Our latest top ten list of state and local tax (SALT) issues to watch is out for 2025! From evolving economic nexus rules to increased state tax enforcement, discover key developments shaping the SALT landscape this year.
By the SALTovation Team at TaxOps
Once again, the SALTovation team at TaxOps has released their top ten list of issues to watch in state and local tax. The list presents both challenges and opportunities in the year ahead for business taxpayers and tax practitioners.
From evolving economic nexus rules to increased state tax enforcement, discover the key developments shaping the tax landscape in SALT. The list of active SALT issues in 2025 is so long, we even snuck in two honorable mentions! Take a look.
1. Murky Tax Outlook under Trump Administration
Key provisions from the Tax Cuts and Jobs Act (TCJA) are set to sunset, including pass-through entity elections, the SALT cap, and Section 174. Will these changes stick or be extended?
The Trump administration’s actions make it hard to predict whether these changes will sunset or be extended. There’s hope that Section 174, which is not business-friendly, might go away, but it’s challenging to say for sure.
2. Taxpayer Defense and Chevron
The 2024 overturning of Chevron releases courts from deferring to federal agency interpretations of ambiguous statutes. This ruling could (and should) impact state court challenges, giving taxpayers a fighting chance to combat state tax authority overreach in states where deference is no longer the guiding principle in court.
The overturning of Chevron could provide taxpayers with a stronger defense against state tax authority overreach. However, it’s a wait-and-see situation to understand how states will react to this change.
3. Public Law 86-272 Protections Championed at State-Level
The pendulum on state overreach has swung too far with Public Law 86-272, and challengers have traction in California and other states that are seeking to undermine federal protections against double-taxation. Keep an eye on this one!
New Jersey and New York have passed rules based on the revised statement from the MTC, while California’s attempt was unsuccessful due to procedural issues. Taxpayers need to review their website interactivity to ensure compliance with PL 86-272 protections, especially in New Jersey and New York.
4. Caution: Sales Tax Automation Boom
The market for sales tax automation is expanding rapidly with new market players and a host of confusing terms and pricing schemes. Buyer beware!
Understanding the limitations and capabilities of sales tax automation software is crucial. Buyers should be aware of potential issues such as differences between collected and expected tax, correct taxability answers, and the ability to handle local taxes. It’s important to choose a solution that fits the specific needs of the business.
5. State Tax Enforcement
States are ramping up enforcement efforts, targeting sales tax licensed entities and expanding the tax base through nexus notices. Have you thought about what getting a sales tax or payroll license means for other tax types and your tax obligations?
Post-COVID, states have more resources and are increasing audit activities. Taxpayers need to be aware that obtaining a payroll or sales tax license can trigger nexus for other tax types, making it essential to ensure all necessary filings are in place to avoid issues with state tax authorities.
6. Economic Nexus Evolving
States are ditching the transaction test for economic nexus in favor of a single sales volume threshold. This shift is a silver lining for remote sellers, as they no longer need to track transaction counts or trigger nexus without sufficient dollar sales into certain jurisdictions that have made the switch.
The move away from the transaction test reduces administrative burdens for small sellers. There is hope that states will also align their income tax thresholds with sales tax thresholds to simplify compliance further.
7. Expansion of Delivery Fees, Short-Term Rental Taxes, and Other Gotchas
Delivery fees and taxes on the short-term rental industry are on the rise. States like these types of new regulations and fees capture revenue outside pure income, franchise, or sales and use taxes.
States are creatively raising revenue through fees that resemble taxes. While these fees serve purposes like infrastructure maintenance, they also act as additional revenue sources. Short-term rental taxes, for example, operate similarly to sales taxes but are categorized differently.
8. Colorado SUTS Activation
Nearly all home rule jurisdictions are on board with Colorado’s Sales and Use Tax System (SUTS). Are you ready for enforcement?
Get compliant with the SUTS system, as Colorado’s home rule jurisdictions are actively pursuing businesses for compliance. Taxpayers should be proactive in understanding and meeting their obligations to avoid enforcement actions.
9. Illinois Remote Sales Tax Challenges
Illinois’ return is starting to look like Colorado’s – long and difficult, in part due to scrutiny over Illinois’ remote sales tax rules for being discriminatory. As of January 1, 2025, all sellers must adhere to destination sourcing, leveling the playing field for in state and out-of-state taxpayers.
While the new rules bring consistency, the complexity of filing returns in Illinois remains a challenge due to the numerous jurisdictions. Taxpayers need to ensure their tax collection software is updated to handle the full rates.
10. Gross Receipts Tax Changes
Once the darling of states, gross receipts taxes are getting a second look, signaling potential tax relief. Ohio is considering eliminating its Commercial Activity Tax (CAT), while Oregon’s surcharge failed. Legislators take note: gross receipts are a poor tax-raising strategy.
Many states are moving away from gross receipts taxes due to their complexity and unpopularity. Ohio is considering eliminating its CAT, and Oregon’s attempt to add a surcharge failed, indicating a shift in how these taxes are perceived and how the states approach revenue generation.
Honorable Mentions
With so many state and local tax issues ahead, we had to add two more honorable mentions.
- Combined Reporting Changes on the Horizon. Colorado and South Carolina enacted significant changes to their standards governing combined reporting filings. The District of Columbia adopted the Finnigan method of apportionment for combined reporting.
- Online Portal Overhauls. Good news for taxpayers continues! States like Kentucky, Ohio, and Nevada are updating their online tax portals, making it easier for businesses to manage their tax obligations. These improvements aim to streamline the filing process but there could be growing pains.
These topics are sure to keep tax professionals on their toes in 2025. Be prepared for what’s to come. Reach out to your TaxOps Advisor with questions or concerns.
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- Your Tax Footprint Is Probably Bigger Than You Think: What Finance Leaders Need to Know About State Nexus
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