The most common state tax filing errors to watch out for

Keeping your business in compliance this tax season is about knowing how to avoid common mistakes. These are seven to have on your radar. 

1. Failing to register where you have economic nexus

Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can require out-of-state sellers to collect and remit sales tax once they cross a certain revenue or transaction threshold. Commonly, $100,000 in sales is the threshold, but rules can vary by state. Some states have removed transaction based thresholds from their economic nexus calculation.

If you discover you’ve been selling into a state and haven’t been collecting tax when you should have been, filing a Voluntary Disclosure Agreement (VDA) can typically limit the look-back period and the imposition of penalties. Timing will be critical, though, once a state tax authority notice arrives you’re generally disqualified from pursuing a VDA. 

2. Missing or deficient exemption certificates

Exemption certificates are a leading area of audits when it comes to sales tax. They are also one of the most easily neglected. Under audit, an otherwise exempt sale may be deemed taxable if there is no valid documentation from a customer. Missing a few certificates can result in large penalties and interest, as outlined by Source Advisors. Additionally, the bar for what counts as valid may be higher than you think.

For example, accepting a certificate that hasn’t been updated in years and and is expired as of an explicit date may be treated as a failure in an audit occurring today. Many states are starting to scale back leniency around retroactive certificate collection, too, meaning once you are audited, you may not be able to claim a certificate. If you notice any gaps, reach out to customers now, as proactive remediation will almost always yield a better outcome.

3. Product taxability misclassification

Not all products your business offers will be taxed the same way, and the rules are constantly changing. In particular, states continue to broaden and redefine what counts as taxable digital products. This can lead to seemingly inconsistent rules around product downloads, SaaS, streaming, and cloud-hosted tools. An outdated product classification can lead to tax gaps across multiple states. 

In a late-2025 update to sales tax changes put together by Anrok, Maine was singled out as an example. In that state, digital audiovisual and audio works, including subscriptions to platforms like Netflix, Hulu, and Spotify, have been pulled into their definition of taxable services. Similar changes have taken effect across other states. If your product includes any digital goods or bundled services, it’s worth reviewing the most up-to-date taxability classifications to avoid outsized liabilities. 

4. Late or missed filings

Filing taxes late can be expensive due to compounding penalties. Some states are as low as 1%, but others can be quite high. California, for instance, has a maximum of 25% per its latest Franchise Tax Board update. Even a late filing with zero tax due can trigger a penalty and, perhaps worse, flag your account for future scrutiny. 

Some states offer amnesty programs where you can pay outstanding taxes for all unfiled periods without incurring fees, so run an internal audit to see if you have unfiled returns. Filing something is almost always better than filing nothing, as the clock on penalties doesn’t pause while you’re deciding if you need to file. 

5. Incorrect tax rate application

Sales tax is rarely just a single number. Rather, it’s a layered combination of state, county, city, and special district rates. Outdated internal systems may accidentally misapply tax rates, omit jurisdiction-specific rules, or fail to track exemption certificates as they should. These technology gaps can be easily exploited by auditors. Ensure that all tax calculation systems in your organization have been updated to reflect 2026 rates, and consider a Voluntary Disclosure Agreement if you notice any accidental under-collecting. 

6. Unreported consumer use tax on business purchases

Consumer use tax is one compliance obligation that many businesses overlook until they’re in an audit. When a company purchases taxable goods or services from a vendor who is located out-of-state, it can get tricky. If that vendor didn’t charge  sales tax, it’s the buyer’s responsibility to self-assess and remit use tax directly to the state. This can apply to software subscriptions, equipment, office supplies, and other items. 

If your business hasn’t been tracking and self-assessing this tax, a quiet internal review focused on identifying these gaps and making voluntary corrections is far preferable to an auditor finding the issue. 

7. Assuming marketplace facilitators handle all obligations

If your business sells through Amazon, Etsy, or other major marketplace providers, it’s easy to fall prey to a false sense of security. As outlined by BDO USA, a major professional services firm, this is one example of many where tax gaps may occur. 

Marketplace facilitator laws require platforms to collect and remit sales tax on behalf of third-party sellers in states with sales tax, but that’s where the coverage ends. Should your business also sell through your own website, social media, or other nonmarketplace channels, you are the responsible party for collecting and remitting sales tax.

Also, sellers using the Fulfillment by Amazon program may be required to file tax returns in states where inventory is stored, even if Amazon is handling the tax collection on those transactions. This is why reviewing your multichannel exposure and confirming exactly which obligations fall on you is essential. 

The window to self-correct is still open

State audit selection isn’t completely random. States are running increasingly sophisticated data-matching programs, and they are cross-referencing income filings, payroll records, and more against sales tax returns using new technology. 

If a state shares information about noncompliance with other states, based on information sharing agreements, a single audit can open the door to multistate exposure. For any of these seven common errors, the cost of correcting mistakes is almost always lower than the cost of doing so through an audit. Identify any gaps your business may have and act before the state does.