More states are expected to simplify their sales tax laws and leverage artificial intelligence for doing tax audits, according to a new report from Avalara, a provider of tax compliance technology.

The annual Avalara Tax Changes report for 2025, released Tuesday, predicts this could be the year for meaningful simplification in home rule states like Colorado. In home rule states, cities, counties and other local government entities have the authority to administer local sales tax, including auditing businesses, creating their own forms, and defining terms differently from the state. That can lead to more sales tax complexity for businesses selling into those states. The report noted that a handful of home rule states — Colorado, Alabama, Louisiana, Arizona, and Alaska — are making moves toward simplification, though businesses selling into home rule states still face a heavier tax compliance burden.

States are also starting to turn to AI to help with tax audits, just as the Internal Revenue Service has begun to do. New York’s State Department of Taxation and Finance has employed AI since 2022 to increase audits, even with fewer auditors. The state is reportedly “sending out hundreds of thousands of AI-generated letters looking for revenue,” and getting results.

The report also looks at state tax nexus issues for cross-border transactions. As of December 2024, in 22 states, having only $100,000 in annual sales is enough to give a remote retailer a sales tax obligation. In another 20 states, the economic nexus threshold is $100,000 in sales or 200 sales transactions. However, the transaction threshold is losing ground, with 13 states having already eliminated it. Alaska dropped it, effective Jan. 1, 2025, while New Jersey is moving to drop it in 2025. 

“States rarely comment on how they choose someone to audit or how they conduct audits,” said Scott Peterson, vice president of U.S. tax policy at Avalara, in a statement. “But it’s very safe to say they have long used tools to help in both and AI should be a natural fit.”

The report also examines the rise of e-invoicing internationally and in the U.S., in which businesses are more frequently required to submit electronic versions of audit files, invoices, credit notes, debit notes, and payment receipt data to tax authorities. In addition, it covers the phased-in threshold for Form 1099-K reporting of gig economy payments, along with other topics.

A group of House Republican lawmakers has introduced legislation to end U.S. involvement in the Organization for Economic Cooperation and Development’s framework for global taxation in response to an executive order from President Trump.

On Monday, after the inauguration, Trump signed an executive order declaring the “Global Tax Deal has no force or effect in the United States.” The Biden administration, especially former Treasury Secretary Janet Yellen, had been actively negotiating with the OECD on various aspects of the global tax framework, often referred to as Pillar One and Pillar Two, but it was never implemented in the U.S. due to opposition from Republicans and multinational corporations. Now that Republicans are back in control of Congress and the White House, they are looking to make it official. 

House Ways and Means Committee chairman Jason Smith. R-Missouri, and all 25 Republicans on the tax-writing committee introduced the Defending American Jobs and Investment Act (H.R. 591). 

“Congressional Republicans made it clear as soon as the Biden Administration initiated its negotiations with the OECD that the United States would never be party to a global tax surrender,” Smith said in a statement Wednesday. “Now with President Trump in the White House, we finally have a leader who will defend American workers and businesses against economic attacks by other nations. One of the Trump Administration’s first actions was to reject the OECD framework that would have destroyed U.S. jobs, forfeited an estimated $120 billion in tax revenues, and enhanced China’s competitive advantage. The Defending American Jobs and Investment Act will ensure that President Trump has every tool at his disposal to push back against any foreign country that seeks to undermine America’s economic vitality or unfairly target our workers and businesses.”

The bill would require the Treasury Department to identify extraterritorial taxes and discriminatory taxes enacted by foreign countries that attack U.S. businesses, such as the Undertaxed Profits Rule surtax. After the foreign taxes have been identified, the tax rates on U.S. income of wealthy investors and corporations in those foreign countries would increase by 5 percentage points each year for four years, after which the tax rates remain elevated by 20 percentage points while the unfair taxes are in effect. The reciprocal tax would cease to apply after a foreign country repeals its extraterritorial and discriminatory taxes. The reciprocal tax would remain dormant as long as countries avoid any unfair taxes on U.S. businesses and workers. Several countries have already made the decision to exclude the UTPR surtax from their implementation of the OECD global minimum tax.

The Joint Committee on Taxation issued an analysis in 2023 finding that the U.S. stands could potentially lose over $120 billion in tax revenues under the OECD’s global minimum tax framework, also known as Pillar Two. In 2023, Smith led a delegation of Ways and Means Committee members to meet with OECD, French and German leaders to convey the message that Congress would never approve of ceding the U.S.’s taxing authority to foreign governments. Smith introduced an earlier version of the Defending American Jobs and Investment Act in 2023.

Charles Hoffman, a trailblazer in the field of accounting, has been at the forefront of technological change since the early days of digital transformation. In a recent conversation, Hoffman shared his journey and vision for the future of accounting and auditing, highlighting how the industry is poised for a major shift toward machine-understandable artifacts and semantic knowledge graphs.

Hoffman’s career began in 1982 as an auditor with Price Waterhouse. “Back then, everything was paper based,” he recalled. “But within three months, I was already moving those same working papers and schedules into VisiCalc and then Lotus 1-2-3. I would create them electronically, print them out, and tape them into the audit bundles.” The introduction of the Compaq luggable computer, he noted, made electronic spreadsheets even more compelling.

