What every small business should know about sales tax in 2026

Sales tax remains one of the most complex and fast-changing compliance obligations for small businesses. This is an increasingly important source of revenue for state and local governments across the U.S. — and its reach continues to expand.

Economic nexus laws, marketplace facilitator rules, and broader tax bases mean more small businesses must register, collect, and file sales tax in more places than ever before. Each new taxable item, market, or sales channel heightens potential sales tax liability as well as the cost and effort to remain compliant. Understanding how sales tax for small businesses is shifting in 2026 — and how to respond — can help growing businesses reduce risk and avoid costly surprises.

Key takeaways  

• Sales tax liabilities are expanding. States are taxing more goods, services, and digital products in 2026 while increasing enforcement, raising the stakes for small business compliance.
• Multistate sales create compliance responsibilities faster than many businesses expect. Economic nexus, physical presence, and online sales channels can trigger sales tax obligations in multiple states, each with different rules and deadlines.
• Proactive planning and automation are critical for managing complexity. Understanding where your business has nexus, keeping records audit-ready, and using sales tax automation software can help reduce risk, save time, and support growth.

What’s new in sales tax for 2026

Sales tax policy is constantly evolving, and small businesses must keep abreast of the latest state sales tax changes to keep up with compliance. In 2026, several sales tax trends have the potential to affect small businesses.

• Many states are broadening their sales tax base. In 2025, multiple states expanded the types of goods and services subject to sales tax, and that trend is expected to continue in 2026. For example, B2B services are receiving increased attention from tax authorities, with Maryland and Washington making many of these services taxable.  
• Online sales also continue to be a focus, with some states changing their nexus rules for remote sales, including dropping transaction thresholds or widening the definition of “marketplace facilitator.”
• States aren’t stopping at updating sales tax laws in 2026. Many are also putting more emphasis on enforcement, which means the stakes for compliance are higher than ever.

Economic nexus and multistate compliance

Nexus is the connection between a business and a state that requires the business to collect, report, and remit sales tax there. Knowing where you have nexus is essential for staying compliant and avoiding penalties. Nexus may be established through a physical presence, such as a store, warehouse, or inventory in a fulfillment center. Business relationships, including affiliates, partners operating in a state, or third-party fulfillment can also create nexus.

“Economic nexus” can be triggered by sales into a state that exceed a certain volume or dollar value — even if the seller isn’t located in that state. After the 2018 South Dakota v. Wayfair, Inc. decision, all states that have a sales tax adopted economic nexus laws that place sales tax obligations on remote sellers, meaning more small businesses are now liable for multistate sales tax.

Economic nexus thresholds and definitions vary from state to state. And in some states, remote sellers are required to register for sales tax and start collecting immediately after crossing the economic nexus threshold. Each state also has its own registration process, filing schedules, and taxability rules — and in some cases, you may be responsible for registering with and collecting tax for local jurisdictions such as cities or counties.

As your business grows across jurisdictions, compliance complexity rises as well. Keeping track of all the different rules, deadlines, and procedures — which may change at any time — and understanding where you have sales tax obligations can be a daunting challenge for small businesses without dedicated tax resources.

Sales tax exemptions and certificates

Not all sales are taxable. Many states allow sales tax exemptions for certain sales such as resale transactions and certain sales to agricultural, manufacturing, government, or nonprofit entities. These require customers to present valid exemption or resale certificates to prove the seller has no obligation to collect sales tax.

While exempt sales relieve a business of some sales tax responsibilities, exemption certificate management requires careful organization. Businesses must track certificate expirations, stay up to date on which products and customers qualify for exemptions, and keep exemption certificates audit-ready. And while some states accept out-of-state certificates for exempt sales, rules vary from state to state.

Manual certificate management increases the risk of missing or outdated documentation, but exemption certificate management software can help you automate the process.

