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Sales Tax Audits Are Increasing: What Ecommerce Sellers Need to Know

  • Compliance
Published on May 15, 2026

Sales tax audits are increasing in 2026. Learn why ecommerce sellers are targeted, common triggers, risks, and how to prepare before an audit notice arrives.
Sales tax rules change now and then; that’s a factor most businesses already know.
But this recent development is something no one can ignore: sales tax audits are increasing in 2026, and many businesses are at risk. But why is it increasing, and why shouldn’t you take it lightly?
We compiled all the critical aspects that every ecommerce seller should know.

Why Sales Tax Audits are Increasing

There are several driving factors behind the increasing sales tax audits in 2026. In summary, those factors are: 
  • Economic nexus laws are in full effect and continue to evolve
  • Technology keeps improving, calling for easier compliance methods
  • States rely more on sales tax collections as a leading source of revenue
Find out the full details of the current sales tax audit trends below.

1. States are hungrier for revenue

Sales tax is consistently one of the primary sources of revenue for most states. In an increasingly fluctuating economy, efficient collection has become more crucial than ever to maintain stable state development and funding.
You can see this “hunger” in the CDTFA’s, or the California Department of Tax and Fee Administration’s, current audit plans.
Based on its 2025 Sales and Use Tax (SUT) Annual Audit Collections Report, the CDTFA estimated that its statewide audit activities from 2025 to 2026 would total approximately:
  • 1,575,700 hours and 
  • generate revenue of $701,300,000 
According to the same report, the total time spent on statewide audit activities in 2024-2025 was only 1,257,714 hours, which differs significantly from the new estimated total hours. Additionally, the CDTFA expects at least 20 large audits, totaling $297.8 million in revenue in 2026.
As overwhelming as those numbers are, California can realistically achieve this goal with its current workforce, deploying as many auditors as possible to work on multiple audit cases.
Now take note, this is just California.
Aside from the Golden State, expect the following states to be on many businesses’ trail this 2026: 
  1. Illinois: Generated $22,255,382,304.64 revenue from sales tax collections in 2025, marking it as its second-largest source of revenue (after individual income tax). With sales tax being the state’s 2nd top source of revenue, Illinois will most likely aim to collect more as sales tax liabilities are now easier to spot than before.
  2. Florida: Based on Florida’s 2024-2025 sales tax collection reports, Florida generates revenue worth nearly $3.5 billion every month. With new plans on the horizon, the state can choose to conduct more audits to generate more income when needed.
  3. New York: In just the first quarter of 2026 (January to March), the New York State Comptroller reported a 5.1% increase in its local sales tax collections, the amount totaling to $6.1 billion. In 2025, the amount totaled was $5.8 billion.
    With this data, you can expect the state’s revenue to keep increasing when more audits are conducted.
  4. Texas: In April 2026 alone, the Texas Comptroller shared in its monthly state revenue watch report that the state collected $4.6 billion in revenue from sales tax. The reports show a steady increase throughout the months, suggesting that future collections could become higher due to the probable increase in sales tax audits.

2. Economic nexus laws are in full effect

Economic nexus laws have changed a lot since the 2018 South Dakota v. Wayfair, Inc. case.
When it was newer, there were gaps that the states couldn’t address or cover earlier on, but now, most of them are already firmly established.
Illinois’s removal of its 200-transaction threshold on January 1, 2026, is an example of a state balancing its economic nexus laws. Other states have also been doing the same in recent years.
As ecommerce trends became the new norm, economic nexus laws also became common knowledge for many businesses across the states. After all, it’s an inevitable rule most remote sellers can’t ignore.
With this increased general awareness of economic nexus regulations, states also expect more businesses to follow the rules and begin their sales tax compliance.
For example, the CDTFA’s report noted that 14,855 taxpayers registered for a permit after conducting permit checks from 2024 to 2025.
This means that states anticipate more businesses to register and comply with sales tax regulations now that economic nexus laws are fully established across states.