Fast forward to today. Hoffman points out that while accounting and audit documentation is now 100% digital, it still mirrors its paper origins in fundamental ways. “Most working papers are just digital proxies — Excel spreadsheets, Word documents, PDFs and sometimes HTML. They’re presentation-oriented and not truly understandable by machine-based processes,” he explained.

What are semantic spreadsheets?

A semantic spreadsheet is a revolutionary advancement that combines the familiar structure of a traditional spreadsheet with the power of semantic technology. Unlike conventional spreadsheets, where the data is presented as isolated cells and rows, semantic spreadsheets encode meaning and context directly into the data.

How semantic spreadsheets work

Each cell in a semantic spreadsheet carries metadata that describes the data it contains, such as its type, relationships to other data, and its role within a broader framework. For instance, a cell containing “$1,000” would not only indicate the amount but also specify that it represents “Revenue,” linked to a specific period and financial statement.

Data in semantic spreadsheets is interconnected, forming a graph of relationships rather than isolated rows and columns. This structure mirrors how data is understood in databases and knowledge graphs.

The metadata and relationships are encoded in a machine-readable format, such as XBRL, RDF or JSON-LD. This allows software to understand and process the data intelligently, enabling automation, validation and advanced analytics.

Benefits of semantic spreadsheets

Data from a semantic spreadsheet can seamlessly integrate with other systems, such as databases or ERP systems, without the need for manual reformatting or interpretation. By embedding meaning and rules, semantic spreadsheets can automatically flag inconsistencies or errors in the data, reducing the risk of human error.

Semantic spreadsheets enable advanced querying and analysis. Users can ask complex questions like: “Show me all revenue entries over $10,000 linked to product sales in Q1,” and get immediate answers. Every entry in a semantic spreadsheet is linked to its origin and context, creating a transparent and traceable audit trail.

Imagine an accounting firm using a semantic spreadsheet to prepare a financial report. Instead of manually consolidating data from various sources, the spreadsheet pulls structured data from interconnected systems. Auditors can validate the report by running automated checks that verify compliance with standards like U.S. GAAP or IFRS. The entire process is faster, more accurate and less labor-intensive.

Moving toward machine-readable accounting

Hoffman believes the next major evolution in the field is inevitable: accounting and audit documents will become machine-readable and, more importantly, machine understandable. “These artifacts will no longer just represent static documents. They’ll be dynamic, serving as proxies for databases and knowledge bases,” he said. “Both humans and machines will be able to interrogate these artifacts seamlessly.”

To illustrate, Hoffman pointed to the concept of “semantic spreadsheets” or what he refers to as “knowledge graphs.” These tools aim to integrate accounting, auditing and analytical processes into frameworks that are semantically rich and computationally robust. Hoffman has detailed this approach in works such as Special Purpose Logical Spreadsheets for Accountants and The Case for Semantic-Oriented Accounting and Audit Working Papers.

Overcoming the challenges of transformation

Hoffman acknowledged that the shift requires a significant mindset change. “Trying to understand this evolution using today’s mental framework won’t work,” he said. Quoting Microsoft CEO Satya Nadella, he added, “‘The ‘work’ in ‘workflow’ is undergoing a fundamental change.'”

While Hoffman has already developed prototypes using XBRL to demonstrate the potential of semantic-oriented working papers, he likens their current state to the Wright Flyer. “These prototypes may be rudimentary, but they’re a starting point. Over time, they’ll evolve into something as advanced as the SR-71 Blackbird,” he explained.

Why semantic accounting will succeed

When asked why he’s so confident in this vision, Hoffman provided several reasons:

The double-entry foundation: “Double-entry bookkeeping is a mathematical model that’s been globally standardized since Luca Pacioli documented it in 1494,” Hoffman said. “The semantics are universal, and financial reporting standards like U.S. GAAP and IFRS provide a solid foundation.”

Technology options: While XBRL is a leading contender for the required syntax, Hoffman mentioned alternatives like RDF+OWL+SHACL+SPARQL (the semantic web stack), ISO Graph Query Language (GQL), and modern PROLOG. “Each has advantages, but the goal remains the same,” he noted.

Market-driven demand: “Accountants and auditors will adopt tools that help them do their jobs better, faster and cheaper,” Hoffman emphasized. “The key is creating intuitive, effective software—a challenge that will require collaboration across multiple disciplines.”

Expert collaboration: “This isn’t just a technical problem; it’s a communications problem,” he said. “It will take accountants, IT professionals, computer scientists and knowledge engineers working together to create solutions.”

Building the future, one brick at a time

Hoffman described the development process as deliberate and iterative, much like building a brick wall. “It’s not just about having the right bricks and mortar,” he said. “It’s about craftsmanship—having the right experts who know how to assemble the pieces correctly.”

Quoting legendary hockey star Wayne Gretzky, Hoffman concluded, “You must skate to where the puck is going, not to where it has been. The future of accounting lies in creating tools that anticipate and address tomorrow’s needs. The status quo is doomed.”

For Hoffman, the path forward is clear: The industry is on the cusp of a transformation that will redefine how accountants and auditors interact with data. Semantic accounting is no longer a distant vision, it’s a practical reality waiting to unfold.