- Keep a record of where employees, contractors, and inventory are located, and flag any new activity that may establish nexus.
4. Silent Integration and Automation Failures
When it comes to integrations and automations, it’s easy to believe that all systems are working as they should.
In reality, integrations break quietly in the background, and many platforms won't alert you when they stop receiving data. A Shopify store, for example, might stop syncing to QuickBooks or Avalara, and marketplace orders may never be imported at all.
It's also common for other sales activity, like manual invoices or secondary storefronts, to sit outside whatever system is being used for tax filing, unless someone knowledgeable actively imports or connects them for you.
Most companies only discover a faulty integration when reported numbers don’t match what was collected — exactly the kind of gap auditors flag, too.
Solutions
- Run weekly reconciliation checks between your sales platforms and accounting system.
- If a channel stops syncing, reconnect it or run a test order to confirm tax is being applied and recorded the way you expect.
5. Under-Collected Local Rates in QuickBooks
QuickBooks handles state tax rates reliably, but it often misses the local layers of sales tax that are stacked on top. Cities, counties, and special districts add their own percentages, and those extra pieces can slip through unnoticed.
QuickBooks sometimes also relies on data coming from each connected sales channel. So, if Shopify, Amazon, or other platforms don’t send full rate details, the undercollection carries through automatically.
Take Illinois as an example. QuickBooks commonly defaults to the 6.25% state rate, but in cities like Chicago, the true combined rate is 10.25% or higher. That’s a 4%+ under-collection on every transaction. Multiply this gap across thousands of transactions, and you're looking at six figures in under-collected tax obligations.
What makes things worse is that Illinois is a high-audit state, so these missing local amounts are one of the first things auditors look for.
Solutions
- Audit your QuickBooks rate settings for any state with layered local taxes.
- Compare your collected rates against official state and local tables on a regular schedule. If gaps show up, adjust immediately and document the fix, so errors don’t repeat.
6. Incorrect Exemption Handling
Sales to nonprofits, resellers, or government entities often qualify as tax-exempt. The catch is that the seller must keep valid certificates on file and also make sure the buyer is marked as exempt inside each sales channel, or else the platform will still charge tax at checkout.
Tools like Avalara, CertCapture, or Certera can manage certificates, but unless that exemption tool is connected to your sales channels and filing system, exemption status doesn’t flow through automatically. That means sellers still have to manually configure exemptions on Shopify, Amazon, wholesale invoicing portals, and other order systems.
The other tricky part is that states don’t just accept a certificate once. Many require renewals, and expired certificates quietly put tax back on without any platform alert. In Texas, sellers must keep certificates on file for at least four years. In Florida, once a certificate expires, every sale becomes taxable until a valid one is in place.
Solutions
- Get certificates before processing exempt sales.
- Run quarterly reviews to confirm every exemption certificate is current, valid, and complete.
Don’t Let Small Mistakes Become Costly Problems
The six sales tax mistakes slip past software because software follows rules — not judgment. True sales tax compliance takes more than just the set-it-and-forget it strategy typically offered by software; it needs a hybrid approach: automation for speed and consistency, paired with experts who know where the traps are and can stay up to date on changes.
To learn how this hybrid approach works in practice, sign up for TaxValet’s upcoming webinar, How to Future-Proof Your Sales Sales Tax Setup in 2026, and see how to prevent these mistakes before they snowball.