The guide to US sales tax and accounting for complex entities

1. Introduction: The shifting landscape of US sales tax

For decades, sales tax was often treated as a back-office afterthought, so a routine compliance task sometimes delegated to junior accountants. For businesses with complex structures, private equity backing, or aggressive M&A strategies, that era is now over. Today, US sales tax has evolved into a significant risk management issue that directly impacts cash flow, valuation, and operational scalability.

The turning point was the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc. Before this ruling, a state could only require a business to collect sales tax if that business had a physical presence in the state, such as a warehouse, an office, or an employee. The Wayfair decision introduced the concept of "economic nexus," allowing states to tax businesses based solely on transaction volume or revenue generated within their borders.

While this change affected every seller, from Etsy shop owners to multinational corporations, the burden falls disproportionately on businesses with complex structures. A single-entity e-commerce retailer faces a relatively linear compliance path. In contrast, a multi-entity conglomerate, a SaaS provider with distributed remote teams, or a holding company managing intercompany transactions faces a labyrinth of conflicting regulations.

For these sophisticated organizations, the stakes are high. Unaddressed sales tax exposure is now the number one "deal killer" in due diligence processes. At Antravia we have seen acquisitions stalled and valuations slashed because a target company failed to account for sales tax liabilities across thirty states. Likewise, we have seen companies over-register and bleed cash on unnecessary compliance costs because they lacked a strategic approach to taxability.

This guide is designed for the finance leaders of these complex entities. We will move beyond the basics of "what is sales tax" to explore the nuances of nexus in a digital economy, the accounting treatments for multi-state liabilities, and the strategic maneuvers available to mitigate risk. The goal is to shift your organization’s stance from reactive firefighting to proactive tax strategy.

2. Understanding nexus: The trigger for tax liability

Nexus is the link or connection between a business and a state that gives the state the legal authority to require that business to register, collect, and remit sales tax. Without nexus, you have no obligation to the state. Once nexus is established, however, the clock starts ticking on your liability. For complex businesses, identifying nexus is rarely straightforward. It typically arises from two distinct categories: physical activities and economic thresholds.

Physical nexus

Despite the focus on economic nexus, physical presence remains the primary trigger for tax liability. If you have a physical footprint in a state, you have nexus, regardless of your revenue volume.

• People: Having an employee (W-2) residing and working in a state generally creates nexus. This has become a massive headache for companies that hired remote workers during the pandemic without tracking their locations. Even a single remote customer support agent in Ohio can trigger a sales tax obligation for the entire company in that state.

• Inventory: Owning inventory stored in a state creates nexus. This is critical for businesses using third-party logistics (3PL) providers or Amazon FBA. You may not own the warehouse, but if your goods are stored there, the state views that as your physical presence.

• Temporary presence: Frequent visits by sales teams, technicians performing installations or repairs, or even attendance at trade shows can trigger nexus in strict states.

Economic nexus

Economic nexus is based on your commercial activity within a state. Since Wayfair, every state with a sales tax (except for the "Nomad states" like Delaware, Montana, New Hampshire, Oregon, and Alaska) has adopted economic nexus laws.

The most common threshold is $100,000 in gross sales or 200 separate transactions into the state within the current or previous calendar year. However, the nuance lies in how each state calculates these numbers:

• Gross vs. Retail: Some states count all sales (including exempt wholesale transactions) toward the threshold, while others only count taxable retail sales.

• The "And/Or" Trap: In states like New York, the threshold might be revenue and transaction volume, while in most others, it is revenue or volume.

• Measurement Periods: Some states look at the previous calendar year, while others use a rolling 12-month window.

For a business with high transaction volume but low average order value, the 200-transaction limit is often hit long before the revenue limit. Conversely, a B2B equipment supplier might hit the $100,000 limit with just two invoices.

Affiliate and click-through nexus

Complex corporate structures often utilize aggressive marketing partnerships which can inadvertently trigger nexus.

