The new year will no doubt be another active one in sales tax. Let’s look at a few of the likeliest tax developments.
Weaker state revenue
The kind of year it’s going to be for state coffers could greatly influence such 2024 sales tax changes as new levies, tougher nexus thresholds, and intensifying audits. If so, watch out for 2024.
“With more fiscal data coming in, the long-term health of state budgets looks murky,” writes analyst Lucy Dadayan on the site of the Tax Policy Center. “The post-COVID expansion is ending, and states’ fiscal path forward remains highly uncertain, particularly for states that chose to enact permanent tax rate cuts. Prior surpluses are helping ease the transition to slower growth. But those resources will soon run out.”
Overall, state tax revenues dropped 5.3%. But state sales tax revenues are projected to increase 1.7% in fiscal 2024 (down sharply from the double-digit growth observed in fiscal 2022). Only seven states are forecasting growth exceeding 5%, while eight forecast declines in sales tax revenues in fiscal 2024.
States expected to be hit hardest by falling sales tax revenue are Idaho, South Dakota, Louisiana, South Carolina and Florida. States expected to do best with sales tax in 2024 are West Virginia, Massachusetts, Kentucky, Iowa and New York.
“Sales taxes” are starting to take different forms. For instance, Colorado recently introduced a contentious fee slapped on all retail deliveries in the state where at least one tangible personal property item is subject to sales tax. Businesses have claimed that it’s a significant burden.
That contention hasn’t stopped other states, such as Minnesota and New York, from pursuing their own delivery fees; Minnesota’s starts in 2024. Money from the fees is earmarked for emissions control and the infrastructure that helps facilitate the deliveries. Expect more states to investigate delivery fees as electric and hybrid vehicles continue to proliferate and fuel tax revenues fall.
Economic nexus thresholds have been widespread since the Supreme Court’s 2018 Wayfair decision. Those thresholds have, in most states, been a combination of dollar volume and number of transactions into a given state in a period of time, generally a year.
For five years, states have been whittling their transaction thresholds – Colorado, Iowa, Massachusetts, North Dakota, Washington and California were among the first, in 2019 – sometimes simultaneously raising their dollar-volume thresholds. In 2021, Wisconsin and Maine both removed their transaction threshold; in 2023, South Dakota and Louisiana joined suit.
Expect more of the same in 2024.
Some time ago, politicians (and not tax experts, as has been subsequently acknowledged) discovered that sales tax holidays were a great way to garner public support. There have been dozens of such holidays across almost half the states annually over the past few years. Expect these sales tax developments to continue in 2024, offering breaks on everything from baby diapers and school backpacks to emergency supplies and gun safes.
Expect too to hear more from critics who say that these holidays are politically motivated and do little to save consumers money.
Sales tax exemptions may also continue to expand on such items as groceries (Kansas is one of the latest states to make this change) but sales taxes themselves may begin to be levied on new products and services, especially in the digital world.
For example, in Georgia effective this Jan. 1 sales of specified digital products, goods and codes sold to an end user in the state are subject to Georgia sales and use tax. “Specified digital products” means digital audio-visual works, digital audio works or digital books. “Other digital goods” means the following items transferred electronically to an end user: artwork, photographs, periodicals, newspapers, magazines, video or audio greeting cards or video games or electronic entertainment. “Digital code” means a key, activation or enabling code that conveys a right to obtain digital goods.
Certain states have a long and infamous reputation for sales tax administration. That may end in the coming year in Louisiana, though, where state legislation has set that the Uniform Local Sales Tax Board will assume oversight of the electronic filing system. Colorado also now has a task force charged with simplifying its system – a special challenge for home rule state sales tax. Expect more home rule states such as Alabama, Arizona and Alaska to at least begin studying how to simplify their sales tax administration and compliance requirements.
By the way, there’s also a chance that Alaska will drop from the ranks of NOMAD states and institute its own statewide sales tax this year.
As with that and all other 2024 sales tax changes and matters, stay tuned.
If you think your business may be impacted by sales tax developments, contact TaxConnex. TaxConnex provides services to become your outsourced sales tax department. Get in touch to learn more.