As we near 2025, the sales and use tax landscape is evolving faster than ever, thanks to changing consumer habits, cutting-edge technology, and determined governments looking to close tax gaps. For businesses, staying on top of these trends is key to avoiding any tax “bites.” Let’s dive into what’s ahead!

Sales and Use Tax Trends for 2025

1. Increased Focus on Sales and Use Tax Audits

Use tax is often overlooked by businesses, but in 2025, tax authorities are stepping up their game to make sure no stone (or sale) goes unturned. Be prepared for stricter enforcement as they aim to close that revenue gap.

• Keep in mind that post-COVID, state auditors’ overall institutional knowledge has waned due to mass retirement, so audits are becoming more difficult to navigate. Not only are auditors becoming more aggressive but there is a learning curve involved as well, so expect a few surprises!
• According to the 2023 Eversheds Sutherland SALT Scoreboard, taxpayers only won 44% of significant sales and use tax cases. By mid-2024, that number dipped to 24%. The odds aren’t exactly in your favor, so stay vigilant!

2. Services Taxation Expands (Yes, Again)

The digital world keeps growing, and tax authorities are hustling to keep up. More states are taxing digital goods like e-books and streaming services, along with services like SaaS platforms. So, if you’re in the business of bytes, it’s time to pay extra attention!

3. Digital Goods – The Plot Thickens

If you’re selling digital products, it’s time to brush up on the rules—state by state. The complexity is only increasing, and 2025 will bring new twists:

• Broader Definitions: States may broaden what they consider taxable digital goods. Some might even classify more cloud-based services as “tangible personal property.” (Yes, even though they aren’t tangible!)
• Marketplace Facilitator Rules: If you’re using platforms to sell your digital goods across borders, expect more marketplaces to collect and remit taxes on your behalf. Overall, this will be less hassle for your business, but more paperwork to keep track of!

4. Economic Nexus – Know Your State and Local Rules!

Remember the 2018 South Dakota v. Wayfair ruling? It’s been a game-changer for out-of-state sellers, and by 2025, almost every state will have economic nexus laws in place. But the devil is in the details—each state has its own thresholds and requirements, so stay sharp (or get bit)!

• NOMAD States: There are fifty states, plus the District of Columbia, and only five of them do not collect a state sales tax (aka the NOMAD States: New Hampshire, Oregon, Montana, Alaska, and Delaware)
• Home Rule States: Watch out for Alabama, Colorado, and Louisiana, where local jurisdictions act independently. These places like to keep things… interesting.

5. Automation: Your Worst Enemy or New Best Friend? 

    *Remember the song ‘In the Year 2525’ (Zagar and Evans)? Technology is taking over!

• Auditors Have What It Takes to Take What You Have: Auditors are now using AI to process mountains of sales data at warp speed. If you’re in California’s restaurant business, AI is already eyeing your books!
• On the flip side, AI can help you, too! The use of AI platforms will help your business predict tax obligations, catch errors before they become expensive mistakes, and even suggest improvements to streamline compliance.
  • Seamless Integration: The latest tax automation tools will focus on seamless integration with enterprise resource planning (ERP) systems, e-commerce platforms, and payment processors. This will make it easier for businesses to track and manage sales and use tax across different jurisdictions without manual intervention.
  • Blockchain for Tax Compliance: Though still in its infancy, blockchain technology could play a role in future tax reporting. Some experts predict that blockchain could be used to create an immutable record of transactions, making tax audits more transparent and efficient. In 2025, we may see early-stage pilot programs or regulatory discussions about its use in tax compliance.

Thompson Tax’s Top 10 Sales & Use Tax Concerns for 2025: Snake Edition 

1. Do You Really Know Your Audit Data? (Eastern Brown Snake)

Just like the fast and elusive Eastern Brown Snake, missed audit data can sneak up on you. Stay sharp, or this one might strike when you least expect it!

2. Reconcile Your Sales and Use Tax Returns (Pit Viper)

Pit Vipers are known for their accuracy in targeting their prey. Be just as precise when reconciling your tax returns with financial statements and your Federal Tax return—accuracy is key!

3. Use Tax Accrual Procedure (King Cobra)

Whether your process is manual or automated, be as vigilant as the King Cobra. Having a clear and consistent use tax accrual procedure will help you avoid dangerous missteps.

