The biggest sales tax changes 2026 brought for US businesses fall into three groups. Illinois and Kentucky dropped the 200-transaction economic nexus test, so only a $100,000 sales threshold now decides whether a remote seller must collect there. Arkansas and Illinois removed state-level sales tax on groceries, while Washington's first full year of taxing advertising, IT, staffing and custom software services is under way.
None of these sales tax changes 2026 introduced came from Congress. Sales tax remains a state and local tax, and the federal One Big Beautiful Bill Act left it alone. What the federal law did change is the Form 1099-K reporting threshold, which affects how marketplace sellers reconcile their platform income. This guide walks through each change, shows how the nexus rules play out with real numbers, and ends with a short list of settings and procedures to update before the 2027 filing season.
After the Supreme Court's Wayfair decision in 2018, most states adopted a two-part economic nexus test for remote sellers: a dollar threshold (often $100,000 of sales into the state) or a transaction count (often 200 separate sales). Crossing either one meant registering and collecting. Small online sellers with many low-priced orders were caught by the transaction count long before they reached the dollar figure.
Two more states dropped that second test this year. This section covers only what changed in 2026. For the current dollar and transaction thresholds in each state, see our guide to economic nexus thresholds by state.
The Illinois Department of Revenue confirmed in Bulletin FY 2026-12 that "The 200-transaction threshold no longer applies." From 1 January 2026, the only test for a remote retailer or marketplace facilitator is whether it makes $100,000 or more in cumulative gross receipts from sales of tangible personal property to Illinois purchasers. Sellers that previously met only the transaction count must review their sales for the 12-month lookback period that ended on 31 December 2025. For quarters beginning after 31 March 2026, the bulletin says the test is applied on a rolling quarterly basis.
Illinois also requires remote retailers that do have nexus to collect destination-based tax, meaning the rate depends on where the buyer receives the goods. Our explainer on sales tax sourcing rules explains why that matters for rate setup.
Kentucky followed in its 2026 session. In a July 2026 letter to the Streamlined Sales Tax Governing Board, the Kentucky Department of Revenue said House Bill 757 "removed the economic nexus standard of 200 or more sales transactions as a registration requirement for remote retailers (KRS 139.340) and marketplace providers (KRS 139.450)," and that "These changes are effective August 1, 2026." Under KRS 139.340 as amended, a remote retailer must collect once its Kentucky gross receipts exceed $100,000 in the previous or current calendar year. That figure includes sales of digital property and taxable services, and sales a marketplace provider facilitates on the retailer's behalf.
A seller that registered in Illinois or Kentucky purely because of order count, and whose sales there stay below the dollar threshold, may no longer have a collection duty going forward. Illinois handles this directly: the bulletin says a remote retailer that did not meet the $100,000 test for the lookback period "must discontinue remitting State and local ROT for remote sales on or after January 1, 2026," and the Department will change its registration status to voluntary use tax. Kentucky's guidance on closing accounts is separate, so check it before you close a permit. In both states, keep the lookback analysis in your files in case sales grow again.
Consider three remote sellers shipping into Illinois. Each has no physical presence in the state. The figures cover the 12-month lookback period ending 31 December 2025.
| Seller | Illinois orders | Illinois gross receipts | Average order | Nexus under old test ($100,000 or 200 orders) | Nexus from 1 Jan 2026 ($100,000 only) |
|---|---|---|---|---|---|
| A: candle shop | 1,450 | $52,200 | $36.00 | Yes (orders) | No |
| B: furniture brand | 160 | $118,400 | $740.00 | Yes (sales) | Yes |
| C: phone accessories | 640 | $99,840 | $156.00 | Yes (orders) | No (just under) |
Seller A crossed the old threshold on volume alone. At $36 an order, it would need roughly 2,778 Illinois orders a year to reach $100,000, so it falls outside the Illinois test unless growth is steep. Seller B is unaffected because its dollar sales were already over the line. Seller C is the case to watch: it is $160 below the threshold, and one large order could put it back over. For a seller like C, monitoring cumulative Illinois receipts monthly makes more sense than closing the account.
A similar review applies in Kentucky from 1 August 2026, with two differences: Kentucky's test is whether receipts exceed $100,000 in the previous or current calendar year, and it counts marketplace-facilitated sales. Run the test for each state where you registered on order count alone.
For food retailers and grocery delivery businesses, the 2026 changes are about rates.
