The whole world pinballed throughout a pandemic the last two years and continues to do so. Sales tax in 2021, though, seemed to move in only one direction: It intensified as even more states hopped on the economic nexus bandwagon and the sales tax burden for online businesses grew.
Here’s a look back at some of 2021’s biggest developments in sales tax.
Happy new fear
The year kicked off with plenty of concerns among execs, according to a then-new survey from TaxConnex. Responses from 100 top finance professionals showed that even as two out of three companies planned to grow across state lines in 2021, still more were not fully satisfied with their current approach to managing sales tax.
The top two sales tax worries heading into 2021, according to the survey: having the right knowledge and resources on staff and keeping up with changing nexus rules in each state.
Those rules were quickly reported to be changing in one state, as Alaska’s sales tax collected from online sales into the state’s certain local jurisdictions that started in 2020 did end up helping remote communities balance lost local taxes. The news only seemed to cement the idea that more Alaskan communities would join to collect sales taxes, even though the state itself still doesn’t have a sales tax – yet.
Other states intensified their sales tax moves. Illinois, on Jan. 1 began requiring that remote sellers with economic nexus and marketplace facilitators also had to start submitting the Illinois State and Local retailer’s occupation tax. Even then, however, such states as Massachusetts, Michigan, South Carolina and Maryland were among those continuing to extend filing and sales tax payment relief that had started during the pandemic.
About this time, Maryland started popping up in the news for spearheading a new effort in sales tax. By March, it had greenlighted the country’s first tax on digital advertisements. Estimates reportedly said the tax will generate up to $250 million. Other jurisdictions were pursuing similar efforts: Georgia and Connecticut seemed first in line. Before the end of the year, Colorado would also add “digital goods” to its definition of tangible personal property for sales tax purposes and Canada would require non-resident businesses to begin collecting the nation’s Goods and Services Tax/Harmonized Sales Tax on sales of digital goods.
Though Maryland would eventually delay implementation of its digital law until Jan. 1, 2022, a potentially strong trend was launched in sales tax that will most likely continue in 2022.
The second quarter of the year showed states, including Mississippi, New Jersey and West Virginia, continuing to tinker with their sales tax structures, considering increases in some areas of remote sales and curtailments in other areas such as groceries. Louisiana was working to streamline its sales tax environment – a notoriously complex one for remote sellers and an issue that would be revisited later in the year.
In Kansas, lawmakers overrode an unexpected gubernatorial veto and set for out-of-state sellers an economic nexus threshold – which the state had never had. The new law, which would take effect July 1, created economic nexus for companies with more than $100,000 in gross sales to Kansas consumers in the current or previous calendar year.
Elsewhere, some thresholds fell. Wisconsin eliminated its 200+ transactions threshold for remote sellers. Maine passed a similar measure, which kicks in Jan. 1.
Then came one of the year’s biggest headlines. Florida Gov. Ron DeSantis signed legislation imposing sales tax economic nexus on remote sellers. The law, which also contained marketplace facilitator provisions, kicked in July 1, 2021, with a revenue threshold of $100,000 of sales into Florida during the previous calendar year and no transaction counts.
Only Missouri now remained with a state-wide sales tax but no requirement for out-of-state sellers to collect and remit sales tax. Yet soon that state’s legislature passed a bill requiring vendors with gross receipts into the state of at least $100,000 in the previous or current calendar year to collect and remit tax; the bill also required marketplace facilitators to collect and remit use taxes on behalf of the third-party sellers utilizing their platform. The Missouri law is not set to kick in until Jan. 1, 2023, even though it has passed.
With eCommerce sales continuing to grow, and states seeing their sales tax collections significantly higher than previously expected, one can anticipate states to crack down on economic nexus laws in an effort to feed their seemingly insatiable appetites for additional tax revenue.
If you think your business may be impacted by sales tax developments or it just has become too much for your team to manage on their own, contact TaxConnex. TaxConnex provides services to become your outsourced sales tax department. Get in touch to learn more.