New Audit Areas and Hot Topics in Sales Tax Audits

As companies expand their physical and economic footprints and diversify their operations, state tax authorities are responding with increasingly sophisticated audit strategies. No longer confined to traditional areas of scrutiny, auditors now probe deeper to uncover compliance gaps that were previously overlooked or nonexistent.

Today’s audits are not just about verifying sales tax collection, they’re about understanding how evolving business practices intersect with complex, and often ambiguous, tax obligations.

For businesses, the changes in the sales tax audit landscape mean heightened risk exposure and a pressing need to stay ahead of regulatory developments. By understanding the trends sweeping through the latest audit areas, you can better anticipate risks and strengthen your compliance practices.

Post‑Wayfair Enforcement Environment

While it has been over seven years since the South Dakota v. Wayfair decision, the ripple effect of economic nexus and its impact on marketplace facilitator laws continues to be felt across the states. The early post-Wayfair period was defined by some leniency towards online sellers, as many states provided grace periods. However, that initial flexibility has given way to more robust enforcement as jurisdictions refine their definitions, thresholds, and compliance expectations.

When it comes to audit focus areas, marketplace reporting is a key concern. Auditors zero in on whether the marketplace facilitator or seller is deemed “the responsible seller” under various state statues, which is why understanding the distinction between the two is so crucial. However, complex scenarios involving third-party fulfillment, subscription-based sales, or cross-border transactions add several layers of complication to understanding your responsibilities. In addition, questions regarding who is eligible for refunds of tax when the tax is paid by both the seller and the facilitator.

In addition to these areas, auditors frequently examine your marketplace data to see if it matches your internal systems’ information. This hunt can uncover discrepancies in sales or tax-exempt transactions. Auditors demand consistent documentation, including timely certificate collection and justification for claimed exemptions.

To proactively address these issues, it’s important to take the following actions:

• Review marketplace agreements to ensure contracts with platforms like Amazon, eBay, Etsy, and Walmart clearly specify which party is recognized as the “seller of record” in each jurisdiction.
• Set up reconciliation procedures in order to cross-check between your selling system, tax system and general ledger data feeds, as inconsistencies can trigger audit findings.
• Organize your documentation, such as exemption and resale certificates as this is a crucial, and often forgotten, part of sales tax compliance.
• Monitor nexus laws to stay current with evolving requirements related to enforcement, audit precedents, and state-specific liability frameworks.

Emerging Digital Tax Models and Audit Implications

Similar to how states are growing more assertive in applying nexus standards to emerging business models like marketplace facilitators, they are also widening the audit lens to capture revenue streams like online advertising. Maryland’s digital advertising tax stands out as a bold new initiative that aligns with this trend.

Maryland set the precedent with its tax by targeting revenue from digital ad services, which sparked widespread debate. Legal challenges have questioned its constitutionality and raised concerns about potential double taxation, especially for businesses operating across multiple jurisdictions. The Sales Tax Institute’s coverage of this issue provides a helpful foundation, and for a deeper dive into what’s happening and what’s next, click here for valuable insights into the Maryland law’s rollout and its broader implications.

While this tax may be the first of its kind, it will certainly not be the last as states jump on the bandwagon. Washington’s sales tax was expanded to include digital advertising as of October 1, 2025. Other states are exploring taxes on data usage, while others are considering how digital advertising revenue might be captured under existing or new tax regimes. These developments signal a shift toward more data-driven revenue models, where the taxability of user analytics, data licensing, and targeted marketing is under scrutiny. Auditors are increasingly requesting contracts and revenue breakdowns to assess whether these streams should be taxed, and how.

Businesses engaged in digital monetization should take a close look at how their revenue is categorized and reported. While staying informed on legislative developments in Maryland and other states is important, it’s equally critical to proactively assess how digital activities may trigger nexus and audit exposure—even in jurisdictions where you have no physical footprint. By aligning your reporting practices with emerging enforcement trends, you can reduce risk and avoid costly surprises.

Evolving Fee Structures

As audit scrutiny expands, another area that’s gaining attention is the treatment of environmental and regulatory fees. States are increasingly implementing charges tied to sustainability initiatives, such as bag fees, e-waste surcharges, and mattress recycling programs. These fees are designed to support environmental goals, but they also introduce new complexities into sales tax compliance. For example, California and Connecticut have enacted mattress recycling fees that are generally not subject to sales tax. Similarly, local ordinances across various jurisdictions impose packaging or bag fees that may fall outside the scope of taxable sales.

However, the taxability of these charges can become a point of contention during audits. If environmental fees are bundled into the sales price or misclassified in accounting systems, auditors may question whether they should have been treated as taxable. This is especially relevant in jurisdictions where the statutory language is ambiguous or where enforcement practices vary. The risk is not just about over-collection or under-collections about whether these fees were properly reported and documented.

To mitigate audit risk, businesses should carefully review how sustainability-related fees are presented on invoices and recorded in their systems. Separating taxable sales from non-taxable environmental charges is essential, and maintaining documentation that supports the statutory exclusion of these fees can help defend your position during an audit. Curious about the specifics on how sales tax and sustainability programs intersect? Click here!

Preparing Your Business for the Future of Sales Tax Audits

The expanding scope of sales tax audits reflects a broader shift toward digital and environmental taxation. As states adapt to new business models and sustainability initiatives, they are redefining what falls within the taxable landscape. From marketplace facilitator laws to digital advertising taxes and environmental fees, auditors are looking beyond traditional sales to uncover overlooked or misclassified revenue streams.

To stay ahead of these changes, businesses should conduct proactive reviews of product taxability, marketplace obligations, and emerging revenue sources. This includes evaluating how digital services are categorized, how environmental fees are invoiced, and whether marketplace agreements clearly define seller responsibilities. These reviews are not just about compliance—they’re about building resilience in a rapidly evolving regulatory environment.

Collaboration across departments is essential. Tax teams should work closely with IT and legal counterparts to ensure consistent classification, accurate reporting, and defensible documentation. Misalignment between systems and contracts can lead to audit findings, even when the underlying transactions are compliant.

Ultimately, as states continue to expand their audit scope, readiness depends on understanding both established and emerging tax bases. Businesses that invest in cross-functional coordination and stay informed on legislative developments will be better positioned to navigate audits with confidence.