Arkansas. The Department of Finance and Administration's state sales and use tax rate table lists the "State Reduced Food Tax" at 0.000% effective 1 January 2026. The general state rate remains 6.5%. City and county taxes on food are set locally, so the total rate a shopper pays still varies by location, and prepared food follows separate rules.
Illinois. According to Bulletin FY 2026-03, "Effective January 1, 2026, the State of Illinois will eliminate the one-percent (1%) sales and use tax on grocery sales." The same law lets municipalities and counties impose a local grocery tax of exactly 1% by ordinance, so local governments that wanted to keep a grocery tax had to adopt one. The state 1% rate continues to apply to qualifying drugs and medical appliances. The practical result is that an Illinois grocer's rate now depends on whether its city or county adopted the local tax.
If your point of sale system uses a single "Illinois groceries" rate, it needs location-level rates instead. The same applies to any online seller shipping food items into Illinois.
The second trend is base expansion: states adding services and digital products to the list of taxable sales.
The Washington Department of Revenue states that "As of Oct. 1, 2025, a new law (ESSB 5814) requires that certain services now be taxed when sold." The Department's list of newly taxable services includes advertising services, information technology services, custom website development, live presentations, investigation, security and armored car services, temporary staffing, and custom software and customization of prewritten software.
2026 is the first full calendar year under this law. Agencies, IT consultancies and staffing firms that bill Washington customers need to charge retail sales tax on these services and report them correctly. Our Washington sales tax guide covers the state's rates and filing rules in more detail.
Each state draws its own line between software, digital goods and services. A product that is exempt in one state can be taxable next door. If you sell software or subscriptions, review our guide on SaaS sales tax and where your software is taxable and recheck product tax codes in any state that changed its rules this year.
The One Big Beautiful Bill Act did not touch state sales tax, though it changed a related reporting rule that marketplace sellers rely on. The IRS states that "The OBBB retroactively reinstated the reporting threshold" for Form 1099-K, so a third party settlement organization does not have to file the form unless a payee's payments exceed $20,000 and the number of transactions exceeds 200 (IRS FAQ release).
Fewer small sellers will receive a 1099-K as a result. That form was often the easiest way to reconcile marketplace gross sales against sales tax returns, so sellers without one should pull gross sales reports directly from each platform. Our article on the Form 1099-K reporting threshold for 2025 and 2026 covers the federal side in full.
Use these steps once for the year and again each quarter, since local rates change on a rolling basis.
Our sales tax compliance checklist for small businesses has a fuller version of this routine. For a list of errors that tend to surface in audits, see sales tax mistakes to avoid in your business.
If the review shows that you should have registered somewhere in earlier years and did not, a sales tax voluntary disclosure agreement can limit penalties and the lookback period compared with waiting for the state to contact you first.
How do I confirm the right sales tax rate for 2026? Local rates change on quarterly dates in many states, so confirm the combined rate for each address you ship to through the state revenue department's rate lookup or your tax software, and spot check a few addresses each quarter.
If I registered in Illinois only because of the 200-transaction rule, can I stop collecting? From 1 January 2026, Illinois uses only the $100,000 gross receipts test. If your Illinois sales in the lookback period were below $100,000, the Department of Revenue's bulletin says you must stop remitting Illinois retailers' occupation tax on remote sales from 1 January 2026, and the Department will move your registration to voluntary use tax status. From the second quarter of 2026 onward, the test is rerun on a rolling quarterly basis.
Does the One Big Beautiful Bill Act change sales tax? No. Sales tax is set by states and localities. The federal law changed the Form 1099-K threshold back to $20,000 and 200 transactions, which affects income reporting for marketplace sellers.
Which Washington services became taxable? Advertising, IT services, custom website development, live presentations, investigation and security services, temporary staffing, and custom software work became subject to retail sales tax from 1 October 2025 under ESSB 5814.
Madras Accountancy supports US businesses and CPA firms with bookkeeping, sales tax registration and filing support, nexus reviews and month-end reconciliation. If the 2026 changes affect where or how you collect, contact our team to talk through your setup.
The section 4960 excise tax is 21% of nonprofit pay over $1M. From 2026 it covers all employees. See the medical carve-outs, Form 4720 and a worked example.
The paid family and medical leave tax credit is permanent from 2026. See the 12.5% to 25% rates, the premium option, the 6-month rule and how Form 8994 works.
Opportunity zones become permanent in 2027 under the One Big Beautiful Bill. See the new deferral, rural bonus, and the 2026 handoff.
