The current climate has called for a change in the way people do business – and that’s largely impacted sales tax practices and regs for 2021.
What tax trends and forecasts do your A/R and A/P teams need to know now?
Avalara’s new 2021 sales tax changes report provides some insight and answers. Here are five of the topics outlined in the report that affect your finance teams most:
1. Ecommerce and online sales
A world already veering digital, paired with a global pandemic that shut down in-person business, has made ecommerce a more popular way to do business. In fact, during Quarter 3 of 2020, about $1 out of every $5 spent came from online purchases, according to Digital Commerce 360.
And thanks to the 2018 South Dakota v. Wayfair case, which gave states the ability to tax online sales, many of the items your company sells and buys through ecommerce may now include sales tax.
As you know, even years later, states are still creating and modifying their online sales tax rules. So, it’s vital for A/R and A/P to stay on top of regs – and double-check that they’re charging and paying the correct amounts on every online sale. That way, your company can avoid looming compliance or tax liability issues (more on that later).
2. Economic nexus
Florida and Missouri are the only two states that still don’t have economic nexus requirements for online sellers (aside from the five states without sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon). But 2021 could be the year Florida and Missouri finally adopt economic nexus rules. Both states have already presented economic nexus legislation to be considered in their 2021 legislative sessions. Those bills include:
- Florida: Senate Bill 126 and House Bill 159 were postponed when the legislature adjourned early due to COVID-19. The effective date was set to be July 1, 2020.
- Missouri: House Bill 2 would require remote sellers to collect sales tax and marketplace facilitators to collect tax on third-party sales. If passed, the effective date would be Jan. 1, 2022.
3. Marketplace facilitators
Florida and Missouri also haven’t enacted legislation for marketplace facilitators. And there’s only one more state that has yet to pull the trigger: Kansas. In 2020, Kansas lawmakers introduced several marketplace facilitator bills, but none came to pass. The topic is likely to resurface in 2021, Avalara says.
Bottom line: If your company does business in or with Florida, Missouri or Kansas, stay sharp. Sales tax could soon be included on those purchases.
4. Compliance crackdown
Because of all the complications that came with online sales tax, many states were understanding of hiccups or provided some leeway for sellers and payees to get in compliance. But since it’s been nearly three years since Wayfair, states’ patience is dwindling, Avalara explains. And due to the pandemic, they need the sales tax revenue now more than ever.
What A/R and A/P can expect: a crackdown on compliance. States will be scrutinizing the sales tax you charge and pay more than ever to make sure they’re getting their due.
5. More sales tax triggers
As mentioned, the digital world has changed the way people work and companies make purchases. So, states are looking to tax more products that could trigger sales tax requirements. Two examples to know are:
- Virtual events: Due to COVID-19, many businesses made their normally in-person events virtual. And the more traction this trend gets, the more states will look to tax these virtual events. So, keep an eye out for state-level changes in how these items are taxed.
- Software: You already know that sales tax on software products can be complicated. And when the software’s being used in multiple states, software vendors have to abide by multiple states’ laws. This can create sales tax complexities and errors that your team will want to look out for.