4. Know Your Nexus and Marketplace Rules (Water Moccasin)

Nexus rules can be murky, like a Water Moccasin hiding in the shallows. Stay informed on both state and local requirements, or you might find yourself in deep water.

5. Taxability of Your Products & Services (Coral Snake)

The Coral Snake’s vibrant colors are a warning—just like unclear taxability can be a red flag. Ensure you fully understand what’s taxable, or you could be treading into dangerous territory.

6. Exemption Certificate Rules and Policies (Black Mamba)

Like the swift Black Mamba, exemption certificates can be a fast-moving target. Make sure you have strong policies for collecting and storing these documents, or risk getting caught off guard.

7. AI & Compliance (Sea Snake)

AI is making waves, much like the Sea Snake in its habitat. Stay ahead of the tide by ensuring your systems are equipped for the latest tech-driven compliance challenges.

8. Overpaying Sales Tax to Vendors (Bushmaster)

Bushmasters are elusive and hard to spot, much like hidden overpayments. Don’t let overpaid sales tax to vendors sneak past you—review your records and reclaim those dollars!

9. Measuring Value to Your Organization (Rattlesnake)

Like the Rattlesnake’s unmistakable warning, the value your tax strategy brings to your organization should be loud and clear. Make sure your efforts are impactful and measurable.

10. Are You Having Fun Yet? (Copperhead)

The Copperhead might not be the most aggressive snake, but it still packs a punch. Inject some fun into the process, stay alert, and make sure tax compliance doesn’t catch you off guard.

The Takeaway: Know Your Nexus and Your Numbers!

In 2025, it’s mission-critical to understand your state and local nexus rules, the taxability of your products and services, and to keep immaculate records. When the tax auditor is within striking distance, you’ll want to confidently navigate the conversation with a complete understanding of your books and data to avoid being bit.

Thompson Tax is here to help you handle your current and upcoming sales and use tax challenges with expert guidance tailored to your needs. Let us be your trusted Sales and Use Tax Advisors – we can help you tame the snake! Contact us today!

The Massachusetts Sales and Use Tax Amnesty Period is a special initiative introduced by the Massachusetts Department of Revenue (DOR) to encourage businesses to resolve overdue taxes. Running for a limited time only between November 1, 2024, through December 31, 2024, the program offers businesses an opportunity to settle outstanding tax liabilities while providing significant relief from penalties and interest.

Key Benefits of the Amnesty Program:

1. Waiver of Penalties: Normally, late tax payments accumulate significant penalties. Under the amnesty program, most of these penalties are waived, offering businesses the chance to settle their tax obligations at a much lower cost.
2. Protection from Legal Action: Businesses that participate in the program will not face prosecution or further legal action for the taxes they disclose and pay during the amnesty period.

Why Should Your Business Participate?

For businesses with overdue sales or use taxes, participating in the amnesty program is a smart financial move. Here’s why:

1. Avoid Hefty Penalties: Once the amnesty period ends, the state will resume its standard enforcement actions, which could include steep penalties and interest on unpaid taxes. By settling during the amnesty period, you can significantly reduce these penalties and avoid future collection efforts.
2. Enhance Your Financial Health: Unresolved tax debts can burden your business’ finances. Clearing these liabilities will improve cash flow, enabling you to focus on growth rather than dealing with back taxes.
3. Ensure Future Compliance: Participating in the program also helps you reset your tax compliance. This reduces the risk of future audits or legal complications and sets your business on a clear path for maintaining tax obligations.

Who Qualifies for the Amnesty Program?

To qualify for the Massachusetts Sales and Use Tax Amnesty Program, businesses must:

• Be an eligible taxpayer;
• Submit an amnesty request via MassTaxConnect beginning November 1, 2024;
• Pay all taxes and interest included in the amnesty request;
• File any required returns by December 30, 2024.

How to Participate in the Amnesty Period

Follow these steps to make the most of the Sales and Use Tax Amnesty Period:

1. Evaluate Your Tax Liability

Before the amnesty period begins, review your records to determine if your business has any unpaid sales or use taxes. Consult your accountant or tax advisor if necessary to get a clear understanding of your obligations.

2. Prepare Your Documentation

Gather relevant documentation, such as past tax returns, receipts from out-of-state purchases, and sales records. This will ensure you have an accurate picture of what is owed and can make the process smoother.

3. Monitor Official Updates

Stay informed by monitoring announcements from the Massachusetts Department of Revenue for further details about the amnesty period, including any updates on the process and exact instructions for applying.