• Click-through nexus: If you generate sales via links on a website owned by a resident of a specific state (an affiliate), and those sales exceed a certain threshold, you may have nexus in that affiliate's state.

• Affiliate nexus: This is distinct from marketing affiliates. This refers to corporate affiliation. If you have a subsidiary in a state that sells similar products or uses the same trademarks as the parent company, some states will assert that the subsidiary's physical presence creates nexus for the parent company. This is a common trap for businesses that legally separate their IP holding companies from their operating entities.

Marketplace facilitator laws

If you sell through a marketplace (like Amazon, eBay, or Walmart), the marketplace is generally required to collect and remit sales tax on your behalf. This is known as the Marketplace Facilitator law. However, this does not absolve you of responsibility.

1. Registration: Many states still require you to register and file a "zero return" or an informational return to report these sales.

2. Hybrid Sellers: If you sell on Amazon and your own website (e.g., Shopify or Magento), the marketplace sales often count toward the economic nexus threshold. For example, if you sell $90,000 on Amazon and $20,000 on your own site in a specific state, the combined $110,000 total may trigger the requirement for you to collect tax on that $20,000 of direct sales.

Navigating nexus is a data problem. It requires real-time visibility into where your customers are, where your people are, and how your revenue is flowing across state lines.

3. Product taxability and sourcing rules

Establishing nexus is only half the battle. Once you know where you must collect tax, you must determine what is taxable and at what rate. For complex entities, especially those in the digital or service economy, this is where the most significant audit exposure lies.

The SaaS and digital goods conundrum

In 2026, the taxation of "intangibles" remains one of the most volatile areas of state law. Most US sales tax statutes were written for an era of physical widgets and states are still catching up to the cloud.

• SaaS as Tangible Property: States like Washington and New York treat Software-as-a-Service as taxable tangible personal property.

• SaaS as a Service: Other states, like Texas, treat SaaS as a "Data Processing Service," which is 80% taxable and 20% exempt.

• The "Business Use" Distinction: Connecticut and Maryland have introduced tiered rates or exemptions depending on whether the software is for personal or business use.

For your accounting team, this means a single SKU in your ERP might be 100% taxable in one state, 80% in another, and fully exempt in a third.

Sourcing: Origin vs. Destination

"Sourcing" determines which local jurisdiction’s rate applies to a sale.

• Destination-Based Sourcing: The vast majority of states use this. You charge tax based on where the buyer receives the product.

• Origin-Based Sourcing: A handful of states (including Texas, Pennsylvania, and Ohio) use the seller’s location to determine the rate for in-state sales.

• The Hybrid Trap: California is a "modified origin" state. State and county taxes are based on the origin, but district-level taxes are based on the destination.

For complex structures with multiple fulfillment centers or "ship-from" locations, your accounting system must be sophisticated enough to toggle between these rules based on the specific movement of goods.

Exemption certificate management

For B2B entities, the biggest risk isn't calculating the tax, but it is actually proving why you didn't collect it. If you sell to a distributor or a manufacturer, you must have a valid, unexpired exemption certificate on file for every transaction. During an audit, if a certificate is missing or invalid, the state will assess the tax against you, plus interest and penalties, regardless of whether your customer was actually exempt.

4. The accounting cycle: Booking and reconciling sales tax

Effective sales tax management for a multi-entity group requires more than just a software plugin; it requires a disciplined General Ledger (GL) strategy.

Structuring the Chart of Accounts (COA)

Generic accounting setups often use a single "Sales Tax Payable" account. For a complex entity, this is a recipe for a reconciliation nightmare.

• The "State-Sub" Approach: We recommend setting up parent liability accounts for Sales Tax, with sub-accounts for each state where you are registered.

• Wash Accounts: If you use an automated engine (like Avalara or Vertex), use a "Sales Tax Clearing" account to bridge the gap between the point-of-sale calculation and the actual month-end filing.

