New taxes of 3-10+% making Reverse Audits essential
For CIOs and CTOs planning 2027 budgets, state-level taxation of technology purchases is shifting fast — and rarely in the taxpayer’s favor. As more states expand sales and use tax to reach software, SaaS, cloud platforms, and other digital services, enterprise IT budgets are absorbing costs they weren’t built to carry.
Where the New Technology Taxes Are Hitting
Multiple states nationwide are creating new tax obligations on technology purchases, adding budget pressure for enterprise IT leaders. The corporate tax experts at CPRS suggest conducting Reverse Sales and Use Tax Audits to protect IT budgets going forward, especially in this climate where some of the largest new taxes are emanating from the West Coast:
- CALIFORNIA – The Golden State is enacting a significant change: beginning Jan. 1, 2027, the state will apply its sales and use tax — for the first time — to digital products, including enterprise SaaS platforms, subscription-based tools, and hosted applications that were previously exempt from taxation. SB 122 redefines “tangible personal property” to include digital products transferred electronically or accessed remotely. The new base tax is 7.25%.
- COLORADO – Like California, Colorado is ending its favorable software taxation tied to physical delivery location: HB 26-1223 adds remotely accessed internet software and SaaS into the state’s 2.9% sales tax base.
- WASHINGTON – The Evergreen State expanded its retail sales tax to include IT services, custom software and customization of prewritten software, digital advertising, and other services – under ESSB 5814 effective October 1, 2025.
- MARYLAND – Maryland added a new 3% tax on specific technology services — including software publishing, data processing, and web hosting — under HB 352, effective July 1, 2025.
- Illinois, Utah, and Kentucky have also made changes, extending new taxes to digital advertising, digital goods, and other digital products.
- Illinois’ SB 3019, effective Jan. 1, 2027, creates a new 10% tax on programmatic digital advertising, a per-user social media platform fee, and a tax on digital assets — though the law already faces a legal challenge filed in July 2026, and a Maryland tax court struck down a similar digital advertising tax the following month.
- Taken together, these changes point to a clear trend: more states, more categories of technology spend, and more tax exposure for enterprise IT budgets every year, making it more important than ever to recover every exemption, credit, and refund available.
Reverse Audits: Turn Past overpayments
Into Budget Relief for 2027 IT Budgets
A reverse sales and use tax audit is the most direct way to offset these new costs — surfacing overpayments on past technology purchases so money can be returned to the business right as new taxes take effect. For many organizations, the recovery available through a reverse audit can offset a meaningful share of what these new state taxes will add to next year’s IT budget.
“According to Techerati, cloud expenditures now account for a third of total enterprise IT budgets. Public cloud-user spending could reach $1 trillion by 2030,” said Dan Berg, president of CPRS, the experts in corporate tax audits. “These new taxes can quickly offset any hard-earned IT budget increases.”
Technology purchases are among the most difficult transactions to tax correctly, adds Jeff Heyel, CMI, CPA, Vice President of Tax for CPRS. “Vendor defaults, centralized billing, and state-by-state differences create recurring overpayment scenarios. At CPRS, we specialize in recovering overpaid taxes on technology purchases. Our success is based on our decades of experience with software taxation, MPU exemptions, and mixed-element software maintenance agreements, as well as our consistent drive for AI and other innovations.”
The MPU Exemption: Recovering Up to 6.5% of Tech Spend
In completed engagements, CPRS recovered up to 6.5% of qualified technology spend, leveraging Multiple Points of Use (MPU) and other exemptions offered by states. The MPU sales tax exemption allows business taxpayers to allocate tax liability across multiple states when software or digital goods are used in different jurisdictions. In simple terms, each state’s sales tax can be calculated based on the number of software users in that state — recovering dollars that can help offset the very tax increases now taking effect.
For example, an enterprise IT organization spending $10 million annually on software, SaaS, and cloud services could recover as much as $650,000 in overpaid sales and use tax through a reverse audit — funds that can be used to offset the very state tax increases outlined above, while also freeing up budget for other business priorities.
Why Tax Automation Alone Isn’t Enough
Often, corporations either collect and remit software taxes at their home state rate or rely on tax automation software. State and local tax rules evolve quickly, and nuances in interpretation — especially around exemptions and use-based rules — can still result in overpayment. As new state taxes take effect and IT spending continues to rise, failing to catch these overpayments could be a multi-million dollar mistake — one made worse every year state legislatures add new technology taxes.
“With the myriad of business taxes levied in most states, the question is not ‘Are you overpaying sales and use tax?,’ it’s ‘By how much?,’ Heyel added. “At CPRS, our Tax Audit Representation and Audit Defense teams conduct hundreds of these reviews every year, ensuring adherence to tax regulations, improving financial processes, and often resulting in substantial cost recoveries.”
Where Overpayments Hide
With 190+ years of tax experience, CPRS knows where state sales and use tax overpayments hide: usually in software services, large invoices, overreliance on tax automation software, and large CapEx expenditures. Tax treatment for software, SaaS, and related services varies significantly by state and jurisdiction. For any business using software and SaaS across multiple locations, there’s a strong likelihood that tax is not being applied consistently — or correctly — which can lead to overpayments.
Protecting the IT Budget Going Forward
Reverse Sales and Use Tax Audits address complex tax issues and provide actionable insights that improve tax compliance and financial efficiency. A focused CPRS review specifically targets overpayments related to MPU, software, SaaS, and other technology products and services — helping companies recover available tax benefits and offset the impact of new state tax increases. In a climate where more states are raising taxes on technology every year, a reverse audit isn’t just a recovery exercise; it’s one of the most direct ways to protect the IT budget going forward.
