Many States Add Software, Subscriptions & Digital Products To Their Sales Taxable List In 2026

(MENAFN- EIN Presswire) EINPresswire/ -- As the Federal funding landscape transforms post-pandemic, states are scrambling to replace lost Federal funds, so as not to have to cut related programs and services. Many states are looking to sales taxes as the tax vehicle with which to raise revenue, because sales tax modifications are typically easier to implement and can generate funds more quickly than other options.

Although raising the sales tax rate itself may not be politically feasible, at this time, many states and localities seek to make up revenue shortfalls by expanding the number of taxable products and broadening nexus qualifications. Software, subscriptions and other digital products are among the more popular product types being considered and added.

In 2026, twenty-five states now charge sales tax on the sale of software as a service (SaaS), a significant increase in this category from prior years. This fact also means that there are still twenty-five states that exempt charging sales taxes on SaaS. For many corporations, sales tax management is a low priority. Therefore, sales taxes are often paid as billed, resulting in many companies inadvertently overpaying sales taxes when they might actually be exempt.“Although virtually all companies are vigilant about confirming accuracy of the principal amount billed on an invoice, they often assume that the sales tax billed is correct and automatically pay whatever tax amount is charged,” said William Flick, a thought leader in sales tax policy and process, and a Managing Director at EisnerAmper Advisory Group LLC. Flick notes that companies that overpay sales taxes could be eligible for a refund. However, they often don't pursue them because they don't have the sales tax expertise on their teams to identify the exemptions and manage the refund process. Flick predicts,“Because the newly taxable products and nexus definitions are not implemented across the U.S. consistently, more companies will overpay sales taxes in 2026 than ever before.”

As an example, Flick recounts a recent story of a multi-national company, headquartered in New York, paying for software as a service (SaaS) purchased from a New Jersey based company. The New Jersey company automatically charged sales tax on the total of every monthly invoice to this company, even though half of the licenses were being used by employees outside the state. The New York company, just paid the tax as billed.“When our team pointed out the overpayment, we were able to look back 3 years and obtain for the company a 7-figure sales tax refund, as well as save them considerably in the future,” he said. Flick notes that sales tax overpayment is a common occurrence, especially when companies pay invoices out of a single source, their national headquarters, for example. The headquarters payables team may be unaware of the complexity of legitimate exemptions from as many as 13,000 taxing entities around the country, and simply pay the sales tax portion as billed, no matter where the product or service is delivered or used.

Flick has identified six factors causing companies to overpay sales taxes, even though they don't intend to. They include:

1) Assuming that sales tax bills from vendors are correct.
As discussed above, sales taxes billed on invoices are often issued in error. Each invoice should be reviewed and challenged when necessary. Often this requires expertise in knowing when taxes are due and when they are exempt.

2) The location where the actual purchase is made is unclear.
A company's headquarters location could receive the bills, but other locations could be responsible for making the purchases. Just because the payment comes from headquarters may not mean there is sales tax liability in that state.

3) When it is unclear where the product or service is actually used.
A company's headquarters location could receive the bills, but the SaaS, digital product or subscription could be used in other locations. Where an item is used can be the factor that triggers nexus and sales tax payment responsibility.

4) The company depends on financial software that is slow to be updated.
For companies doing business in multiple states, sales tax changes are happening so rapidly that financial software is not always updated quickly enough, leading to errors in payment.

5) The company assumes that government sales tax audit findings are correct.
Audit findings should always be reviewed and challenged. Government findings and definitions of“nexus” are not always accurate.

6) Assuming that others in the organization are in charge of managing sales taxes.
Sales taxes are often viewed as a mundane bookkeeping function... but in this day and age, it shouldn't be. If there is not an expert in the company, or a 3rd party advisor, focused on managing sales taxes, it is likely that the company will overpay.

Although this article doesn't propose to be a complete list of situations, it does illustrate a number of instances where large companies will inadvertently overpay sales taxes.

Said Flick,“Gone are the days when paying sales tax is perfunctory. Today, having sales tax experts on the team who are knowledgeable in the latest laws and rulings and who use forensic accounting techniques to review sales tax payments, can provide significant value. When one considers the average EBITDA of most companies is in the 6-10% range, refunds on sales tax overpayments, can be a consequential contributor to profitability."
---------
ABOUT: William Flick and the EisnerAmper Advisory Group

William Flick is recognized nationally as a thought leader on the subject of business sales tax nexus and compliance. He is in the sales tax leadership at EisnerAmper, one of the largest business consulting groups in the world, comprised of EisnerAmper LLP, a licensed independent CPA firm that provides client attest services; and EisnerAmper Advisory Group LLC, an alternative practice structure that provides business advisory and non-attest services in accordance with all applicable laws, regulations, standards and codes of conduct. Prior to merging with Eisner Amper, Flick owned FM Cost Containment one of the leading forensic tax recovery firms in the United States, specializing in tax confirmation and recovery of overpayments of sales and use taxes, as well as tax audit defense, utilizing proprietary research and knowledge of little-known technicalities in the tax laws of each of the 50 states, including over 13,000 tax entities throughout the United States.

For more information, please contact:
William Flick
EisnerAmper Advisory Group LLC
40 Lloyd Ave.
Suite 308
Malvern, PA 19355
Phone: 484-580-8907
Email:...

Website:
LinkedIn:
Twitter: # # #

MENAFN26052026003118003196ID1111166721