PHILADELPHIA, PA — Sales tax used to be simple. If a company had a physical presence in a state, it collected and remitted tax there. If it did not, it generally did not. That clarity disappeared in 2018, and the ripple effects are now accelerating as states turn their attention from where companies operate to what they sell.
The shift began with the U.S. Supreme Court’s landmark Wayfair decision, which overturned the long-standing physical presence rule. The ruling allowed states to impose sales tax obligations on remote sellers based on economic activity rather than brick-and-mortar locations. In doing so, it handed states broad authority to define what constitutes a taxable presence.
Most states that impose sales taxes quickly adopted economic nexus standards, typically based on revenue or transaction thresholds. A company could now owe sales tax in a state even if it had no employees, offices, or inventory there. That alone forced many businesses to rethink compliance.
Now, a second and more complex shift is underway. States are expanding their focus beyond presence to product definition, especially as commerce moves deeper into the digital economy.
Historically, sales taxes applied primarily to tangible goods. Services were largely exempt. Today, products increasingly exist without physical form, and states are working to tax them. Digital downloads, streaming services, online courses, software subscriptions, and other virtual offerings are now squarely on lawmakers’ radar.
The challenge is that there is no national standard. A digital product taxable in one state may be exempt in another. Some states tax streaming but not downloads. Others tax software but exempt educational content. For companies operating across state lines, the result is a fragmented and shifting compliance landscape.
William Flick, a managing director at EisnerAmper Advisory Services and a specialist in sales tax policy, said virtual products introduce complexities that did not exist in the physical goods era.
“One challenge in taxing virtual products is that they can be sourced and used anywhere, even in multiple states at the same time,” Flick said. “That creates new complications in determining sourcing and apportionment, particularly for companies doing business in multiple states.”
Those complexities carry financial risk. States have become more aggressive in pursuing back taxes, interest, and penalties, often reaching several years into the past. At the same time, Flick said many companies respond to uncertainty by overpaying.
“When questions arise over whether a company owes sales tax to a state, they often take the path of least resistance and pay,” he said. “In many cases, they later discover they were eligible for six- or seven-figure refunds.”
Flick advises companies to accept that sales tax compliance is no longer a low-maintenance function. He recommends reevaluating internal processes, securing specialized expertise, and considering tax implications when making broader business decisions such as warehouse placement, logistics planning, and back-office operations.
Perhaps most importantly, he cautions against waiting for an audit. A proactive review can clarify obligations, identify overpayments, and reduce exposure before regulators step in.
In the post-Wayfair economy, sales tax has evolved from a background task into a strategic risk area. As states continue to chase digital revenue, companies that treat it as an afterthought may find themselves paying far more than they expected.
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