States Rapidly Expanding Sales Tax Bases

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Kilpatrick's David Hughes and Jordan Goodman recently presented on the topic of 'Expanding the Sales Tax Base' at the Advanced Sales and Use Tax Workshop in Dallas. Key takeaways include states aggressively expanding sales tax bases, the importance of the 'true object test' and bundling rules, wide variation in tax treatment of digital services and software, the impact of invoice presentation and contract language on taxability, and the need for clear evidence to claim exemptions and adjustments.

Why it matters

As states seek to broaden their tax bases, businesses must stay vigilant to ensure compliance and avoid unexpected tax liabilities. The shifting landscape around taxing digital goods, services, and software presents particular challenges that require careful analysis of each jurisdiction's rules.

The details

Many U.S. states are aggressively expanding their sales tax bases by enacting new legislation and guidance, especially targeting services, software, and digital goods. This expansion includes redefining what is taxable, often moving beyond traditional tangible personal property. The 'true object test' and bundling rules are critical in determining taxability, as the burden of proof typically rests with the taxpayer. States differ significantly in their approach to taxing software, digital goods, and related services, requiring companies to carefully analyze each jurisdiction. Invoice presentation and contract language can directly impact taxability, and exemptions, exclusions, and adjustments to the tax base are statutorily specific and require clear evidence.

• The presentation took place on March 4, 2026 at the Advanced Sales and Use Tax Workshop in Dallas.

What’s next

Businesses should closely monitor changes in sales tax legislation and guidance in the states where they operate, and ensure their invoicing, contract language, and compliance processes are up-to-date to avoid unexpected tax liabilities.