2021 sales tax changes report expands to more industries
The events of 2020 were unlike any in living history, and if recent proceedings are an indicator, 2021 could be an equally wild ride. Our 2021 sales tax changes report reflects the spirit of the times. For the first time ever, our annual report includes sections on beverage alcohol, communications, fuel, lodging, and tobacco taxes.
Highlights from new tax content sections
When the going gets tough, the tough drink.
Direct-to-consumer (DTC) online sales of alcohol skyrocketed after COVID-19 led to capacity restrictions and temporary closures of restaurants and bars. In turn, states helped struggling food service businesses by relaxing restrictions on delivery and takeout sales of beer, wine, and cocktails. By August 2020, cocktails to go had been legalized in approximately 33 states.
With in-person tastings of beer, wine, and spirits on hold in much of the country, virtual tasting events became de rigueur. Charges for these events vary: Some are free, others charge a fee, and some require a purchase of alcohol. Such bundled transactions can complicate tax compliance, especially for businesses selling to consumers in multiple states.
A handful of states imposed new collection and filing obligations on out-of-state wine sellers in 2020. And in some parts of the country, certain out-of-state wine manufacturers, producers, or sellers became responsible for collecting and remitting local sales tax as well as state sales tax. Chicago became one of the first cities in the country to extend its local liquor tax to wineries and wine sellers located outside of the city.
It’s generally easier to loosen restrictions than tighten them. Nonetheless, Michigan and Ohio are among the states looking to limit or prevent DTC wine shipments by out-of-state wine retailers. Tennessee is cracking down on unregistered sellers, and Texas is auditing businesses licensed to ship wine directly into the Lone Star State.
It will be interesting to see what transpires after the COVID-19 pandemic subsides and restaurants and bars return to business as usual. Will states eliminate the ability to sell alcohol for delivery or takeaway? Will virtual wine tastings disappear? New business models that endure beyond the pandemic will likely come under the scrutiny of tax officials.
Continued reliance on streaming and videoconferencing will pique the interest of tax officials.
Along with alcohol, consumption of streamed content has increased significantly during the pandemic. In the United States, consumers in “streaming-capable homes” are spending 25% of their TV time watching streamed video content. It’s a habit that can be hard to break.
Many companies offering streaming services have experienced a rapid rise in demand. With more people working from home than ever before since the start of COVID-19, the same is true for businesses offering remote work technology. In the spring of 2020, one videoconferencing service saw 600,000 downloads in a single day. Another collaboration platform gained more than 12 million daily users in one week.
Such growth in business can create new tax obligations for companies.
California, Florida, Pennsylvania, and Washington are among the states where communications taxes applied to streaming services prior to the pandemic. And as with DTC alcohol sales, Chicago was one of the first cities to apply local taxes to streaming services. Now several cities in Indiana, Missouri, and Texas are suing for the right to tax streaming services providers.
Consumption of streamed content and reliance on platforms like Slack and Zoom may decline after the pandemic passes, but perhaps not. Some degree of social distancing measures could be in effect for years, and remote work is clearly here to stay. Since 2021 will likely see ongoing reliance on streaming services, videoconferencing, and cloud-based tools, these services will continue to pique the interest of state and local tax officials.
Tobacco sales decline less than anticipated.
Cigarette consumption has been on the wane for years, but in 2020, sales fell less than expected. It could be the stress and isolation of the pandemic has reignited old habits or created new ones. Yet one thing has stayed the same: States are still interested in imposing new or higher taxes on tobacco products.
Companies looking to increase sales by selling online are finding new excise tax obligations. Many cities impose local excise taxes on tobacco in addition to the state taxes, so businesses may have to collect and report multiple rates within one state alone. And of course, businesses selling into multiple states must deal with ever-changing rates and rules.
With many state budgets under duress because of COVID-19, it’s likely taxes on cigarettes, tobacco, and vaping products will see increases in 2021.
Fuel industry adapts to new circumstances.
Contactless options for filling gas tanks and fueling fleets increased during the early days of the pandemic, when it was unclear how the virus was being transmitted. With social distancing measures still the norm in many parts of the country, more businesses are likely to explore contactless options. Indeed, some areas have lifted restrictions to facilitate such development.
New business models may create new or different excise tax liabilities. For example, mobile refueling taxes are calculated at the rate in effect at the point of delivery. And as more drivers shift from gas to electric vehicles, states could impose new taxes on electric vehicles or charging services.
Hospitality industry welcomes new opportunities.
Short-term lodging facilities experienced a dramatic drop in business during the spring of 2020. Travel restrictions and stay-at-home rules led to mass cancellations nationwide. In some areas, hotels and vacation rentals suffered from capacity caps and temporary closures.
Travel is still down and likely will be for some time. However, people are also desperate to get away, and with remote work and school still in effect in many places, they have the freedom to do so. As a result, vacation rentals have seen a resurgence — and governments have resumed their scrutiny of the short-term rental industry to ensure businesses are collecting all applicable lodgings taxes.
Our expanded 2021 sales tax changes report examines these and other issues in more depth. Get the report.
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