2026 Indirect Tax Trends

In 2025, U.S. state and local tax policymakers broke records. In 2026, many of these policymakers will be playing a high-stakes game as they leverage indirect tax rates and rules changes and base-expansion mechanisms to address budgeting shortfalls that defy convenient solutions.

That said, shrinking budget surpluses represent only one of several notable (and, in most cases, interrelated) fiscal, economic, policy, and technological trends likely to have major implications on indirect tax rules and rates in the coming year. These developments include:

• The potentially massive and still unfolding implications of AI use on tax policy: Nearly every industry, company and organizational group (including tax) is testing, deploying, and refining AI solutions in pursuit of innovation, efficiency, and revenue growth. Last year, the Center for Audit Quality analyzed 2024 SEC Form 10-Ks for S&P 500 companies, and found that 90% of those organizations mentioned AI-related information in their financial reports (a 25% increase over the previous year). A fast-growing portion of AI usage involves taxable transactions. Consumers can now purchase goods and services without leaving their AI chat boxes (a development that poses its own set of tax compliance challenges). State and local tax authorities are well-aware of the growth of agentic purchasing. “As artificial intelligence and digital infrastructure become more central to economic activity, states aim to ensure these sectors contribute to the tax base,” according to a National Conference of State Legislatures (NCSL) article “Potential areas for taxation include data centers, digital goods and energy consumption related to AI operations. These efforts reflect a broader push to modernize tax codes and capture revenue from fast-evolving industries.”
• State and local budgeting pressure: Fiscal year 2026 budget drafting exercises were defined by high levels of caution, spending reductions, and uncertainty (regarding federal funding and economic conditions and trade policy). Ten states are projected to experience revenue challenges in 2026 and another 13 are at risk of joining them, according to government relations firm Multistate. “Recent federal legislation, including the tax cut and domestic policy law … shifted the cost of some programs to states—some with immediate impact to state budgets and some that legislators may need to address in future fiscal years, particularly changes related to Medicaid and the Supplemental Nutrition Assistance Program,” according to the NCSL. From a political perspective, it is worth noting that most of the reduction in funding won’t kick in until after 2026.  The organization notes that states are currently focused on managing flattening revenue growth, updating cautious spending plans, adapting to cuts in federal funding, and finding ways to fund disaster preparedness and recovery.
• Tax base expansion requires creative approaches: As governments seek ways to fund emergency response programs and other budget priorities, it’s unlikely they will consider property, personal income, or corporate tax hikes, which are political nonstarters right now. Sales and use tax hikes in the U.S. (and VAT rate increases in the EU and other global regions) remain on the table. So, too, do methods of expanding the tax base. The implementation of new digital taxes will be used to expand the base, as Maryland has demonstrated. State and local governments will also consider new laws and rules changes that subject previously exempt business services and personal services to sales tax (as Washington did last year).
• It is make-or-break time for e-invoicing compliance: E-invoicing rulemaking activities shifted into high gear in 2025: some jurisdictions rapidly implemented new requirements, other governments granted deferrals, and many other countries made major adjustments to existing rules. Companies subject to these dynamic and disparate e-invoicing requirements cannot afford to drag their feet on compliance. “If December taught us anything, it is that the pace isn’t slowing down,” notes my colleague Patricia Jordan, Vertex’s EMEA E-Invoicing Solutions & Strategy Leader. “If you’re operating across multiple jurisdictions, staying ahead of these changes isn’t optional anymore.”  

As indirect tax leaders and their trusted teams monitor these trends, they should also track tariffs and trade policy developments, e-commerce breakthroughs, and the adoption of AI and other emerging technologies by auditors and other regulatory enforcement bodies

Click here to view the Vertex 2025 End-of-Year Rates and Rules Report.