Big Tax Changes Coming in 2025: What Your Business Needs to Know

Many states are making big changes to their tax rules in 2025 across the U.S. Some are raising sales tax rates, while others are adjusting income and business taxes. Several states have also introduced new taxes on digital products and delivery fees.

This guide breaks down the key tax updates for 2025, most of which took effect on January 1. These include state sales tax rate increases, modifying economic nexus rules, and new rules for online sales and digital goods. Knowing these updates will help your business stay compliant, avoid mistakes, and plan for the year ahead.

1. State-Level Sales Tax Rate Changes

States are making tax changes, including sales tax rate adjustments and broader income and corporate tax reforms. For example, Louisiana is increasing its state sales tax from 4.45% to 5%, Illinois is modifying local tax rates in various areas, and California is introducing new rates across different cities. Chicago’s personal property lease tax increased from 9% to 11% and Kansas is removing a tax on food, but local taxes still apply.

Beyond sales tax, some states are adjusting to income and corporate taxes. Nebraska, North Carolina, and Pennsylvania are reducing corporate tax rates, while New Mexico is raising rates by eliminating lower brackets. Nebraska is introducing 60% first-year spending and currently exempts bars, ingots, or medallions made of gold, silver, platinum, etc like New Jersey. States like Georgia and Iowa are shifting to flat-income tax models, and Mississippi continues to phase out its capital stock tax. 

These efforts aim to simplify tax codes, promote economic growth, and maintain competitive business environments. Businesses should closely monitor tax updates in all states where they operate to ensure compliance and avoid errors and penalties.

2. Economic Nexus Threshold Adjustments

Economic nexus laws require businesses to collect sales tax if they exceed a certain sales threshold in another state. 

It’s been six years since the Supreme Court’s decision in South Dakota v. Wayfair and states are still adjusting their online sales tax rules. Many are getting rid of the rule that taxes businesses after 200 sales and thirteen states have dropped this requirement. Alaska will remove it in 2025, and New Jersey is working on doing the same.

More states are lowering their revenue thresholds to increase the number of businesses required to collect tax. States don’t have to eliminate this rule, but if they don’t make it easier for businesses to follow tax laws, it could force Congress to create stricter rules in the future. Therefore, companies selling across state lines should review these new nexus rules carefully to avoid unexpected tax liabilities.

3. Digital Products tax

States are facing budget shortages and exploring new revenue streams, They are expanding sales taxes to digital goods and services like online games, E-books, software downloads and subscriptions, and streaming services. Some states, like Georgia and Vermont, already tax digital products and Louisiana will start taxing in 2025. Maine will begin taxing tangible property rentals, including rental equipment and goods.

While some states have implemented such taxes, others have failed to pass similar taxes. Maryland’s digital advertising tax has faced legal challenges recently, though it has survived. More states have picked interest in introducing the digital ad tax but since it’s still unclear if these taxes are legal, most states aren’t jumping on board yet. If your business sells digital products, updating your tax collection system is now essential.

4. Local and Municipal Tax Updates

Many local jurisdictions are modifying their sales tax rates. Cities in Texas and Colorado are introducing new taxes or adjusting existing rates. Illinois municipalities are modifying local sales tax rates on general merchandise in addition to the state sales tax rate of 6.25%. It will start applying local taxes to remote sellers even if you’re out of state but selling into Illinois, you’ll need to collect local taxes at the buyer’s location. Vermont municipalities are increasing local taxes to raise additional revenue on food, rooms, alcohol, etc.

States aren’t the only ones making moves. Cities like Aspen, CO will shift tax collection to the state level. Monument, CO will collect sales tax directly and Hopkinton introduced new restaurant taxes.

These changes highlight the importance of staying informed about the changing taxes. Businesses with physical or economic presence in multiple locations must keep track of these local updates to ensure accurate tax calculations and compliance with all applicable local, state, and federal tax laws.