3. Broadened sales tax bases

More states are expanding their sales tax coverage. For instance, states that previously did not apply sales tax to SaaS are now amending their tax codes and finally including SaaS and other digital goods in the state’s sales tax base.
A recent example of this is Kentucky’s Revised Statutes: KRS 139.010. Take note that this is not a new law, but rather, a revised one.
With the growing popularity of AI-powered software, Kentucky clarified that prewritten computer software is still considered taxable TPP even when it’s powered by AI. Therefore, it cannot be considered custom software and doesn’t qualify for an exemption.
Through this clarification, Kentucky ensures its tax base covers any gaps and keeps the taxability of goods as expansive as possible.
Currently, the following states are also actively broadening their sales tax base:
STATES EXPANDING THEIR SALES TAX BASE
  1. Illinois
  2. Louisiana
  3. Maryland
  4. Texas
  5. Washington

4. Advanced technology promotes easier compliance

Just like how businesses had to adapt to the advancing technology and follow ecommerce trends, states also had to do the same. With today’s advanced technology, state websites are constantly improving the user experience.
The most recent model you can refer to is Louisiana’s combined online sales tax filing system.
Instead of filing separately for each parish, taxpayers can now use Parish E‑File to file all their sales tax returns under one centralized system.
With these automated systems, compliance becomes easier. Ecommerce sellers can also use sales tax software to automate their online stores. Therefore, states expect more businesses to comply now that they’re improving the registration, filing, and other compliance processes.

5. States are sharing data to improve audit selection

Thanks to technology again, cross-data sharing is also now easier than ever. States share information about active businesses, who to look out for, who just recently started, and who needs to be invited for a sales tax compliance audit.
With better ways of tracking ecommerce activities, spotting liabilities has become quicker. That aside, here are general situations where your data is shared with other states:
  1. You registered through the Streamlined Sales Tax Organization. Depending on the states you selected, your data will be sent to those states. But in the event of an audit, the SST can also share your information with its other member states, even if you didn’t select that state for registration. 
  2. Multistate Tax Commission (MTC) Joint Audit Program. Member states of the MTC can actively share information about potential candidates for a sales tax compliance audit. 

What is the Purpose of Sales Tax Audits?

Ecommerce businesses can no longer ignore the risk of sales tax audits due to the increased liability exposure with the recent law developments and advancing technology. But what is the purpose of all of this?
The simple answer: States rely on sales tax revenue, and they are counting on businesses like you to comply with their rules. Taxes collected from your sales are used for project funding, whichever plans your state might have.
If you’re worried about audit exposure, let us walk you through what happens during a sales tax audit.

What to Expect from a Sales Tax Audit

How does a sales tax audit work? Here’s what to expect from a sales tax audit to keep you prepared.
There are different types of audits you might encounter. Field audits (happens on-site) or desk audits (conducted remotely) could be one of the following:
  1. Direct Audits – This is a state sales tax audit led by the state’s appointed auditors. Direct audits typically target a detailed investigation of your business’s transactions.
  2. SST Audit – Member states of the SST will audit businesses registered through the SST. If you are using the SST’s “Certified Service Providers” (CSP) program, the states will coordinate with your CSP instead. This helps reduce the burden of managing a sales tax audit on your own.

Who is at Risk Due to Increased Sales Tax Audits?

States are specifically targeting digital products, and that’s why online seller audit risk is higher than ever for businesses that sell or provide the following:
  1. Digital goods
  2. Services to B2Bs
  3. Advertising services
  4. Digital services, including SaaS
  5. Local taxabilities of digital goods (Example: Chicago’s amusement tax)

Why ecommerce sellers are at risk 

Apart from the expanding sales-tax coverage, there are other reasons businesses are at risk. To avoid an ecommerce sales tax audit, beware of the following sales tax audit triggers.
  1. Unpaid use taxes
  2. Frequent exempt sales 
  3. Inconsistent filing records
  4. Operating in newly taxable areas
  5. Mismatched reports in tax returns
  6. Rapid growth in business operations
  7. Your industry is the current audit target
Worried about getting audited? → Learn how one brand resolved a sales tax audit with $53,914.90 liability, managing to save $11,405.90 after closing the case.

Sales Tax Audit Penalties

Generally, the amount and severity of a sales tax penalty vary across states. Sometimes, it also depends on the number of offenses.
Common sales tax penalties resulting from audits are monetary fees and added interest. In rare cases, business permits can also be suspended or revoked. Some states may also imprison offenders.

How to Prepare for Increasing Sales Tax Audits

Below is a sales tax compliance audit checklist to help you avoid the consequences of noncompliance.