Filing, reporting, and deadlines in 2026

In most states, small businesses remit the sales tax they collect to the state tax authority, which then distributes any local tax owed. However, a small number of home-rule states require businesses to file sales tax returns and remit tax directly to local jurisdictions. Understanding where you need to file is just as important as knowing how much tax to collect.

Once you determine that you have nexus with a state or local jurisdiction, you must register before collecting sales tax. For growing businesses, this often means registering in multiple states over time. Filing frequency varies by state, typically based on how much tax you collect.

Failing to file sales tax returns on time can lead to penalties, interest, and increased audit risk. Repeated late sales tax filings may also draw additional scrutiny from tax authorities. To reduce unnecessary compliance issues in 2026, small businesses must stay up to date on sales tax deadlines and have a system in place to make sure sales tax filings are made on time. 

How sales tax affects online and digital sales

Selling online can boost reach for small businesses, but it also boosts sales tax complexity. Online sales often cross state lines, making it easier to establish nexus and adding to the number of sales tax rules to track.

Sales tax responsibilities depend on how you sell. In all states with a sales tax, large online marketplaces such as Amazon and Etsy are required to collect and remit ecommerce sales tax on behalf of sellers. If you sell only through these marketplaces, compliance may be simpler. However, if you also sell through your own website, physical location, or ecommerce platforms such as Shopify, you’re generally responsible for collecting and remitting sales tax on those sales.

Digital goods and services sales tax can make things even more complicated. Software, streaming, digital downloads, data access, and subscriptions may be taxable in some states and exempt in others. In many cases, taxability depends on how the product is delivered or described. 

Common sales tax mistakes small businesses make

As your business grows, sales tax compliance can get harder to manage. If you’re using manual processes, it’s easy to miss things and make errors. Here are some common sales tax mistakes small businesses make.

• Not identifying where they have nexus
• Missing rate or threshold changes and undercollecting or overcollecting sales tax
• Waiting for notices instead of registering proactively
• Filing late or overlooking prepayments
• Letting exemption certificates expire
• Assuming marketplaces handle all obligations
• Failing to review new sales channels or fulfillment methods
• Keeping records that are difficult to retrieve

How small businesses can prepare in 2026

Sales tax compliance is difficult for small businesses to manage manually, as rates and rules change frequently and growing businesses regularly add nexus obligations in new jurisdictions. Small errors — such as using outdated rates, missing deadlines, or misapplying exemptions — can lead to penalties or audits.

Putting stronger processes in place early makes growth easier. Reviewing where you have nexus, documenting tax decisions, centralizing records, and having set systems to prepare for tax changes help reduce risk as your business expands. 

Sales tax automation helps reduce risk and save time for small businesses. AI-powered tax compliance software from Avalara integrates with accounting, billing, and ecommerce systems to calculate tax, track rule changes, manage exemption certificates, and support filing. These tools also help keep records consistent and audit-ready.

Bottom line

Sales tax compliance will continue to grow more complex in 2026. As states expand their tax bases and refine nexus rules, small businesses need clear visibility and stronger processes to stay compliant. Questions about sales tax? Download the latest Sales Tax for Dummies.

Small business sales tax in 2026 FAQ 

Do small businesses need to collect sales tax in 2026?

Small businesses that have nexus in a state must register, collect sales tax, and file sales tax returns with that state — and sometimes with local jurisdictions such as cities or counties.

What is economic nexus and how does it affect small businesses?

Economic nexus requires small businesses to collect sales tax in a state once they meet certain sales or transaction thresholds, even if they have no physical presence in that state.

Do online businesses have different sales tax rules?

Online businesses generally follow the same sales tax principles as other sellers, but selling across state lines can trigger economic nexus and additional sales tax obligations.

What are sales tax exemptions?

Sales tax exemptions allow certain buyers, products, or uses to be excluded from sales tax. To support an exempt sale, sellers must retain valid exemption certificates, which serve as proof if the transaction is reviewed by a tax authority.

Can sales tax rules change during the year?

Yes. Rates, rules, and definitions can change at any time.