As businesses adjust to the “new norm” of working remotely and managing cash more closely than ever, several states are postponing deadlines for filing and paying sales and use taxes, often waiving penalties and interest. In just a few examples, many states are offering 30-day extensions to file and pay, California is offering extensions of up to three months, and Maryland and Massachusetts have pushed their sales and use tax deadlines to June. (see other tax updates here.)
For some, the filing and payment extensions can be viewed as much-needed relief. However, the sales tax collected eventually needs to be remitted to the taxing authorities. It can be problematic to use the sales tax collected to keep the doors of a business open and then not have the sales tax to remit when the extension is over and payment is due.
Consider the following market dynamics that are in play as a result of our new norm:
As the COVID-19 outbreak spreads and persists, giant retailers including Macy’s, Foot Locker, Bed Bath & Beyond, Apple and Nike (just to name a few) are shutting stores, reducing hours or limiting the number of customers allowed in a store at the same time. The outbreak is expected to linger for months. It’s a fair bet that not every store closing “temporarily” will re-open. One analyst has estimated this could result in a record year for permanent store closures.
As brick-and-mortar stores become inaccessible, collection and remittance of sales and use taxes will increase for online businesses as many of the initial problems in the global supply chain are corrected. As an example, online food delivery services are flourishing as are other kinds of contactless delivery services, according to Forbes.
This year, e-commerce was expected to represent 12% of total retail sales. COVID-19 looks to blow that through the roof. And as the past several holiday-shopping seasons have proven, consumers who become comfortable shopping online tend to continue the habit after the immediate need passes.
Widespread quarantines, lockdowns, telemedicine and work-from-home policies have spiked demand for video and chat software, often delivered as a software as a service (SaaS) that’s subject to sales tax in many jurisdictions.
With the sales tax collection obligations shifting to more online businesses and service businesses, also comes a significant increase of states requiring remote sellers to collect and remit sales tax based on economic nexus. Because of all these changes, more businesses may find themselves hitting economic nexus thresholds in new states, which, in turn, means new regulations to learn and deadlines to track. It is a lot for any business to manage, especially in these difficult times.
We understand sales and use tax is not your top priority right now, but it can’t be forgotten. If you need help getting sales tax off your plate, reach out – with TaxConnex, it’s all on us.