ASC 450: Accounting for contingent liabilities

If your firm discovers a "historical nexus" (meaning you should have been collecting tax in a state for the last three years but weren't), you cannot ignore it. Under ASC 450 (formerly FAS 5), you must assess if a loss is "probable" and "reasonably estimable."

1. Accrual: If the exposure is material, you must book a liability on the balance sheet and an expense on the P&L.

2. Disclosure: If the loss is "reasonably possible" but not "probable," you may still be required to disclose the risk in your financial statement footnotes. This is a critical step for PE-backed firms preparing for an exit or audit.

Intercompany transactions and eliminations

In complex structures, Entity A may sell services or goods to Entity B.

• The "Internal" Nexus: Does an intercompany sale trigger a tax obligation? Often, yes.

• Eliminations: While these sales are "eliminated" for consolidated financial reporting, they are not eliminated for sales tax purposes. You must still document the exemption (usually via a resale certificate) to ensure the state doesn't view the intercompany transfer as a taxable retail sale.

The monthly reconciliation ritual

At month-end, your accounting advisory hat is most important. Your team must reconcile three distinct data sets:

1. The Sales Report: Total gross sales from the ERP.

2. The Tax Engine: The total tax calculated by your software.

3. The General Ledger: The actual tax sitting in your liability accounts.

Discrepancies often arise from credit memos, returned goods, or manual adjustments. A "set it and forget it" mentality leads to "ghost liabilities" that can haunt a balance sheet for years.

5. Strategic compliance: Registration and mitigation

Once a complex business identifies that it has overstepped a nexus threshold, the immediate instinct is often to register everywhere as quickly as possible. This "bulk registration" approach is often a mistake. For multi-entity groups, registration should not be a blanket policy.

Registration - When to wait

Registering for a sales tax permit creates a permanent footprint. In many states, once you are in the system, you are subject to regular filing requirements, and this is even if you have months with zero taxable sales. For companies with fluctuating revenues, registering too early leads to administrative bloat. Conversely, registering too late leads to back-tax liability.

At Antravia Advisory, we advise clients to evaluate the materiality of the exposure. If a state threshold is $100,000 and you have $101,000 in sales, the tax due (at a 6-8% rate) is roughly $6,000–$8,000. Is the cost of monthly filing and software integration higher than the penalty of waiting another quarter? For a complex firm, these are the trade-offs that require advisory, not just automation.

Voluntary Disclosure Agreements (VDAs)

If you discover a significant historical liability (years of uncollected tax), a Voluntary Disclosure Agreement (VDA) is your most powerful tool.

• Limited Look-back: Most states will limit their reach to the past 3 or 4 years, effectively forgiving any tax owed prior to that window.

• Penalty Abatement: States almost always waive 100% of the penalties in a VDA, which can otherwise reach 25-50% of the tax due.

• Anonymity: Most VDAs allow you to negotiate through a representative (like Antravia) anonymously until the deal is signed, protecting your brand.

2026 Amnesty and Pilot Programs

It is vital to watch for state-specific opportunities. For example, in February 2026, Washington state launched a first-of-its-kind Foreign Remote Seller VDA, offering a highly abbreviated one-year look-back for international entities. Programs like these are "limited time only" and can save a corporation millions if timed correctly.

6. Special scenarios for complex structures

In high-growth and sophisticated business models, sales tax is rarely a straight line from seller to buyer.

M&A: The ultimate deal killer

In modern private equity and corporate acquisitions, sales tax has become the "silent liability." Because sales tax is a "trust tax", thus meaning you collected money that belonged to the state, it often carries successor liability.

• Asset vs. Stock Sales: Even in many asset sales where a buyer expects a "clean break," states may still pursue the buyer for the seller’s unpaid sales tax if a bulk sale notice wasn't properly filed.

• The Due Diligence Trap: If a target company has $20M in revenue across 40 states but is only registered in 2, the buyer’s accountants will likely flag a "probable and estimable" liability. This often leads to massive escrow holdbacks or a reduction in the purchase price.

