States Are Cracking Down on Sales Tax Enforcement: What Every Online Seller Needs to Know

Executive Summary

Sales tax enforcement is becoming increasingly aggressive and coordinated. States are utilizing partnerships, data sharing, and audit task forces to track down non-compliant sellers.

Pre-audit surveys and shared data have become key enforcement tools. States are requesting detailed sales information from both registered and unregistered sellers, and working together across state lines to identify potential violations.

Compliance begins with understanding your nexus. Knowing when and where you establish nexus is essential to staying ahead of audits and avoiding expensive penalties.

BW Partners  can simplify your sales tax compliance. Through services like nexus analysis, VDAs, and full-service sales tax management, we’ll guide you through the complexities and help safeguard your business.”

Current State of Sales Tax Enforcement 

Here’s an example of what’s actually happening: Illinois, one of the most proactive states in enforcing sales tax, is now requesting sales data not only for their own state but also for several other states in the “Great Lakes region” during their audit processes.

They’re not just focusing on sales within their own borders—they’re gathering information on behalf of neighboring states as well.

Note: We recommend sharing sales data only for the state that issued the request. However, this could prompt neighboring states to follow up. This is a good opportunity for you to assess your overall compliance and consider whether you need to register in any other states or explore a Voluntary Disclosure Agreement (VDA).

If you’re non-compliant in one state, it’s possible that another state’s audit could uncover the issue.

The consequences for multi-state sellers are significant.

For instance, Washington, Minnesota, and other states have taken the unusual step of reaching out to businesses that aren’t registered within their states, requesting additional information about their sales tax compliance.

States are now able to cross-check your total U.S. sales data through shared reports, making it easier than ever to identify businesses that should be collecting and remitting sales tax in their jurisdictions.

The Domino Effect

What makes this especially challenging for high-revenue sellers is the domino effect.

If one state audits your business and uncovers issues, neighboring states might also decide to investigate you.

There’s no legal obstacle preventing states from sharing your data, and they’re leveraging this to expand their enforcement efforts.

Here’s what you need to know about how information is shared between states:

  • States can exchange your sales data with one another. Streamlined Sales Tax (SST) states, in particular, share sales information to streamline tax collection on online purchases, though the specifics and limitations depend on the laws and agreements of each state.
  • While states can share sales data, they must adhere to data privacy laws. Each state has its own regulations regarding data sharing, so it’s important for businesses to familiarize themselves with the rules of each state they operate in.
  • States can access information from platforms like Amazon, which we’ll explore in more detail later in this post.

Key Methods of State Sales Tax Enforcement

States are getting creative with how they’re enforcing sales tax compliance. Here are 5 methods they’re using:

  • Pre-audit surveys
  • Questioning registration dates
  • State task forces and resources
  • Purchasing lists of online sellers
  • Partnering with Amazon

Pre-Audit Surveys

An increasing number of states are sending out pre-audit questionnaires or business activity surveys.

Even if you’re not registered in a state, you could still receive one of these surveys asking for up to three years of your sales data. Here are some states that have been particularly active in sending these out:

  • Arkansas
  • Arizona
  • Illinois
  • Massachusetts
  • Maine
  • Michigan (Their letters often target both sales tax and income tax issues.)
  • New York
  • Washington (They’ve been especially aggressive with these surveys.)
  • Wisconsin

What’s the Purpose of These Surveys?

These aren’t simply routine information requests—they’re deliberate actions.

States usually send these surveys because they suspect you owe them money. Here’s what they’re looking for:

  • Sales history: Verifying if your sales have exceeded their economic nexus thresholds.
  • Business activities: Understanding where and how you operate within their jurisdiction.
  • Shared data: Using your information to notify other states about potential compliance issues.

Why Ignoring Them Isn’t an Option

Throwing these surveys aside isn’t a wise move.

Ignoring them almost always leads to an automatic audit. When you don’t respond, states often assume you’re trying to hide something, which can intensify their investigation.

How to Use These Surveys to Your Advantage

If you haven’t crossed the nexus threshold, these surveys could actually benefit you:

  • Demonstrate your compliance: Providing accurate information shows you’re following the rules, which might prevent further action.
  • Avoid audits: A well-documented response can stop an audit before it even begins.

What to Do If You Receive One

Don’t panic—these surveys aren’t always bad news and can offer an opportunity to resolve any potential issues.

  • Get your records in order: Make sure your sales data is accurate and well-documented.
  • Respond promptly: Ignoring these requests will only escalate the situation.

If you’re on a state’s radar, your best strategy is to show that you’re organized and compliant. It’s far easier (and cheaper) to resolve these issues early than deal with the complexity of a full audit later.

For more on handling pre-audit surveys, read What Sales Tax Pre-Audit Questionnaires Mean for Your Ecommerce Business [+ How to Respond].

Questioning Registration Dates

One increasingly aggressive tactic states are using to enforce sales tax is questioning registration dates.

States are scrutinizing when remote sellers first registered for sales tax and comparing this to their sales activity to identify potential compliance gaps. Many states focus on the period between the implementation of the Wayfair ruling in their jurisdiction and the seller’s registration date.

If there’s a discrepancy—such as meeting the state’s economic nexus threshold before registering—states may demand back taxes, penalties, and interest.

Which States Are on the Hunt?

Some states are particularly aggressive with this:

  • Illinois
  • Arizona
  • Washington
  • Utah (They now ask for the last three years of sales on their registration form.)
  • South Dakota & North Dakota (They’re very particular about registration dates.)
  • Wisconsin (They are diligent about identifying late registrants.)
  • Maine (Small state, but very focused on catching delayed registrations.)

Common Mistakes Sellers Make

  • Setting future start dates: Be cautious with this. If you specify a future effective date, states may ask you to prove that your sales didn’t exceed the nexus threshold before that date. If you can’t, they will expect you to pay the back taxes.
  • Sloppy record-keeping: Without accurate records, it’s difficult to demonstrate that you stayed under the threshold. Have you accounted for all of your sales channels? Some states include marketplace sales in their nexus threshold, while others don’t. Have you considered the number of transactions? States are moving away from transaction-based thresholds, but they haven’t completely disappeared yet. Are you looking at shipping addresses instead of billing addresses?
  • Missing the fine print: Each state has different nexus thresholds, and it’s easy to get tripped up by the details.

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