Sales tax audits are increasing for e-commerce businesses because states now have the legal authority, the data, and the motivation to pursue online sellers more actively than before. Economic nexus rules allow states to require remote sellers to register and collect tax once their sales into the state cross a threshold, and several years of enforcement experience have made states more effective at applying them. At the same time, states can increasingly compare information from marketplaces, payment processors, registrations, and filed returns to spot sellers who are unregistered or under-reporting. Compliance practitioners widely report heightened enforcement activity aimed at online sellers, including audits, pre-audit questionnaires, and closer review of newly registered businesses.
This matters because many online businesses grew quickly across state lines without tracking where their obligations began. One thing owners consistently underestimate is that sales tax exposure is usually measured over several years, so a business that crossed a threshold long ago may already have accumulated a meaningful liability before anyone notices.
What Is Driving the Increase in E-Commerce Audits?
Economic Nexus Has Matured
Economic nexus is no longer new. States have refined their rules, built remote seller programs, and gained experience identifying businesses that should have registered. Remote sellers that reached thresholds years ago but never registered are an obvious focus, because the potential uncollected tax can span multiple years. For a closer look at how these rules have changed, see our article on what changed in multi-state tax nexus.
Simpler Thresholds Capture More Sellers
A growing number of states have removed transaction-count tests and now base economic nexus on sales revenue alone. That changes who crosses the line. Sellers of fewer, higher-priced items may reach thresholds sooner than expected, while the shift prompts many businesses to revisit whether they were ever required to register.
Better Data and Data Matching
States increasingly use data from marketplaces, payment platforms, registrations, and other agencies to identify potential non-compliance. Mismatches between what a business reports and what third parties report, or between a seller's registration date and the history its sales suggest, can prompt questions. Some states are also reported to be testing automated and AI-assisted tools to select audit candidates more efficiently.
Marketplace Facilitator Rules Created New Questions
Marketplace facilitator laws generally require large marketplaces to collect and remit tax on sales made through their platforms. That reduces some obligations for sellers, but it also creates new areas for review. States may examine whether a seller's direct sales, through its own website or other channels, were properly taxed, whether marketplace and direct sales were separated correctly on returns, and whether tax was collected twice or not at all.
Inventory and Fulfillment Networks Create Physical Presence
Storing inventory in third-party warehouses or marketplace fulfillment centers can create a physical presence in a state, regardless of sales volume. Many sellers do not know exactly where their inventory has been stored over time, which makes this an area auditors often explore.
Budget Pressure
Sales tax is a major revenue source for many states. When budgets tighten, enforcement of existing taxes is a natural focus, and remote sellers who are not collecting represent revenue states believe they are owed.
What Commonly Triggers a Sales Tax Audit?
A question business owners often ask is what puts a seller on a state's radar. Common triggers include registering in a state long after sales appear to have crossed the threshold, filing returns that do not align with third-party sales data, reporting large amounts of exempt or resale sales without supporting documentation, sudden changes in reported sales, inconsistent treatment of marketplace and direct sales, and product taxability settings that do not match the state's rules. In practice, this usually shows up when a business registers to start collecting and receives questions about prior years shortly afterward.
What Do Auditors Typically Review?
Sales tax audits generally examine sales records by state, returns filed, how product taxability was determined, exemption and resale certificates, shipping and sourcing practices, marketplace versus direct sales, and the business's own purchases to determine whether use tax was owed. Auditors may compare sales platform reports, payment processor data, and accounting records against filed returns. Clean, reconciled records make this process faster and reduce the chance of estimated assessments.
What If You Already Have Exposure?
Another common question is what to do if a business discovers it should have been collecting in states where it is not registered. Many states offer voluntary disclosure programs that may limit the lookback period and reduce penalties for businesses that come forward before being contacted, and some multistate programs exist for qualifying remote sellers. Terms vary, and the right approach, including whether to register prospectively, pursue voluntary disclosure, or address multiple states together, should be evaluated with a tax advisor before any filings are made (see multi-state tax services).
How to Reduce Audit Risk
What we see most often is that the businesses best prepared for audits did a few things consistently. They track sales by state and channel against current thresholds and review them regularly. They maintain a product taxability map for each state where they collect, which matters even more for businesses selling digital and physical goods (see our article on sales tax for physical vs. digital products). They know where their inventory is stored. They collect and retain exemption and resale certificates. They reconcile sales tax collected, marketplace reports, and filed returns monthly. And they use sales tax automation connected to their e-commerce and accounting systems, configured carefully and reviewed rather than trusted blindly (see sales tax technology and integrations).
Where to Start
Sales tax audits are increasing for e-commerce businesses because nexus rules have matured, thresholds have simplified, data matching has improved, and states have strong incentives to collect. Sellers that grew across state lines without a clear view of their obligations are the most exposed. If you sell online and have not recently reviewed where you have nexus, how your products are taxed, and whether your returns reconcile to your sales data, a sales tax exposure review is a practical place to start. Secure Accounting can help assess your position and build a compliance process that holds up under scrutiny through our sales tax and compliance services. When you are ready, start a conversation with our team.