Tax changes in 2026: What you need to know

There were oodles of tax changes in 2025, and 2026 promises more of the same.

In the United States, many states facing budget gaps will be looking for ways to increase tax collections. Sales tax is no panacea, but it can be a reliable source of revenue, especially in states that have committed to reducing or eliminating income tax and/or property tax. More globally, the U.S. and a growing list of other countries will continue to update tariff policies in response to changing international dynamics.

Read about all this and more in Avalara Tax Changes 2026, the 10th edition of our annual tax policy report. Here’s a taste of what you’ll find.

While tax experts generally agree that taxing business-to-business (B2B) transactions should be avoided, at least three states decided to tax select B2B services in 2025: Texas, Maryland, and Washington. In different ways, their new taxes create challenging compliance issues for affected businesses.

We’ll be watching to see which states, if any, will attempt to tax B2B services in 2026.

Georgia, Kansas, Pennsylvania, and Wyoming are among the states interested in broadening their sales tax base in one way or another in 2026. Pennsylvania may be in the best position to do so; the commonwealth’s Independent Fiscal Office has already determined how much revenue the state could bring in by taxing a variety of products and services. It’s nothing to sneeze at.

As a counterpoint to broad discussions about sales tax base broadening, some states are looking to tax or exempt specific types of transactions.

Retail delivery fees
More than a dozen states and at least one big U.S. city are thinking of implementing retail delivery fees. With 2025’s retail ecommerce sales expected to exceed $3.6 trillion worldwide, delivery fees could be a dependable source of income for the foreseeable future. Yet delivery fees are also a compliance burden for businesses, and they’ve generated considerable pushback from retailers. 

Generative AI
Indiana became the first state to weigh in on the taxability of generative AI services. Other states will likely legislate or rule on the taxability of generative AI in 2026. Scott Peterson, VP of Government Relations at Avalara, wouldn’t be surprised if many states categorize ChatGPT services as taxable software.

Necessities
We’ve seen a growing number of states reduce or eliminate taxes on select necessities over the last few years and expect the trend to continue. States to watch in 2026 include Alabama, Massachusetts, Michigan, Missouri, Tennessee, and Wisconsin.

Some of the most interesting developments related to online sales tax center on sourcing rules. Alabama, Illinois, and Texas, which have all modified and/or are updating their sourcing rules, are embroiled in ongoing legal battles over sourcing. The outcomes of these cases may compel each state to make additional changes.

In 2026, at least four states will offer tax amnesty or voluntary disclosure programs to encourage noncompliant businesses to become compliant. Taking an altogether different approach, Illinois will apply a high tax rate to transactions subject to destination sourcing rules when the taxpayer fails to provide the information necessary to determine the locations of those sales.

These and other sales tax changes are explored in Avalara Tax Changes 2026, as are the global tax changes discussed below.

First, the tariffs.

Numbers related to tariffs and trade in 2025 speak volumes: The total number of tariff rates worldwide increased by almost 3 million between January 1 and September 30, 2025; President Trump issued 35 executive orders, 4 memoranda, and 6 proclamations related to trade and tariffs between January 20 and November 20, 2025.

Now, the turmoil.

President Trump announced many tariff changes weeks, days, or even hours before they were to take effect, giving businesses little time to prepare. Some of the new policies never materialized. Others required businesses to implement entirely new processes. 

There will be more change, and probably more turmoil, in 2026. If the U.S. Supreme Court overturns tariffs established under the International Emergency Economic Powers Act (IEEPA), the U.S. government may be forced to refund those duties. That could create a real mess, as at least one Supreme Court justice observed during oral arguments in November 2025.

Whatever else the U.S. does, other countries are pursuing new tariffs and trade deals of their own. Canada is extending tariffs on certain U.S. imports. Mexico is increasing tariffs on China and certain other countries starting January 1, 2026. The EU is imposing a €3 duty on ecommerce parcels valued below €150 starting July 2026. Plenty of other developments will undoubtedly emerge as 2026 unfolds, keeping consumers confused and businesses busy.

And, of course, global businesses will also have to monitor and meet new and changing compliance obligations worldwide.

Europe is launching VAT in the Digital Age (ViDA), a package of reforms designed to improve and digitalize VAT administration in stages through 2035. The first stage centers on digital reporting requirements and e-invoicing, and businesses must be able to comply with the new mandates as they’re rolled out.

Compliance with these new mandates is existential, as businesses unable to comply with them may be blocked from much of the European market. 

Identifying new and changing tax obligations is the first step to compliance. For clear information about complex issues, read Avalara Tax Changes 2026.

What tax changes are happening in 2026?

In 2026, some states may adjust sales tax policies to address new federal policies, economic uncertainty, and evolving consumer behavior. Key trends include expanding sales tax to cover more digital and business services and reducing or eliminating grocery taxes. Several states are also planning or proposing rate changes, sales tax holidays, and new taxes on digital ads. 

Which states are changing sales tax policies next year?

Many states will implement sales tax changes in 2026, including Arkansas and Illinois, which are eliminating the state food tax, and Washington, D.C., which is on track to increase its sales tax rate. Several other states, including Georgia, Kansas, Pennsylvania, and Wyoming, are considering sales tax base expansions.

What is ViDA?

ViDA, or VAT in the Digital Age, is a sweeping EU tax reform package adopted in March 2025 to modernize the administration of VAT across member countries. In 2026, ViDA will start driving major changes through its Digital Reporting Requirements (DRR) and mandatory e-invoicing.