January 2026 sales tax changes

• California is implementing a new covered battery-embedded waste fee.
• Local sales tax rates are changing in more than 20 states.
• Two states are getting rid of state food taxes.

Arkansas and Illinois are eliminating their state sales tax on food for home consumption starting January 1, 2026. In Arkansas, local taxes on food remain in effect. In Illinois, hundreds of jurisdictions will impose new local taxes on food.

Effective January 1, 2026, local sales tax rates are changing in the following states:

• Alabama
• Alaska
• Arkansas
• California
• Colorado
• Florida (sales and use tax changes in Palm Beach and Martin counties; local communications services tax changes throughout the state)
• Georgia
• Idaho (cities of Ponderay and Tetonia)
• Illinois
• Kansas
• Louisiana
• Minnesota
• Missouri
• Nebraska
• North Dakota
• South Dakota (the City of Clark is implementing a new municipal gross receipts tax)
• Oklahoma
• Texas
• Utah
• Washington
• West Virginia

Illinois is eliminating its 200-transactions threshold. Effective January 1, 2026, the Illinois economic nexus threshold is $100,000 in sales only.

Beginning January 1, 2026, amounts received by an eligible taxpayer for healthcare-related goods and services purchased under the Medicare, Medicaid, or TRICARE programs are exempt from Hawaii’s general excise tax (GET). Starting the same date, all machinery and equipment used to provide broadband communication services is exempt from state and local sales and use tax in Missouri.

Ohio is repealing the following sales and use tax exemptions effective January 1, 2026:

• Advertising material or catalogs that price and describe property offered for retail sale
• Newspapers
• Refrigerated food vending machines
• Rental payments for certain motor vehicles
• The transfer of all copyrighted motion picture films, including those transferred for use solely for advertising
• Purchases by direct marketing vendors of items that are used in printing advertising material and equipment primarily used to accept orders
• Sales of digital audio on juke boxes and similar devices in commercial establishments
• Sales of machinery, equipment, and material used in the production for sale of printed material
• Sales of telecommunications services that are used directly and primarily to perform the functions of a qualified call center
• Tangible personal property used in acquiring, formatting, editing, storing, and disseminating data or information by electronic publishing
• The 25% refund of sales and use taxes given to providers of electronic information services

As of January 1, 2026, Colorado is eliminating the state vendor discount, as are at least two localities (Grand Junction and Monument). 

Ohio is capping the prompt payment sales and use tax vendor discount at $750 per vendor’s license per month (except for the sales of motor vehicles). Ohio is also eliminating the 4% discount for wholesale distributors of replacement tires or retail dealers who timely file and pay the replacement tire fee administered by Ohio TAX.

Beginning January 1, 2026, the Louisiana Department of Revenue is expanding its electronic filing and payment mandate to business tax returns, forms, payments and fees, including all withholding taxes and most sales and use taxes. 

Louisiana is also rolling out a new combined state and local sales and use tax return, which should simplify filing for many businesses. December 2025 sales tax returns can be filed using either the multijurisdictional or single sales tax returns. The new Combined State and Local Sales and Use Tax return should be implemented February 1, 2026, for filing the January 2025 tax period. For more details, see Parish E-File and this Avalara Knowledge Center article.

Various new fees and fee changes take effect January 1, 2026, including the following state and local fees.

State fees:

• California is implementing a covered battery-embedded waste recycling fee and a new carryout bag fee.
• Hawaii is implementing a first-in-nation “green fee” on  transient accommodations. The fee also applies to cruise ship accommodations while they are at port in Hawaii, but a federal court has placed an injunction on the cruise ship green fee, which is being challenged.
• Maryland is increasing the tire recycling fee and imposing a new tire fee.
• Washington state is increasing certain bag fees.

Local fees:

• Montgomery County, Maryland, is imposing a local bag tax.
• Richmond, Virginia, is implementing a disposable plastic bag tax; the 5-cent tax applies to any plastic bag provided by a retailer to a customer to carry purchased tangible personal property.

Hawaii and Minnesota are increasing cigarette taxes on January 1, 2026. Maine is increasing the cigarette tax rate as well as imposing new taxes on alternative nicotine products effective January 5, 2026.

Nebraska, Oregon, and Washington are setting new taxes on alternative nicotine products. 

Rhode Island is increasing the local hotel tax rate from 1% to 2% and imposing a new 5% tax on the short-term rental of whole homes.

Worcester County, Maryland, is increasing the hotel rental tax rate on short-term rentals (four months or less) from 5% to 6%.

Effective January 1, 2026:

• Arizona is increasing the business personal property tax exemption to $500,000.
• Indiana is increasing the business personal property tax exemption to $2 million.
• Texas is exempting $125,000 of the market value of personal tangible property used for income production.
• Wyoming is exempting the first $75,000 of business property from property tax.

Keeping up with tax changes is challenging. Automating tax compliance helps.