For the seller, performing a "sell-side" nexus study before going to market is no longer optional but probably necessary/

Drop shipping: The tax triangle

Drop shipping remains one of the most misunderstood areas of accounting. It involves three parties: the Customer, the Retailer (you), and the Manufacturer/Wholesaler.

• The Wholesaler’s Burden: If you (the Retailer) do not have a sales tax permit in the state where the customer is located, the Manufacturer may be legally required to charge you sales tax on the wholesale price, destroying your margins.

• Resale Certificates: To avoid this, you must provide a valid resale certificate. However, some states (like California and Hawaii) are notorious for not accepting out-of-state resale certificates, forcing complex entities to register just to avoid being taxed on their own inventory purchases.

Intercompany transfers and management fees

For firms with holding companies and subsidiaries, the transfer of assets or "management services" between entities can be a taxable event.

• Shared Services: If Entity A provides IT or accounting services to Entity B, and those services are taxable in that state, the state expects sales tax on the intercompany invoice.

• Asset Transfers: Moving a fleet of vehicles or high-end equipment from one subsidiary to another across state lines often triggers use tax, which is frequently missed by standard ERP configurations.

7. The technology stack: Automation in the age of AI

In 2026, automation is at the front of everyone's minf. For an advisory firm like Antravia, we evaluate the tech stack based on three pillars: integration depth, data integrity, and AI-driven classification.

The major players for complex structures

• Avalara (AvaTax): The industry heavyweight. In 2026, Avalara has moved toward "Agentic Tax and Compliance," using AI agents to monitor transaction data for nexus triggers in real-time. It is the gold standard for companies with 1,000+ signed partner integrations.

• Vertex: Often the preferred choice for large-scale enterprises running SAP or Oracle. Vertex offers superior control for businesses with highly specialized taxability rules (e.g., telecommunications or complex manufacturing).

• Anrok: A rising leader specifically for SaaS and digital-first companies. It excels at managing the "subscription lifecycle"—handling upgrades, downgrades, and usage-based billing tax across 100+ countries.

• Sovos: Best for firms with significant global footprints that need to combine US sales tax with complex VAT/GST and e-invoicing requirements in Europe and Latin America.

The ERP "Source of Truth"

Automation only works if the data entering the engine is clean. We have seen clients prioritize integrations with "Mid-Market" and "Enterprise" ERPs like NetSuite, Sage Intacct, and Microsoft Dynamics 365. The goal is a "closed-loop" system:

1. The ERP sends transaction details to the tax engine.

2. The engine returns the precise rate.

3. The ERP records the liability in the correct state-specific sub-ledger.

8. Conclusion: Building a culture of audit defense

As we have explored, US sales tax for a complex entity is not a static task but certainly a moving target. In 2026, state taxing authorities are more aggressive than ever, utilizing their own AI-driven audit selection tools to cross-reference marketplace data and payment processor records against filed returns.

Audit defense is won in the months before the notice arrives. For a sophisticated firm, this means:

• Hyper-documented exemptions: Moving away from "folder-based" certificate storage to automated systems that flag expiring certificates before the next transaction.

• Continuous nexus monitoring: Setting "tripwire" alerts at 80% of a state’s economic threshold to allow for strategic registration.

• Regular GL-to-Engine reconciliation: Ensuring that the "Sales Tax Payable" on your balance sheet is a verifiable number, not an estimate.

At ANtravia, we believe that for a complex business, sales tax should never be the reason a deal fails or a valuation is cut. By shifting from reactive filing to proactive advisory, you transform a mandatory compliance burden into a streamlined, risk-mitigated operation.

The Antravia path forward

Managing multi-state compliance while navigating M&A, intercompany transfers, and shifting digital tax laws requires a partner who understands the "why" behind the numbers. Whether you are cleaning up historical exposure via a VDA or scaling your SaaS platform globally, the time to build your defense is now.