How the Sales Tax Picture is Changing During the Pandemic - and Beyond

This article was written for the Atlanta Business Chronicle Leadership Trust. To see the original post, click here. 

The coronavirus has upended just about every aspect of life and business. We are all adjusting to a new way to work, live, shop and more, and it is hard for us to imagine when life will go back to normal, or how many of these changes will stay with us into the future.

Tax collection is one of the many things that has changed a lot recently, starting with postponements to file and pay income taxes at the federal level and in most states.

For sales and use taxes, some states implemented various forms of relief. This included extensions to file returns, tax payment deferral, and waivers of penalties and interest in some situations. But now that most of these extensions and waivers have expired, what does this mean for your business? 

Time not on your side?

For many, the delays came as a relief, but if you didn't pay your sales and use taxes because of an extension, it's possible you set yourself up for trouble down the road. When you collect sales tax from a customer, you become a fiduciary of the state. So, while deferring sales tax payment might mean you had more funds available to run your business, keep in mind that the money collected is now due. 

State slowdowns

It is, of course, hard to predict how the current crisis will impact other aspects of sales tax compliance, such as state tax administration. Assuming some portion of a government’s employees are working from home, their response rates and ability to conduct business as usual will be impacted, resulting in delays in certain areas. Audit programs around the country have slowed or even been suspended.

The outbreak has perhaps created opportunities to work with states and gain a little leeway. If a state has you under audit, for instance, it may be willing to waive interest or penalties. States also might be willing to work with sellers of goods essential in the outbreak, such as protective medical gear, food or cleaning supplies.

Generally, sales and use tax collections mirror the general economy. I expect that collections will likely decline in the short term (perhaps over the next six months or so) and then return to pre-COVID levels in the long term. 

What changes can we expect to see?

Studies indicate that once buyers are comfortable with the online shopping experience, they’re more likely to continue shopping online. (We tend to see this after holiday shopping seasons.) Our current crisis is forcing a lot of people who historically haven’t purchased online to switch to online shopping. Expect many of these people to continue purchasing online.

After the pandemic, I believe we’re likely to have a bigger audience of consumers who will be purchasing goods and services online in a number of tax jurisdictions.

What can be done to streamline the tax collection burden on online businesses in this environment? This has been the question since the 1992 Quill decision. Later, we started to see efforts related to the Streamlined Sales Tax Project (SSTP), which has been implemented with varying success in roughly half the states.

There may be no way to simplify sales tax collection enough unless the states uniformly raise the economic nexus threshold to where the businesses affected innately have the financial wherewithal to adhere to the sales tax rules.

Online retailers and businesses should work with their local lawmakers to voice concern regarding the burden placed on small businesses, both now and in the future.

As the sales tax collection landscape shifts, there comes a significant increase in states requiring remote sellers to collect and remit sales tax based on economic nexus. That means companies may hit economic nexus thresholds in different states, bringing about new regulations and deadlines. It’s another thing for company leaders to track in these already difficult times.

At TaxConnex, our goal is to take sales tax off your plate. Now it is even more important to have a resource to help you understand your sales tax obligations. We aim to help not only our clients through this time, but you as well, even if it is only to serve as a resource to stay up to date with all the changes. Contact us to learn more about how TaxConnex can remove the burden of sales tax from your business.