Your business will probably be affected by 2025 tax law updates. Maybe it already has, since numerous transaction tax changes took effect January 1, 2025.
The IRS started phasing in a lower threshold for Form 1099-K, for example. Louisiana’s state sales tax rate increased. Alabama imposed new lodging tax requirements for accommodations intermediaries, and the EU adopted value-added tax (VAT) rules for virtual events.
These are just a few of the notable tax policy changes addressed in Avalara Tax Changes 2025. The in-depth report covers a bevy of sales tax changes specifically affecting the manufacturing, retail, and software industries. It also addresses beverage alcohol, communications, excise, lodging, and VAT changes. From the report:
Key 2025 sales tax changes and trends
Many states are reducing income taxes and personal property taxes (or trying to). Those states that do will likely need new sources of tax revenue. Enter sales tax.
One way to generate more sales tax revenue is to broaden the sales tax base, but that can be a hard sell. In fact, the sales tax base has been steadily shrinking for decades. Still, Louisiana managed to expand its sales tax as of January 1, 2025, and we expect several states will try to do the same before the year is out.
Levying new jurisdictional sales taxes or raising sales and use tax rates is another way to fill state and local coffers. While some jurisdictions did lower rates in 2024, more increased rates or adopted new taxes. That trend is likely to hold steady in 2025.
Sales tax changes for retailers
Economic nexus laws, retail delivery fees, and sales tax holidays are among the key issues affecting retail sales tax compliance in 2025.
By dropping the 200-transactions threshold for economic nexus, a growing number of states are simplifying sales and use tax compliance for small remote retailers. That’s a positive.
More worrisome is the interest states are taking in retail delivery fees, which can be challenging for businesses to implement. While Colorado and Minnesota are the only two states with a retail delivery fee today, Nebraska, New York, Washington, and a few other states are eyeing them.
Additionally, sales tax holidays are impacting a broader swath of businesses than they once did. Ohio lengthened and greatly expanded its back-to-school sales tax holiday in 2024; many businesses that never had to deal with Ohio’s tax-free weekend in past years had just a few weeks to prepare for it. In a similar move, Canada enacted a last-minute sales tax holiday in December.
Digital products and software tax updates in 2025
If at first there don’t appear to be many tax policy changes for the software industry, refresh your browser and look again.
Louisiana enacted a law levying sales and use tax on a host of digital products and services in early December 2024. Businesses were given little time to prepare, as the change took effect on January 1, 2025.
Virginia also tried to expand sales tax to digital goods and services but couldn’t garner the necessary support. Whether to tax or exempt business-to-business (B2B) sales of digital products proved a key point of contention. In this, Virginia isn’t alone.
How to source sales of digital goods to prevent multiple taxation — or its inverse, nowhere sales — is an area of interest for many states. Expect to hear more on this issue in 2025.
Important 2025 tax changes for manufacturers to watch
Several states are exploring ways to reduce personal property tax or increase exemptions for certain businesses, including manufacturers. Georgia increased its personal property tax exemption effective January 1, 2025. Maryland may try to exempt all personal property for midsize manufacturers.
Marketplace facilitator laws are another hot spot for manufacturers (or should be), as they can complicate sales and use tax compliance. In states where marketplace sales count toward the economic nexus threshold, marketplace transactions could help create a sales tax registration requirement for a manufacturer.
Navigating lodging tax updates in 2025
The lodging industry has a lot to navigate in 2025, including more restrictions on short-term rentals and new rules and regulations on lodging marketplaces.
Different jurisdictions describe the platforms that facilitate sales of accommodations differently. They also impose different tax compliance requirements on such platforms. Lodging marketplaces therefore need to know what they are under the letter of the law before they can figure out which laws do and don’t apply to them.
It’s a lot, and these are just a few of the issues facing the lodging industry. There are also new taxes on home amenities, hotel stays, and more.
Beverage alcohol tax changes
As more ready-to-drink beverages enter the market, and more jurisdictions relax restrictions on where they can be sold, more states are reexamining how they tax these grab-and-go drinks. That’s one change affecting the beverage alcohol industry.
Communications tax changes
The entire communications industry will be dealing with what Toby Bargar, Senior Tax Strategist for Avalara for Communications, calls “the biggest news in the communications tax world in 20 years.” A court decided the Federal Universal Service Fund is both a tax and unconstitutional.
Excise tax changes
New excise tax rules for 2025 include some tax increases for nicotine and tobacco products and some new taxes on vape products. States are also rethinking and reworking tax policies related to electric vehicles. More change is likely to emerge as states respond to the federal government’s new position.
2025 e-invoicing mandates and customs changes
Outside of the United States, governments worldwide are moving forward with electronic invoicing mandates. Many countries already require certain businesses to issue and/or receive e-invoices, and it’s likely only a matter of time before e-invoicing mandates are implemented worldwide.
Cross-border sellers should also be prepared for changing policies related to customs duties and import taxes. The U.S. is rethinking its $800 de minimis threshold, for one.
What are you waiting for?
Keeping up with tax rate, rule, and policy changes is a monumental task — and a critical one. Tax authorities are getting more sophisticated with audits by leaning into AI to streamline processes and find noncompliant businesses. You don’t want that to be you.
Get the Avalara Tax Changes 2025 report for valuable insights.
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Tags: sales taxes, Taxes
