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.
Billy Long speaking at a Donald Trump campaign event
Al Drago/Bloomberg
The week before confirmation hearings for President Donald Trump’s nominee for commissioner of the Internal Revenue Service, former Missouri Congressman Billy Long, Democrats in the Senate are asking questions about the timing of campaign donations he received immediately after his nomination.
In a letter sent last Thursday to seven different companies — including an accounting firm, a tax advisory services firm, and a financial services provider — Democratic Senators Elizabeth Warren, D-Massachusetts, Ron Wyden, D-Oregon, and Sheldon Whitehouse, D-Rhode Island, questioned donations that the companies and some of their employees made to Long in the month and a half after his nomination in early December of 2024.
Between Dec. 4, 2024, and the end of January 2025, the letters said, Long’s unsuccessful 2022 campaign for Senate received $165,000 in donations — after nearly two years without receiving any — and his leadership PAC received an additional $45,000.
The donations allowed Long to repay himself the $130,000 balance of a $250,000 loan he had personally made to his campaign back in 2022.
The senators’ letters described the donations as “a highly unusual and almost immediate windfall,” and characterized many of the donors as being “involved in an allegedly fraudulent tax credit scheme.”
“The overlap between potential targets of IRS investigations and the list of recent donors heightens the potential for conflicts of interest and suggests that contributors to Mr. Long’s campaign may be seeking his help to undermine or avoid IRS scrutiny,” the letters said; adding, “This brazen attempt to curry favor with Mr. Long is not only unethical — it may also be illegal.”
The senators then warned, “There appears to be no legitimate rationale for these contributions to a long-defunct campaign other than to purchase Mr. Long’s goodwill should he be confirmed as the IRS commissioner,” before appending a list of approximately a dozen questions for the donors to answer.
The donations were originally discovered in early April by investigative news outlet The Lever, which the senators noted in their letters.
After Long left Congress in 2023, he worked for a tax consulting firm, including promoting the COVID-related Employee Retention Credit. In early January, Sen. Warren sent a letter to Long questioning his tax credentials and promotion of the ERC.
President Donald Trump called on members of his party to unite behind his economic agenda in Congress, putting pressure on factions of lawmakers who are calling for last-minute changes to the legislation to drop their demands.
“We don’t need ‘GRANDSTANDERS’ in the Republican Party,” Trump said in a social media post on Friday. “STOP TALKING, AND GET IT DONE! It is time to fix the MESS that Biden and the Democrats gave us. Thank you for your attention to this matter!”
Trump sent the post from Air Force One after departing the Middle East as the House Budget Committee was meeting to approve the legislation, one of the final steps before the bill can move to the House floor for a vote.
House Speaker Mike Johnson has set a goal to pass the bill next week before the House recesses for its Memorial Day break.
However, the the bill failed the initial committee vote — typically a routine, procedural step — with members of the party still sparring over the scope of the cuts to Medicaid benefits and how much to raise the limit on the state and local tax deduction.
Narrow majorities in the House mean that a small group of Republicans can block the bill. Factions pushing for steeper Medicaid cuts and for an increase to the SALT write-off have both threatened to defeat the bill unless their demands are met.
“No one group gets to decide all this stuff in either direction,” Representative Chip Roy, an ultraconservative Texas Republican advocating for bigger spending cuts, said in a brief interview on Friday. “There are key issues that we think have this budget falling short.”
Trump’s social media muscle and calls to lawmakers have previously been crucial to advancing his priorities and come as competing constituencies have threatened to tank the measure.
But shortly after Trump’s Friday post, Roy and fellow hardliner Ralph Norman of South Carolina appeared unmoved — at least for the moment. Both men urged continued negotiations and significant changes to the bill that could in turn jeopardize support among moderates.
“I’m a hard no until we get this ironed out,” Norman said. “I think we can. We’ve made progress but it just takes time”