In the first half of 2025, states made 408 sales tax rate changes, including creating new sales tax rates, resulting in a 24% increase compared to the first half of 2024. This trend is expected to continue as states struggle to generate new revenue.
Unattended retail sales in 2025 were especially strong. While estimates vary, everyone agrees the upward trajectory was fueled by advancing technologies used with vending machines, micro markets, smart coolers, autonomous kiosks and the integration of AI and mobile applications.
The Tax Foundation recently published a report that stated retail sales tax revenue accounted for 32% of all state tax collections and 13% of all local tax collections (24% of combined collections). Currently, 45 states collect state sales tax, and 38 states collect local sales tax, including Alaska, which does not impose a state sales tax.
Local sales tax rates can be substantial and, in some cases, can rival or even exceed state sales tax rates. In this article, I’ll provide specific information about some of the state and local sales tax changes that have occurred this year and their impact on tax compliance.
Registering with state and local governments
Most states define vending machine, micro market and smart-cooler operators as retailers. They fall into the category of unattended retail operators. The existence of tangible personal property — vending machines, coffee machines, shelving, coolers, kiosks — establishes a physical presence.
All taxing authorities define “nexus” — the obligation to collect sales tax —to exist when there is a physical presence. Therefore, sales tax revenue is not a factor when determining whether to calculate and remit sales tax on products sold through any of these devices.
In addition to registering to remit sales tax, most states and local tax authorities require some other form of business license and/or permit to operate a vending machine, micro market or unattended kiosk.
Once registered, the owner has the obligation of calculating, reporting and remitting sales tax. Sales tax rates are always based on the physical location of the machine or equipment. They are never based on the home office location.
Tax calculations
Calculating the amount of sales tax due can be complex. Formulas for vending machine sales are often different than sales from a micro market or unattended kiosk. Several states also have defined specific formulas used for food and non-food sales.
Because of this, we have observed that many operators are overpaying sales tax. Incorrectly applying sales tax calculation formulas or using a sales tax rate based on their home office location are often the main culprits. Some examples include:
- Calculating sales tax based on the total amount sold when the sales tax is included in that total
- Applying the tax rate to exempt products.
The most common misunderstanding about sales tax
“If I paid sales tax when purchasing my inventory, I don’t have to collect sales tax when I sell it.”
False!
Sales tax is always collected on taxable items sold through a vending machine, micro market, unattended kiosk or smart cooler.
The final consumer pays the sales tax, not the reseller. To avoid being charged sales tax by your supplier, you must provide a valid resale certificate.
Resale exemptions
In previous articles, we have discussed misunderstandings related to tax-free purchases of inventory sold through a vending machine or micro market. A retailer registered with a taxing authority can present a resale exemption certificate to its suppliers, enabling it to buy inventory without paying sales tax. If you are not purchasing sales tax-free, you are at risk of double taxation.
Filing of tax returns and compliance
Each state has its own format regarding how gross sales, taxable amounts, exempt amounts and sales taxes collected need to be reported.
The states with local sales tax rates are California, Colorado, Florida, Illinois, Ohio, Missouri, Tennessee and Texas. Those states require sales revenue and applicable sales tax to be reported to the taxing authority based on the location of the vending machines or micro markets. This same requirement applies to traditional brick-and-mortar retail stores as well.
A majority of businesses feel that compliance ends after they file their tax returns, but the real key to compliance is the quality of the records that support the returns. These form the basis of your defense if you are ever audited.
In conclusion, regardless of your company’s size and experience, many operators consistently struggle with similar issues:
- Complex state and local registration requirements
- Sales tax compliance
- Product taxability
- Technological limitations in tracking and reporting accurate data
This article has highlighted the importance of correctly registering with taxing authorities, using resale exemption certificates to avoid double taxation, and understanding product-specific tax rules.
As the market continues to trend toward cashless payment systems, taxing authorities can more easily monitor and review transactions, making good accounting and auditing practices even more essential to avoid costly audits and fines.
