nline sales for the entire holiday shopping season
Tax & AccountingDecember 21, 2020

State Sales Tax Rankings Affect Remote Sellers’ Risk and Cost of Doing Business

Online Sales for the Entire Holiday Shopping Season Forecasted at $184 Billion

In my previous blog, I described how the consumer move to online shopping that began to accelerate at a record pace in March when the pandemic first led to non-essential business closures, has exploded during this holiday shopping season.

Adobe Analytics now forecasts online sales for the entire holiday shopping season at $184 billion, which is a 30% increase from last year.

The Tax Foundation recently analyzed the sales tax regimes in states around the country and ranked them in terms of the impact of sales and excise taxes on the business climate of each state. The highest-scoring states were those without a state sales tax: New Hampshire, Delaware, Montana, Oregon, and Alaska. Even these states did not receive perfect scores because each state does impose excise taxes, and Alaska permits local sales taxes. The report indicates that the states with the next best scores — Wyoming, Wisconsin, Maine, Idaho, Michigan, Virginia, and Massachusetts — have well-structured sales taxes and modest excise tax rates. States that didn’t rank well have high sales tax rates, high excise tax rates, complicated sales tax administration. The lowest-scoring states are Alabama, Louisiana, Washington, Tennessee, and Arkansas.

The map below indicates how each state in the country ranks for 2021.

Why Are These Rankings Important to Remote Sellers?

The Supreme Court’s decision in Wayfair in 2018, which eliminated the requirement that businesses have a physical location in a state to be liable for sales tax collections and remittance, has given states the authority to go after tens of thousands of businesses who reach a threshold of sales into their states (so-called “economic nexus”). The explosion of e-commerce and remote selling since March, together with the economic nexus standard has many of these businesses facing business registration requirements and huge sales tax liability; and many are unaware of this.

States with complex sales tax systems and allow municipalities and localities to impose their own sales taxes create more risk and potential liability for businesses selling into those states. In addition, lower-ranking states have more time-consuming sales tax compliance requirements, which increase a business’ cost of doing business within those states. Businesses may decide not to sell into states that have more complex sales tax systems.

Many state departments of revenue have targeted remote sellers — businesses that do not have a physical presence in their states — for audit. Many of these businesses have already received audit notices.

What Should Businesses Do Now

  • Understand your business and sales tax risk-collection and remittance obligations. Perform nexus studies to determine in which states you have established economic nexus. Get professional help.
  • If you receive an audit notice, call your tax advisor.
  • Work with sales tax experts and software providers who have particular expertise and specific content and tracking functionality to minimize risk and ensure accurate compliance.
  • Sales tax software will track your business transactions, track changes in rates and filing dates, perform accurate calculations, guide you on what you need to remit to states and municipalities, file returns, and provide supporting documents for audit purposes.

If you are seeking a sales tax automation and compliance platform to help you keep it all straight,sign up for a demo of CCH® SureTax® platform.

If you have questions, concerns or need additional insight on your situation, you can reach out to author and sales and use tax expert, Mark Friedlich at [email protected].

NOTE: CCH Incorporated is not engaged in rendering legal, accounting, tax or other professional services. If legal, accounting, tax or other expert assistance is required, the services of a competent professional should be obtained.

Mark Friedlich
Author at Tax & Accounting
Mark Friedlich, a CPA & tax lawyer, is the principal international & corporate indirect taxation analyst for Wolters Kluwer Tax & Accounting. He is a member of the U.S. Senate Finance Committee’s Chief Tax Counsel’s Advisory Board, advisor to 14 state taxing authorities, and a member of the American Bar Association’s Tax Section and AICPA’s Tax Section leadership teams. Prior to joining Wolters Kluwer he was a Managing Tax Partner at PricewaterhouseCoopers.
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