5. Retail Delivery Fees

Several states are following Colorado by implementing small fees on retail deliveries. These fees, typically a few cents per delivery, are intended to fund transportation infrastructure improvements.

This trend has significant implications for businesses. E-commerce retailers and logistics companies must include these fees in their pricing models to maintain profitability. As a result, consumers may also experience slightly higher delivery costs.

6. Preparing for Sales Tax Audits

States like Michigan, New York, and Texas are significantly increasing sales tax audits, especially for businesses selling remotely. These states are investing in better technology to find companies that might not be paying the right amount of tax. 

This focus on remote sellers started from the increasing growth of e-commerce and the complexities of interstate sales tax regulations. As more businesses operate across state lines, the potential for underreporting or miscalculating sales tax liabilities increases.

 For tax audit preparations, businesses should maintain detailed records of sales and tax payments. Leveraging sales tax software to help track tax obligations across multiple states. Additionally, staying informed about filing deadlines and any changes to tax procedures is crucial for compliance.

7. Sales Tax Holidays and Exemptions

Several states like Puerto Rico are introducing tax holidays in 2025, meaning there will always be periods when certain items are temporarily exempt from sales tax. These holidays often target essential goods or services, such as school supplies, clothing, or energy-efficient appliances.

For example, some states may have back-to-school tax holidays, exempting clothing, school supplies, and sometimes even computers from sales tax for a limited period. Other states may offer tax holidays on energy-efficient appliances to encourage consumers to upgrade to more environmentally friendly products.

Several states are expanding tax holidays and modifying exemption policies. Planning ahead for these periods can drive sales. Businesses should Identify upcoming tax holidays in their operating states and plan promotions around these dates.

Your Action Plan for 2025

1. Review your nexus footprint in all states where you operate
2. Update your tax collection systems for digital products
3. Create a calendar of local tax changes and tax holidays
4. Implement robust record-keeping practices
5. Consider automated tax solutions to stay compliant

Sales tax laws are changing to keep up with digital transformation and remote sales. By understanding these changes and acting now, businesses can avoid compliance headaches in 2025. We can help your business to keep up with tax compliance. 

FAQs

1. Which states are raising sales taxes in 2025, and by how much?
   Louisiana is increasing its state sales tax from 4.45% to 5%, and Chicago is raising its personal property lease tax from 9% to 11%. California is adjusting rates across multiple cities, so businesses operating there should review local changes.

2. How are digital products being taxed in 2025?
   Starting in 2025, Louisiana will tax digital products and SaaS (Software as a Service). Maine will begin taxing rentals of tangible goods. If you sell software, e-books, or streaming services, update your tax collection systems to avoid compliance issues.

3. What is economic nexus, and how is it changing?
   Economic nexus laws require businesses to collect sales tax if they exceed certain thresholds in other states. In 2025, Alaska will remove the 200-transaction rule, meaning tax collection will depend solely on revenue. Illinois will also start applying local taxes to remote sellers.

4. How do I know if my business meets economic nexus thresholds?
   Review sales data by state. If your business exceeds either the revenue threshold or the number of sales transactions in a state, you must collect taxes there. Audit your nexus exposure regularly, especially if you sell across state lines.

5. Are there any tax holidays or exemptions to plan for in 2025?
   Yes! Puerto Rico is holding a back-to-school tax holiday from January 10-11, 2025. During this time, school supplies and uniforms will be exempt from sales tax. Use tax holidays to drive promotions and increase sales.

6. What are retail delivery fees, and should I expect them in 2025?
   Retail delivery fees are small charges added to online purchases to fund infrastructure. Although no new states have announced fees for 2025, this trend is expanding. Plan ahead by incorporating potential fees into your pricing model.

7. How can I prepare for increased sales tax audits in 2025?States like Michigan, Texas, and New York are ramping up sales tax audits, particularly targeting remote sellers. Maintain detailed sales and tax records, and use automated tax software to track obligations across multiple states. Being proactive helps prevent costly errors and penalties.