For businesses operating across multiple states, managing sales and use tax is among the most complex—and consequential— responsibilities of a tax department. A missed nexus trigger, late filing or incomplete exemption documentation can quickly result in material exposure.
Sales tax is collected by sellers at the point of purchase on taxable goods and services. Use tax is owed by the buyer when sales tax is not collected, often on out-of-state purchases, e-commerce transactions or inventory used internally. Together, these obligations create a compliance environment that spans thousands of jurisdictions, each with its own rates, rules and filing requirements.
Key distinctions include the following:
- Sales tax is calculated and collected by the seller at the time of the transaction.
- Use tax is self-assessed and reported by the buyer when sales tax was not collected.
Use tax liabilities are often overlooked during day-to-day operations and surface only during an audit, where they can quickly become material.
Key challenges in sales and use tax
The sales and use tax landscape continues to evolve as regulatory changes, expanding nexus standards and increasing audit scrutiny reshape compliance obligations. Since the South Dakota v. Wayfair Inc. decision in 2018, economic nexus rules have significantly broadened how states assert taxing authority over business activity.
For middle market businesses, these changes introduce operational strain and heighten financial risk.
Common sales and use tax challenges include:
- Economic nexus compliance
- Jurisdictional complexity across state and local rules
- Manual processes that increase operational risk
- Exemption certificate management gaps
- Consumer use tax exposure identified during audits
- Taxability of services across jurisdictions
- Audit exposure and readiness challenges
Addressing these challenges requires more than technical knowledge. It calls for advisors who understand how rules are applied in practice and how to operationalize compliance in a way that supports your business.