4. Submit Your Application and Payment

Once the amnesty window opens on November 1, 2024, submit your application through MassTaxConnect and pay any outstanding tax amounts. Payment must be made within the amnesty period to qualify for the penalty waivers.

5. Maintain Compliance

After you’ve settled your past debts, ensure that your business continues to meet its sales and use tax obligations going forward. Staying compliant will help you avoid further penalties or legal issues.

Don’t Miss This Opportunity

The Massachusetts Sales and Use Tax Amnesty Period is a rare chance to settle outstanding liabilities without facing the full brunt of penalties and interest. Don’t wait until it’s too late—start preparing now to take full advantage of this limited-time program.

Thompson Tax is here to help. Contact us today for expert advice on managing your sales and use tax obligations and let us help you navigate the amnesty process smoothly.

Maine Revenue Services recently released General Information Bulletin No. 114 to provide guidance regarding significant changes to the state’s sales and use tax rules as they apply to leases and rentals. These updates, which will take effect on January 1, 2025, reshape how lessors are required to handle sales tax on leases of tangible personal property.

For businesses and individuals involved in leasing and renting, understanding these new rules is essential to remain compliant with Maine’s tax regulations.

What Are the Current Rules?

Until the end of 2024, lessors (those leasing tangible personal property) must pay sales tax upfront when they purchase property that will be leased or rented out. The tax is calculated based on the full value of the property. This means that even if the property is rented over several years, the tax liability is borne by the lessor at the time of purchase.

This approach simplifies tax collection but creates a significant upfront cost for lessors, as they are paying taxes before they’ve even begun to collect lease or rental income.

Key Changes Effective January 1, 2025

Starting on January 1, 2025, lessors in Maine will be able to purchase tangible personal property exempt from sales tax, provided they present a resale certificate. Here’s how it will work:

1. No Sales Tax on Initial Purchase: Lessors will no longer be required to pay sales tax when they purchase tangible personal property to lease or rent out. Instead, they will use a resale certificate to purchase the property exempt from sales tax.

2. Sales Tax on Lease Payments: Instead of paying the tax upfront, lessors will be responsible for collecting sales tax on each lease or rental payment they receive from their customers. This change aligns Maine’s rules more closely with how most other states handle sales tax on leases and rentals of tangible personal property.

3. Sourcing Rules for Taxation: The guidance also addresses sourcing rules, which determine how and where taxes are applied. The location of the leased or rented property, and potentially the location of the lessee, will play a role in determining where the tax is sourced.

What Does This Mean for Lessors?

For lessors, this legislative change offers some relief from the initial financial burden of paying sales tax when purchasing taxable property. However, it introduces ongoing responsibilities for collecting and remitting sales tax on each individual payment received from lessees.

It also means that lessors will need to keep meticulous records of their leases and rental payments to ensure they are properly collecting and remitting the correct amount of sales tax.

Lessors will also need to be familiar with Maine’s sourcing rules, which dictate how taxes are applied. This can be particularly important for businesses with operations or customers in multiple locations, as the sourcing rules may impact how sales taxes are reported.

Refund Opportunity for Tax Previously Paid by Lessors

An important provision in the guidance discusses a limited refund period for lessors who have already paid sales tax on property purchased before the new rules take effect. If a lessor paid sales tax under the old rules but starts collecting lease or rental payments on that same property, they may be eligible to apply for a refund. There will be a limited window to apply for this refund, so lessors should be proactive in reviewing their tax filings and rental agreements to determine if they qualify.

Preparing for the Changes

To ensure compliance with these new tax rules, lessors should take the following steps before January 2025:

1. Review Existing Contracts and Transactions: Analyze your current leases and rental agreements to determine how the new tax rules will impact your business operations.

2. Obtain a Resale Certificate: If you don’t already have one, apply for a resale certificate with Maine Revenue Services. This document will allow you to make sales tax exempt purchases of tangible personal property for leasing purposes.

3. Update Accounting and Tax Systems: Ensure that your accounting systems can track and calculate sales tax on lease and rental payments moving forward.

4. Consult a Tax Professional: Given the complexity of these changes, consulting with tax professionals familiar with Maine’s tax laws can help you navigate the transition and ensure compliance.

Contact Thompson Tax today for all your sales and use tax needs. We are always just a phone call away.