Updated- Originally published Feb 5, 2025
Businesses overpay or underpay sales tax by an average of 5% annually. That might sound small until you realize it translates to thousands of dollars in penalties, interest, or money left on the table. The difference between a sales tax headache and a streamlined process often comes down to one thing: planning.
The good news? You have the choice to love your sales tax return process. Improving your sales tax process can protect and improve your bottom line. As we look at tax year 2026, now is the time to evaluate your past sales tax experience and plan for a more effective and efficient year.
Learning to love your sales tax process comes with some due diligence and understanding the importance of meeting state [nexus requirements](link to nexus article). Aligning your sales tax planning strategy with operational plans for growth and new product development is also key to streamlining your sales tax process.
In this guide, you’ll learn how to build a sales tax planning checklist that actually works, track state-level changes before they catch you off guard, categorize products correctly, monitor nexus thresholds, and keep your exemption certificates current. Whether you’re expanding into new states or simply maintaining your current operations, these strategies will help you approach 2026 with confidence.
Why Sales Tax Planning Is Essential
Sales tax is one of the biggest margin killers when it comes to taxes. If you underpay, you’ll end up loaded with hefty penalties and interest out of your own pocket. You’ll be better positioned for financial success if you correctly collect sales tax at the time of the transaction.
Unfortunately, sales tax gets overlooked because of its complexity and inconsistent rules across state lines. With dozens of different thresholds, rates, and exemptions determining how you pay sales tax, the states don’t make it easy. Even your internal accounting team can miss sales tax increases and changes that affect your business. To protect yourself and your business, include sales tax planning in annual financial and tax strategy meetings.
Since every state handles sales tax differently, you must be aware of your nexus in each state. Not only can the tax rates differ, but their threshold for economic nexus, sourcing rules, exemptions, and categorization of goods can affect your sales tax obligations. Knowing how and where your business intends to grow can guide your accounting team toward better sales tax planning.
Your Sales Tax Planning Checklist: Questions That Matter
Asking the right questions can put you on the right path to successful sales tax planning strategies. Have your accounting and finance teams collaborate with other departments to ensure that you have all the necessary information to clearly map out your areas for growth and improvement and identify risks around sales tax.
Consider these questions as a springboard to evaluate your processes and begin your evaluation:
- Did we accurately collect and remit sales tax in all states where we had nexus?
- Are we monitoring nexus thresholds and registering sales tax permits in new states?
- Have there been changes to our business activities in any state that might trigger nexus?
- Are we properly categorizing our sales tax in each state? (i.e., SaaS, digital products, [e-commerce](link to ecommerce compliance article), food products)
- Has our footprint expanded or decreased in any region? New hires? Manufacturing facilities? Warehouses?
- Do we plan to hire or lay off employees?
- Did we or do we plan to experience any acquisitions in new states?
- Did we or are we going to any trade shows? What is the taxability of our goods and services in those states?
- Are our [exemption certificates](link to exemption certificate content) being collected and maintained for exempt sales?
- Have we identified any areas of risk or exposure related to sales tax compliance?
You’ll find that your growth plans are directly related to your sales tax planning strategy. It’s not just about your physical locations either. Depending on the state, your sales tax obligations may include other factors, like volume of sales. So don’t discount states where you have no physical presence.
Also, during your planning, be sure to discuss any new products in development, as they will need to be categorized correctly in each state. This is often where product development, marketing, and accounting departments lose each other. Get on the same page so you can start with the correct sales tax categorizations.
If you want to streamline your sales tax return process, also review areas where there has been downsizing. This will help you avoid using precious resources on unnecessary tasks.
Your Roadmap for Successful Sales Tax Planning in 2026
Once you outline your operational goals and objectives for the upcoming year, you can look at their impact on your sales tax process. Even if your business maintains its same level of operations (and in the same states), you need to be aware of changes that will affect you. Consider these four areas as you review your sales tax planning.
Track State-Level Changes Before They Catch You Off Guard
It’s important to make note of any states making changes to their sales tax requirements as you head into the new year. If you’re expanding sales or operations into a new state, learn how they structure their sales tax. Some states will look at the following 12 months, while others use the calendar year to determine taxability.
The tax regulations for marketplace sellers continue to change as the industry grows. Many states have moved away from the dual threshold approach (sales amount or transaction count) and now focus primarily on dollar-based thresholds. For example, several states have dropped the 200-transaction prong entirely in recent years, with Illinois being one of the most recent to make this change. Always check current state requirements before assuming your obligations, as thresholds can shift without much notice.
Categorize Products Correctly
Understanding the taxability of your goods and services is critical to avoid under- or over-taxing your customers. If you use an automated service to categorize your products and assign sales tax codes, you should regularly review that items are categorized correctly. These automated systems can be fantastic tools for simplifying your processes and are regularly updated with new information, so make sure your inventory is properly categorized. This is especially important when adding new products or services.