Sales Tax Audit Checklist

Before an audit occurs, ensure you prepare the following documents: 
  1. Income tax returns 
  2. Franchise tax returns
  3. Business journal entries 
  4. General financial ledger
  5. Sales and use tax returns
  6. Transaction invoices or journals
  7. Bank and/or financial statements
  8. Shipping invoices and documentation
  9. Resale certificates and other exemption forms
  10. Business growth timeline (depreciation schedules)

Common issues to watch out for: 

  1. Missing records
  2. Documents detailing mergers and acquisitions
  3. You have amended returns (changes in your tax reports)
  4. Missing paper copies or electronic records of documents
  5. Changes in tax maintenance or recordkeeping procedures
  6. Changes in your accounting or tax calculation and reporting systems
NOTE: Keep records for a minimum of 7 years, as some audits can go as far back as more than 7 years when a state launches an in-depth investigation.

Sales Tax Audit Etiquette

  1. Formally introduce yourself to the auditor.
  2. Be cooperative and answer questions clearly.
  3. Don’t hesitate to inquire about the process; some auditors will guide you.
  4. During in-person audits, give your auditor a private, quiet workspace. 
  5. Let your auditor know when another person will assist with the audits (example: accountants).
  6. Do not offer too many gifts to be courteous to your auditor. Simply offer them a drink of their choice and/or a light snack.

Sales Tax Audit Strategies

  1. Don’t give more than what’s asked, but make sure you cover all the basic required documents first to leave no gaps. 
  2. Beware of agreeing to sampling methods to expedite the audit process. These methods are not always effective or accurate for all types of businesses. An inaccurate sampling result could give your business more liabilities than it should have.
  3. Respectfully ask for penalty waivers. Most auditors have the authority to waive penalties caused by reasonable factors. However, they cannot waive interests.
  4. Consult a tax expert before agreeing to any statute of limitations extension. Keeping your audit case open longer than it should could potentially invite more risks for your business.
  5. Appeal to the outcome of your assessment. In case the audit doesn’t end in your favor and you believe it can turn out better, you have the right to appeal. Speak to your auditor and a tax professional if you need further guidance.

Where to Look for Help with Sales Tax Audits

Here are reliable resources you can check to learn more about sales tax audits.
  1. State websites – Some states have a dedicated page online detailing their standard sales tax audit process. This also serves as a guide for businesses. You may also contact the state directly to learn more information.
  2. Streamlined Sales Tax Org – The SST Governing Board aims to simplify sales tax compliance. However, their assistance is limited to only their member states.
  3. Accountants or tax experts – State and local tax (SaLT) experts or Certified Public Accountants (CPAs) can guide you through the process of sales tax audits.
  4. TaxHero – We can provide your business with a sales tax audit risk analysis and represent you during audits. Beyond that, our software completely takes all sales tax concerns off your hands. Our CEO, an expert CPA, can also answer any questions you might have.

What to Do After a Sales Tax Audit

Regardless of the outcome, moving forward after a sales tax audit is important. Here’s a simple list of advice from sales tax experts at TaxHero: 
  1. Always maintain records – Don’t just keep copies in one place. Have both digital and physical records. Keep them for as long as your state recommends. Typically, records must be kept for a minimum of 5 years. 
  2. Be attentive to detail – Minimal errors can easily be overlooked, but they can cost you a hefty penalty later on. Make sure you collect the correct rates, record the correct shipping details (including the address), and capture any other information that will be checked during audits.
  3. Learn from the experience – Remember the parts that had you frustrated or kept you stressed all night. Keep those in mind to ensure you won’t deal with the same problem again. 

Let TaxHero Protect You From Sales Tax Audits

Received an audit notice? TaxHero can represent your business during audits. We will handle the communication, coordination, and any possible negotiations with the auditor.
TaxHero can also shield your business before you even receive any notice.
For your ease of mind, you can try our risk review service. Book a call with our CEO to see how our service can benefit your business!

Frequently Asked Questions

1. What will they look for in sales tax audit?+

In a sales tax audit, auditors typically review your transaction records, your business’s growth history, and prior sales tax records, such as your sales tax returns, registrations, and exemption certificates.

2. What to expect from a sales tax audit?+

Generally, you can expect an in-depth investigation of your business records. The auditor may also request additional documents during the process. The process structure is straightforward, and the goal is to ensure every business is fully compliant with sales tax regulations.

3. What is the sales audit process?+

The sales audit process begins with a notice from the state department. If your business uses Certified Service Providers, the states may get in touch with them first, so you don’t have to do it yourself. The assessment begins by gathering all relevant documentation and ensuring the records are accurate. After a detailed investigation, the audit concludes.
If you’re not satisfied with the result, you have the right to appeal the outcome of your final assessment.