Special Report: How COVID-19 is changing business sales tax obligations and enhancing risk [Part 10]
States Are Seeing Increased Sales Tax Revenues; More Businesses Facing Sales Tax Compliance Risk
COVID-19 Pandemic and Wayfair at 2: Remote Sellers at Risk
Greetings from my home office in NYC. It’s my Week 10 covering COVID-19 changing the way you and I literally live our lives. I’m sincerely hopeful you and your families are safe and well. In this week’s installment of my special report covers how this crisis is impacting businesses, buyers and the tax landscape. You can see more COVID-19 related blogs here.
Two years ago, the Supreme Court in Wayfair v. South Dakota expanded the reach of states to impose sales and use tax obligations on retail and other businesses if they have a certain level of economic activity in a state (so-called economic nexus), no longer requiring a physical presence. As of now, 43 of the 45 states who have sales tax have adopted the economic nexus standard. Florida and Missouri are the two holdouts.
As if that wasn’t enough bad news for retailers and other remote online sellers, the COVID-19 pandemic shopping behavior changed dramatically as the pandemic spread across the U.S. as brick and mortar stores were ordered to close. Many retailers and others quickly adopted new strategies and established or greatly expanded their online selling presence and capabilities.
The move to online purchasing for necessities and most other consumer needs has increased enormously. In fact, online shopping was growing before the pandemic hit. COVID-19 has placed that trend in super-speed mode.
Marketplace Facilitator Laws
Most states that impose general sales taxes have adopted marketplace facilitator laws. Florida, Kansas, Mississippi, and Missouri are the states who have yet to pass such laws. Legislatures in each of these states are expected to introduce marketplace facilitator bills when they return to take advantage of the substantial revenue they desperately need.
The pandemic’s impact on online sales tax revenue
The explosion in e-commerce since early March has resulted in a significant increase in online sales tax revenues in most states. An example of how seismic this change has been can be seen in North Dakota where state sales taxes from remote sellers grew by more than 500 percent to $2.9 million, up from $475,000 just one year ago. The increases in online sales tax collections have been the one bright spot for state tax revenue collections during the pandemic.
What does all of this mean for businesses?
See my article in next week’s Accounting Today for insights into what these trends and developments mean for businesses and state Departments of Revenue now and going forward.