The sales tax landscape is changing dramatically with the growth of the digital economy. While sales tax would never have been considered “easy,” accelerated changes in 2020 with how and where businesses sell and how customers buy, regulatory changes and needed changes to infrastructure are certainly making sales tax compliance more complex. Are there any top trends you should be aware of? We recommend keeping an eye on these three macro trends that are driving significant change in sales tax.
1. Digital transformation. While the push to integrate digital technology into all areas of the business isn’t a new concept, South Dakota v. Wayfair and COVID-19 are driving faster adoption of SaaS and cloud-enabled software in the finance and accounting functions to tackle and address challenges with waste and inefficiency. The sheer complexity of sales and use tax also requires more technological sophistication as organizations look to better manage:
- Broadening of the tax base that includes international
- Changing regulations
- Transparency and trust within an organization and with their customers
- Compliance burden
- Administrative efficiency
- Growth and policy objectives.
2. Regulatory complexity. South Dakota v. Wayfair changed the landscape of state sales tax, making managing compliance much more difficult. And it’s still evolving as new states pass economic nexus legislation and inevitable changes and amendments to existing legislation happens. Marketplace facilitator laws now impose an obligation for businesses or organizations that contract with third parties to sell goods and services on its platform to collect and remit sales tax on behalf of those sellers. It’s likely that these laws, too, will see amendments and additional changes that will further burden facilitators and sellers.
While these two examples might be the more well known regulatory changes, there are additional moving pieces to watch – shifting jurisdictions, shifting indirect tax rates, as well as new financial reporting standards.
Source: IDC Market Spotlight, sponsored by TaxJar, Uncertainty and Complexity Drive Sales and Use Tax Transformation, October 2020
Download the IDC Market Spotlight, Uncertainty and Complexity Drive Sales and Use Tax Transformation, to learn more about the changing regulatory landscape.
3. Global pandemic. COVID-19 is not only changing the way we live, it’s also changing the way we do business. eCommerce platforms and online marketplaces were already gaining momentum and COVID-19 has further escalated the transition to online shopping/commerce and the decline of traditional brick and mortar shopping experiences. In addition to changes in how and where goods are being bought and sold, the decline in brick and mortar sales tax income (projected to be $49 billion in 2020, $45 billion in 2021, and $46 billion in 2022(1)) is compelling states to look to eCommerce to make up the difference in those losses.
Managing Change with Software
With everything you need to keep in mind, how do you manage the changing sales tax landscape and complexities of sales tax compliance without overburdening your team? Here are a few considerations for your sales tax vendor search:
- Can they anticipate your needs with technology? Are they utilizing technological advances such as machine learning or artificial intelligence to eliminate tedious, manual processes? Do they offer certified integrations you care about?
- Can they automate key tasks such as state sales tax filing, sales tax rate calculations, and address validation?
- Can they determine not only where you currently have economic nexus but also where you are approaching economic nexus?
- Do they offer go-live and technical onboarding, ongoing support and good documentation?
Ready to learn more about what’s driving sales and use tax transformation? Download the IDC Market Spotlight today.
1. Louise Sheiner and Sophia Campbell. “COVID-19 hurting state and local revenues?” Brookings. September 24, 2020. https://www.brookings.edu/blog/up-front/2020/09/24/how-much-is-covid-19-hurting-state-and-local-revenues/