Special Report: How COVID-19 is changing business sales tax obligations and enhancing risk [Part 2]
Good day. I hope that you and your loved ones are doing well during this unprecedented time.
As more states and localities issue stay-at-home and lockdown directives, employees are working remotely, individuals are self-quarantining with their families at home — and supermarket and drugstore shelves are increasingly empty — more and more businesses and consumers are turning to online marketplaces such as Amazon, Walmart and eBay.
I wrote the following in my first installment of this series on the impact of COVID-19 on the sales tax obligations of online sellers and marketplaces:
“Even though they are facing staffing challenges, many state Departments of Revenue (DORs) are beginning to make plans to be much more aggressive in monitoring business registrations and comparing registrations to sales and use tax filings. They are likely to focus their audit and enforcement activities in this area as states face increasing revenue shortfalls as a result of coronavirus-related government and business actions taken to protect the public’s health and reduce the severity of our economy’s downturn.”
We are seeing this beginning to play out in very real terms around the country. One clear example is what has occurred in South Dakota. Their Department of Revenue (DOR) received funding for additional sales and use tax Revenue Agents (RAs). These new RAs will focus on unlicensed businesses needing to be brought into sales and use tax compliance with the economic nexus rules based on the Wayfair decision. In testifying before South Dakota legislators, the Secretary of Revenue said that these new agents are needed due to widespread noncompliance by remote sellers and marketplace providers in obtaining sales tax licenses as required. These new RAs are expected to bring $750K in new tax revenues this year and every year thereafter.
My view is that as more and more remote sellers sell into South Dakota, this number is likely to increase significantly. As I reported previously, more states and localities will be moving in this direction as they try to increase tax revenue collections during this critical time. I am following DOR activity around the country and will be reporting compliance, audit and enforcement actions in this series.
This is the second blog in this ongoing seriesand there will be many more as changing circumstances and laws require. You can see more COVID-19 related blogs here.