Year-End Sales Tax Compliance: A Checklist for 2025

As the calendar year winds down, businesses face a critical window to address sales tax compliance issues before they become 2026 problems. Whether you’re a growing e-commerce business or a multi-state retailer, year-end is the ideal time to audit your sales tax processes and prepare for a clean start to the new year.

Neglecting year-end sales tax compliance can lead to penalties, interest charges, and unwanted audit exposure. The good news? A systematic approach now can save you significant time and money later.

Why Year-End Sales Tax Reviews Matter

The end of the year brings unique pressures:

• Annual reconciliations are due
• State auditors often increase activity
• Tax law changes take effect January 1st
• Uncollected taxes become harder to recover
• Documentation gaps become more difficult to fill

Missing these deadlines or overlooking compliance gaps can result in compounding issues that affect your business well into the following year.

Essential Year-End Sales Tax Tasks:

1. Reconcile Your Sales Tax Accounts

Compare what you collected versus what you remitted to each state. Discrepancies often reveal:

• Under-collected tax due to incorrect rates
• Over-remitted amounts eligible for refund
• System errors that need correction
• Product taxability mistakes

Even small monthly discrepancies can add up to significant liabilities or missed refund opportunities over twelve months.

2. Review Your Nexus Footprint

Your business activities may have created new sales tax obligations during the year:

• Did you exceed economic nexus thresholds in new states?
• Did you add warehouses, employees, or contractors?
• Are you using fulfillment centers in additional states?
• Have you attended trade shows or events that created temporary nexus?

Many businesses don’t realize they’ve triggered nexus until they receive a notice from a state tax authority. A proactive review helps you get ahead of potential issues.

3. Audit Your Exemption Certificates

Exemption certificates expire, and incomplete certificates won’t protect you during an audit. Year-end is the perfect time to:

• Verify all certificates are current and complete
• Request updated certificates from long-term customers
• Organize certificates by state and customer
• Implement a system for managing renewals

Proper exemption certificate management is one of the most common audit triggers—and one of the easiest to fix with proper planning.

4. Update Product Taxability

Product taxability rules change regularly. Review your product catalog to ensure:

• New products are classified correctly
• Digital goods reflect current state rules
• Bundled products are taxed appropriately
• SaaS and subscription services comply with evolving laws

States increasingly target digital goods and services, making this review more critical than ever.

5. Assess Voluntary Disclosure Opportunities

If you’ve identified past non-compliance, voluntary disclosure agreements (VDAs) allow you to come forward before the state finds you. Benefits include:

• Reduced look-back periods
• Waived penalties
• Anonymous filing in many states
• Manageable payment plans

Year-end is an ideal time to address these issues while you have a complete picture of the prior year’s activities.

Don’t Let Tax Season Catch You Unprepared

Year-end sales tax compliance isn’t just about avoiding penalties—it’s about positioning your business for growth. Companies that maintain clean sales tax records experience:

• Smoother audits with minimal disruption
• Better access to financing and investment
• Reduced administrative burden throughout the year
• Confidence in their compliance posture

If you’re feeling overwhelmed by your year-end sales tax obligations or unsure where to start, working with experienced sales tax consultants at DDH can provide peace of mind and ensure nothing falls through the cracks.

About Davis Davis & Harmon LLC – Sales Tax Experts: Headquartered in Dallas, Texas, Davis Davis & Harmon LLC – Sales Tax Experts specializes in sales/use tax refund recovery and audit defense. Our team of consultants is comprised of former Big 4 sales tax consultants and state sales tax auditors. Each of our consultants has 15 to 20 years of experience, providing our clients with access to a highly specialized team of sales/use tax professionals. At Davis Davis & Harmon, LLC, we are committed to maintaining the highest standards in our talent pool. We work hard to meet our clients’ needs by ensuring that you view our firm as an extension of your company and a member of your team.