For example, if you primarily deal in food products but start offering tangible goods, you need to ensure that you’re categorizing products according to the state’s sales tax requirements. No one will be happy if you overcharge them for sales tax.
Here’s a concrete example for 2026: SaaS and digital products continue to see shifting taxability across states. Colorado recently expanded its definition of taxable digital goods, catching many software companies off guard. If you’re selling digital products or subscription services, review each state’s current stance on taxability before filing.
While you may clearly understand what you do and what you sell, each state’s laws could define those things differently. That’s why keeping your tax and accounting team in the loop whenever you add a new product or service to your business is crucial.
Monitor Nexus Thresholds
If growth is on the horizon, you need to monitor [nexus thresholds](link to nexus article) in any state where you are doing business. If you meet those thresholds without registering for sales tax permits, you will get hit with penalties. Even if you are expanding your business to new areas where you won’t hit nexus, be sure to understand that state’s nexus thresholds before you find yourself in a sticky situation.
This isn’t just for growth, either. Thresholds and obligations can change, so stay current with each state’s nexus requirements. If tracking all of this information restricts you from staying compliant, it’s worth talking with sales tax professionals about how you can better manage your sales tax process.
Deregister Where You No Longer Have Nexus
Tying up loose ends can help improve your sales tax strategy. You may no longer have economic or physical nexus in certain states and now have the option to deregister. Deregistering your sales tax license can streamline your sales tax return process and free up resources for states where you actually have obligations.
Using these strategies to plan for the upcoming year and review past performance and financials from the previous year can give you the perspective you need to make smarter decisions about sales tax moving forward.
Stay Up to Date with Exemption Certificates
[Exemption certificates](link to exemption certificate content) are a large part of your sales tax planning process. By maintaining your exemption certificates, you can keep your business compliant and protected from audit issues or penalties. Plus, no one wants to overpay on taxes, especially your customers.
The first of the year is a great time to review your exemption certificates because several states issue them with each calendar year. While other states issue exemption certificates that never expire, and you may think you’re off the hook, we strongly recommend renewing every three to four years at the very least.
Why are exemption certificates so important?
- They mitigate the risk of penalties and better prepare you for an audit.
- They are a cost-saving measure for both you and your customers, especially if you have a high volume of tax-exempt sales.
- They can improve customer relationships (because no one wants to be taxed incorrectly).
- Legally, they can protect your business in case of a dispute over exempt sales. Regularly renewing them is beneficial, particularly in this instance.
You may be able to manually manage your exemption certificates, which can be cost-effective. However, if you find yourself unable to stay proactive about renewals due to the sheer volume of exemption certificates, consider investing in software tools to automate the process.
Don’t Settle for a Bad Sales Tax Experience
Ultimately, these strategies are just the beginning of improving your overall sales tax experience. The frustrations and headaches from mismanagement and a lack of information can hinder effective tax strategies that ultimately help your business.
We don’t want you to bury your head in the sand because sales tax is overwhelming. Instead, use the right tools, information, and people to make sales tax planning a natural part of your overall financial strategy.
A note on AI and automation in 2026: If you haven’t explored automation tools for your sales tax process, now is the time. AI-powered solutions have become significantly more accessible for small-to-mid businesses, offering everything from automated rate calculations to nexus monitoring and exemption certificate management. These tools can handle much of the heavy lifting, freeing your team to focus on strategic decisions rather than manual data entry. The key is finding the right fit for your business size and complexity.
Your Next Step Toward Sales Tax Confidence
You’ve got the checklist. You understand why nexus matters, why product categorization trips up even experienced teams, and why exemption certificates deserve more attention than they usually get. The question now is simple: what are you going to do about it?
Sales tax planning isn’t a one-time project. It’s an ongoing process that evolves alongside your business. The strategies in this guide will help you approach 2026 with a clearer picture of your obligations, but having a plan on paper and executing it consistently are two different things.
Here’s the reality: most businesses don’t struggle with sales tax because they lack information. They struggle because they lack bandwidth. Your accounting team has competing priorities. State rules keep shifting. New products launch before anyone thinks to ask about taxability. And before you know it, you’re playing catch-up instead of planning ahead.
That’s where having the right support makes the difference.
If you’re feeling uncertain about your compliance status, unsure whether you’ve triggered nexus in new states, or simply tired of the annual scramble to get your sales tax house in order, you don’t have to figure it out alone. A conversation with someone who lives and breathes sales tax can give you clarity on what’s working, what’s at risk, and what to prioritize next.
No fees. No pressure. Just a straightforward discussion about where your business stands and what your options are.Ready to make 2026 the year you finally get ahead of sales tax?Schedule a free What’s Next consultation with The Sales Tax People. We’ll assess your situation, answer your questions, and give you a clear roadmap for moving forward. Because sales tax doesn’t have to be a headache. It just has to be handled.
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