Tax Rate, Nexus Rule and Sales Tax Eligibility Per Category Updates in January 2025

Staying on top of ever-changing sales tax regulations is critical to running a compliant business. Effective January 1, 2025, several states have introduced significant updates to tax rates, nexus rules, and sales tax eligibility by product category, adding new layers of complexity for businesses.

From shifting economic thresholds to updated digital goods and services taxability, these changes directly impact how companies calculate, collect, and remit sales tax. For business owners, understanding these updates isn’t just about compliance—it’s about avoiding penalties and staying ahead in a competitive market. In this blog, we’ll break down the key changes to help you navigate the evolving landscape of sales tax in 2025 with confidence.

Tax Rate Update

Sales tax rates often change as states adjust their fiscal policies to address economic needs, fund public services, or respond to legislative mandates. These changes can significantly impact businesses, especially those operating in multiple jurisdictions.

For 2025, one of the notable updates comes from Louisiana, which has increased its state sales tax rate from 4.5% to 5%, effective January 1, 2025. This change marks an effort by the state to boost revenue and address infrastructure needs while maintaining competitive tax policies.

Prior to this adjustment, Louisiana’s 4.5% rate was one of the lower state sales tax rates in the region, but with growing demands for funding critical projects such as roads, schools, and disaster preparedness, the increase was deemed necessary. The decision reflects a balancing act between ensuring adequate public resources and avoiding an undue burden on taxpayers. To remain compliant, businesses must adapt to this new rate by updating their systems and processes.

The benefits of this change extend beyond the immediate revenue boost. By investing in infrastructure and public services, Louisiana aims to create a more robust economic environment, potentially attracting new businesses and fostering long-term growth.

For businesses, staying informed and prepared for these changes is essential for compliance and leveraging any potential opportunities they may bring.

Sales Tax Eligibility Per Category Update

Sales tax eligibility per category refers to the rules that determine which products or services are subject to sales tax, and these rules often change to reflect shifting economic priorities, societal needs, and technological advancements. States regularly update taxability to address emerging industries, align with consumer trends, or adjust to fiscal requirements.

For example, exemptions on essential goods like groceries or medical supplies may be introduced to ease financial burdens on households. In contrast, new taxes on digital goods or services, such as Software as a Service (SaaS), are implemented to capture revenue from growing sectors. These changes ensure that tax policies remain relevant, equitable, and capable of funding public services, but they also create challenges for businesses that must stay updated and adapt their systems to remain compliant.

In 2025, two notable changes stand out: Kansas has exempted unprepared food from sales tax, which was previously taxed at 2%, and Louisiana has introduced a sales tax on SaaS (Software as a Service), marking a shift in its treatment of digital products and services. These changes highlight how states adapt their tax policies to support specific industries or provide relief to consumers while expanding their tax bases.

Before January 1, 2025, Kansas taxed unprepared food items at a reduced rate of 2%, aiming to strike a balance between generating revenue and alleviating the burden on essential purchases. The new exemption reflects a broader trend toward reducing the financial strain on households by removing taxes on groceries, making it easier for families to afford basic needs.

In contrast, Louisiana’s approach reflects a growing recognition of the economic significance of digital services. Before January 1, 2025, SaaS and other digital products were not subject to Louisiana’s sales tax, which left a gap in the state’s revenue system as these services became more widespread.

By taxing SaaS, Louisiana aligns itself with other states by adapting its tax policies to capture revenue from the rapidly growing digital economy, ensuring a broader and more sustainable tax base.

Nexus Rule Update

Nexus rules define the connection between a business and a state that obligates the business to collect and remit sales tax, and these rules frequently change as states adapt to evolving economic realities and legislative priorities. These updates often reflect shifts in commerce, such as the growth of e-commerce, and aim to ensure equitable tax collection across in-state and remote sellers. 

For 2025, Alaska has made a significant change by removing the 200-transaction threshold for Remote Sellers and Marketplace facilitators. Under the updated nexus rule, remote sellers must now register only if their statewide gross sales, including those facilitated through marketplaces, exceed $100,000 in the current or previous calendar year. Previously, sellers and facilitators were required to register with the Alaska Remote Seller Sales Tax Commission (ARSSTC) if they exceeded 200 transactions, even if their gross sales were below $100,000. With this update, businesses that only crossed the transaction threshold can cancel their registration, simplifying compliance for smaller sellers.

Illinois has also introduced changes to its tax policies for Remote Sellers. Since January 1, 2021, remote retailers without a physical presence in Illinois were required to collect and remit the Retailers' Occupation Tax (ROT) based on the delivery address if they met either of the following thresholds:

•  $100,000 or more in cumulative gross receipts from sales of tangible personal property to Illinois purchasers or 
• 200 or more separate transactions of such sales

Retailers with a physical presence in Illinois but selling from outside the state were previously obligated to collect and remit the Illinois Use Tax at a flat rate of 6.25%. These policies aimed to ensure fair tax practices but created complexities for businesses navigating varied thresholds and rates.

However, the updated tax structure in Illinois has shifted to a uniform destination-based sourcing model for sales tax collection. Under this revised structure, all retailers—whether physically present in Illinois or selling from out-of-state locations—must collect and remit the Retailers' Occupation Tax (ROT) based on the customer’s delivery address. 

This approach applies the combined state and local tax rates specific to each delivery location, streamlining tax compliance and ensuring equitable tax distribution across municipalities. This change simplifies the tax collection process while ensuring local governments receive appropriate revenue from e-commerce and remote sales.

Automate Sales Tax With Kintsugi

If you want to spare yourself from the complexity of managing the ever-changing landscape of sales tax compliance, you can leave it to Kintsugi because that’s what we do best. From fluctuating tax rates and evolving nexus rules to shifting eligibility across product categories, staying compliant manually can be overwhelming and error-prone, but Kintsugi is designed to sort it out for you.

Kintsugi’s advanced sales tax automation software streamlines the entire process—automatically calculating accurate tax rates, keeping up with the latest regulatory updates, and ensuring timely filings. By eliminating manual tasks and reducing the risk of costly errors, Kintsugi empowers businesses to focus on growth while staying effortlessly compliant with even the most complex tax regulations. So, sign up or book a demo now.