2020 sales tax changes midyear update: COVID-19 edition

The coronavirus seems here to stay for the foreseeable future. Many of the new buying habits the pandemic created are here to stay, too. How do changes in consumer spending affect the sales tax obligations of retailers? And what’s happening with tax relief efforts in the United States and abroad? 

When stay-at-home orders temporarily shuttered brick-and-mortar businesses or restricted in-person shopping, many consumers shifted to online shopping. To retain their customer base, many local brick-and-mortar businesses had to shift to online selling, or to an online/in-person hybrid (buy-online-pick-up-in-store).

Businesses with an established ecommerce channel were able to adapt to the new situation quickly. Those with no online arm basically had two options: Develop an ecommerce store or get by with limited sales until the coronavirus (COVID-19) passes. The longer the pandemic endures, the less tenable the second option.

Selling online enables retailers to reach more customers, but it can also trigger new sales tax obligations. For example, retailers may need to apply sales tax to shipping and delivery charges. They also may need to charge different rates of tax than the rate applied to in-store sales, because sales tax in most states is based on the delivery address.

Furthermore, retailers selling to customers in other states could develop an obligation to collect and remit sales tax in those states. Most states now enforce economic nexus, which bases a sales tax collection obligation solely on an out-of-state seller’s economic activity in the state. Thus, a business located in Kansas City, Missouri, that sells online to customers in Kansas City, Kansas, could need to register with the Kansas Department of Revenue and collect and remit Kansas sales tax.

These are just some of the sales tax issues retailers need to consider in the time of COVID-19. The more creative a business’s response to the pandemic, the more likely they are to develop other issues. Grocery stores that offer personal shopping services or delivery need to determine if those services are subject to sales tax, and if so, at what rate. Fitness centers that now stream classes need to know how to classify those sales: Are they a fitness class or a type of online education, and are they taxable? And so on.

When the pandemic first caught fire in the U.S., many states and some local governments jumped into action to create relief programs. In many parts of the country, filing and payment due dates were pushed back, and penalties or interest charges waived. Much of that relief has already expired, and more will expire in the coming months. A few states have extended payment deadlines, but most are encouraging businesses to file and remit sales tax on time.

The federal government may provide more aid. There’s been talk of extending the federal unemployment enhancement, which adds $600 per week to state unemployment benefits and is scheduled to expire at the end of July. Congress may send out another round of stimulus checks. It could also extend the moratorium on evictions, currently set to expire July 25, 2020.

Much of the rest of the world is also providing tax relief. Value-added tax (VAT) rates have been cut for many hard-hit industries, such as hotels and restaurants, and VAT deadlines have been delayed. But as in the U.S., some of that relief is expiring. Britain ended a three-month VAT-payment holiday on June 30.

There’s no easy answer to the COVID-19 crisis. Without support, many struggling businesses may not make it to the other side of the pandemic. And governments need tax revenue.

Read more about what to expect with sales tax in the months ahead in our 2020 sales tax changes midyear update, or check out the 2020 sales tax changes midyear update webinar.