2020 sales tax changes: Midyear update
3: State tax laws and revenue recovery
COVID-19 has cratered budgets. Even states with healthy reserves are likely to need additional revenue in the months to come.
Some states with no sales tax are talking about creating a sales tax. Other states may be reluctant to impose new taxes at this time, but they’re unlikely to hold back on enforcing existing laws. Going after noncompliant vendors is a tried-and-true method of increasing collections. There are many ways to do this.
Shop around. Auditors can shop online to see whether remote retailers collect the tax due under economic nexus laws. States may have eased into enforcement of economic nexus, but now that two years have passed since the Wayfair decision, they’re taking their gloves off. They know where to find the revenue they need.
Connect the dots. Use marketplace facilitator and non-collecting seller use tax reporting laws to identify marketplace sellers. Though marketplaces may be taking care of sales tax for them today, marketplace sellers could be liable for periods prior to the effective dates of these laws. California is among the states pursuing marketplace sellers for uncollected back taxes — liabilities created through inventory in the state.
Mine data. Tax authorities around the globe now use data analysis to identify businesses with a high probability of noncompliance.
And of course, states can simply hire more auditors.
States with no statewide sales tax embrace sales tax
It’s hard to imagine the Live Free or Die State embracing sales tax. Yet earlier this year, a couple of New Hampshire lawmakers introduced a bill that would tax sales of certain electronic products.
Sales taxes are periodically proposed in Alaska, Montana, and Oregon. Sometimes the idea even takes hold. While none of these states has ever adopted a general sales tax, the Beaver State now taxes sales of certain bicycles. And of course, Alaska has a robust local sales tax system.
A New Hampshire sales tax is unlikely to gain traction this year, despite new budgetary concerns brought on by COVID-19. Still, the fact that it was introduced in such a staunchly anti-sales tax state is worth noting.
Massachusetts Governor Charlie Baker is a big proponent of daily sales tax remittance. Under his 2021 budget proposal, some retailers would initially need to remit sales tax by the end of the month it’s collected, rather than by the 20th of the following month. Eventually, they’d have to remit it daily.
Real-time collection has been considered in several other states, including Connecticut, Nebraska, and New York. All abandoned the idea for now, but these states and others will likely revisit it in the future.
It’s an idea that’s also under development in other countries. Brazil led the charge: Tax authorities there are alerted, in real time, whenever an electronic invoice is remitted. Greece will soon require retail cash transactions to be recorded by certified VAT electronic cash registers, which report each transaction to the tax authorities in real time. Several other European countries have also introduced electronic cash registers.