Sales tax compliance is one of the most frustrating and time-consuming challenges facing businesses that operate across multiple states. The promise of expanding your company’s footprint and serving a broader customer base comes with several tax obligations, varying laws, and an ever-evolving patchwork of regulations.
Whether you’re a growing e-commerce brand, a service provider crossing state lines, or a manufacturer distributing nationwide, understanding and managing multistate sales tax compliance is not optional.
In recent years, the pressure to get it right has intensified. State governments are cracking down on enforcement, and the consequences of non-compliance can be devastating. From missed registration requirements to incorrect filings and penalties, it takes just one oversight to put your business at risk.
Understanding Sales Tax Nexus: The Foundation of Compliance
The key concept that drives sales tax obligations is nexus, a legal term that establishes whether a business has a sufficient presence in a state to be required to collect and remit sales tax there. Historically, nexus was based solely on physical presence, such as offices, warehouses, or employees within a state. However, in 2018, the Supreme Court’s decision in South Dakota v. Wayfair, Inc. dramatically changed the landscape by allowing states to impose economic nexus rules.
Today, many states determine nexus based on sales revenue or transaction thresholds. For example, if your business sells more than $100,000 worth of goods or conducts over 200 transactions in a state annually, you may be required to collect sales tax, even if you have no physical footprint there. These rules vary by state, and failing to monitor and adjust for them can lead to costly non-compliance issues.
Registration Requirements: No Two States Are the Same
Once you’ve established nexus in a state, the next step is registration. Each state has its own registration process, filing portals, fees, and rules. Some states allow centralized registrations through systems like the Streamlined Sales Tax Project (SST), but many still require businesses to register individually through the state’s department of revenue.
It’s also important to register before you begin collecting tax. Collecting without registration can lead to accusations of tax fraud or other serious penalties. If your business discovers it has been operating in a state without being registered, you may need to explore voluntary disclosure agreements (VDAs), which allow you to come forward and correct your mistakes with minimized penalties.
Taxability Rules: What You Sell Matters
Even after you’ve established nexus and registered, you still need to determine whether your products or services are taxable in each state. Not all states treat goods and services equally. A product that is taxable in one state may be exempt in another. Similarly, services like software-as-a-service (SaaS), consulting, or installation may be fully taxable, partially taxable, or completely exempt depending on the jurisdiction.
For example, digital goods are a common area of confusion. States like Pennsylvania and Washington tax digital downloads, while others like Florida do not. Inconsistent treatment makes it difficult for businesses to maintain a standardized approach to pricing and tax collection.
This is where precise, up-to-date taxability matrices and sales data analysis come into play. MKS&H helps businesses analyze their offerings in the context of each state’s tax code, avoiding misclassification that could lead to audits or back-tax assessments.
Sales Tax Rates and Sourcing Rules: Location Matters
Sales tax rates are not only different from state to state; they can vary by city, county, and even zip code. Many states operate under a combined rate model, where the total sales tax consists of a state rate plus local add-ons. Managing these rate differences manually is nearly impossible at scale.
Adding another layer of complexity are sourcing rules, which dictate how the location of a sale is determined for tax purposes. Under origin-based sourcing, the tax rate is based on where the seller is located. Under destination-based sourcing, it’s based on the buyer’s address. Most states use destination-based sourcing, but a few states (including Texas and California) use origin-based sourcing or hybrids thereof.
Using sales tax automation software can help with rate calculations, but these tools are only as accurate as the data and logic behind them. A tax professional, like MKS&H, not only helps you choose the right software but also ensures it is configured correctly for your unique sales channels and business model.
Filing and Remittance: Avoiding Penalties Through Timely Action
Once sales tax is collected, businesses are required to remit it to the state within specific timeframes—monthly, quarterly, or annually, depending on their total tax liability and the state’s rules. Missing a filing deadline, even if you have no sales to report, can result in penalties, interest, and in some cases, the suspension of your tax license.
Some states require prepayments or estimated payments. Others have aggressive late-filing penalties that escalate quickly. Multistate businesses must keep track of each jurisdiction’s calendar, payment methods, and documentation requirements.
MKS&H helps clients implement efficient workflows and software integrations to automate filing reminders, reconcile tax collections, and submit accurate returns. We also provide back-office support to manage notices, audits, and correspondence with tax authorities.
Managing Exemptions: Certificates and Recordkeeping
Sales tax exemptions are a critical part of compliance, particularly for B2B transactions. If you sell to tax-exempt entities like nonprofits or resellers, you must obtain and store valid exemption certificates. Each certificate must be accurate, complete, and renewed regularly. Relying on outdated or invalid certificates can trigger audits and liabilities during state reviews.
The burden of proof is always on the seller to demonstrate why tax was not collected. Therefore, businesses should implement a centralized system for storing and tracking exemption documentation across states. At MKS&H, we assist businesses with building reliable certificate management systems that integrate into sales workflows and reduce the risk of errors.
The Risk of Audit: Preparing for Scrutiny
As states increase their enforcement efforts, the likelihood of a sales tax audit rises, especially for companies with multistate exposure. Sales tax audits are notoriously detail-oriented and time-consuming. Auditors may review sales records, exemption certificates, tax returns, shipping data, and even website transactions to identify inconsistencies.
Common red flags include underreported sales, inconsistent tax collection practices, and improper exemption handling. Preparing for an audit begins long before the notice arrives. MKS&H supports clients in establishing robust documentation, training internal teams, and performing mock audits to identify and correct weaknesses before they become liabilities.
If you’re already under audit, our experienced tax professionals provide hands-on guidance, manage auditor communications, and negotiate favorable resolutions wherever possible.
Leveraging Sales Tax Automation: Tools with Strategy
While software solutions like Avalara, TaxJar, and Sovos have simplified many aspects of sales tax compliance, they’re not plug-and-play. Businesses still need expert oversight to ensure correct product mapping, nexus tracking, and exemption application. Additionally, tax software doesn’t eliminate the need for human judgment, especially when interpreting ambiguous regulations or responding to notices from tax authorities.
MKS&H works closely with clients to implement the right mix of automation and human oversight. We help businesses choose and integrate tax software, configure it to match their business logic, and continuously monitor its performance. This hybrid approach delivers both efficiency and accuracy.
Why Multistate Compliance Requires Professional Support
Ensuring compliance with multistate sales tax is not a task most business owners or internal finance teams can—or should—manage alone. With over 10,000 taxing jurisdictions in the U.S. and a constantly evolving legislative environment, this is a full-time responsibility. Even a single state’s error can have ripple effects across your entire operation.
Fortunately, at MKS&H, we provide end-to-end support for businesses in this situation. From nexus analysis and registration to filing, exemption management, and audit defense, our team combines technical expertise with personalized service. We understand the unique needs of your industry and customize strategies that reduce risk while supporting growth.
Take Control of Sales Tax Compliance with MKS&H
In today’s business environment, expanding into new markets brings both opportunity and compliance burdens. Sales tax is no longer a back-office detail; it’s now a strategic area that demands attention, accuracy, and proactive management as missteps can cost your business time, money, and credibility.
By partnering with MKS&H, however, you gain a team of experts dedicated to simplifying the complex and keeping your business compliant at every step. Whether you need a one-time nexus review or ongoing multistate tax management, we’re here to help. Ready to take control of your multistate sales tax compliance? Contact us today to schedule a consultation!
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.
