COVID-19 Sales Tax Reporting Surprises

Sales tax reporting has been delayed in many states, but sales tax filings are beginning to trickle in and more states are able to make projections. Many states are seeing their sales tax revenues drop to dangerous levels, causing concern about  being able to continue to provide essential services. Some states are demanding federal assistance while others are planning drastic measures to increase their sales tax income.

It seems logical, with so many businesses across the nation shut down for weeks or months, that sales tax revenue would fall. In fact, there are some surprises.

North Dakota, for example, is reporting a 500% increase in sales tax revenue from remote sellers. That amounts to $2.9 million in extra revenue for April 2020. North Dakota is still seeing sales tax income at 35% below where it was for April 2019 — but that’s not as bad as expected.

Remote sellers make the difference

Some states haven’t yet begun forcing sales tax compliance on remote sellers. A 2018 Supreme Court decision called Wayfair makes it an option. Prior to the Wayfair decision, companies had to have physical nexus in a state before they could be required to collect and remit sales tax. Main street merchants believed that this gave online sellers an unfair advantage. They claimed that ecommerce and other remote sellers threatened their livelihoods as brick and mortar stores.

At that time, online sales were nearing 10% of all U.S. retail.

States that began insisting on sales tax compliance from remote sellers typically set thresholds to exempt small companies, and big companies like Amazon were usually already collecting sales tax. This meant that the remote sellers’ contributions to state budgets were disappointing in the first couple of years. North Dakota, for example, collected about $475,000 from remote sellers last April. That’s a useful sum, but nothing like the millions or even billions of dollars states had claimed they would gain from their new sales tax regulations.

What changed?

The COVID-19 pandemic shut down a lot of retail stores and taxable services. Even when businesses remained open, increasingly consumers stayed home and chose to shop online. E-commerce has increased by 49% since the first week in March. Certain verticals, such as furniture and leisure clothing, have seen increases up to 300%. Essentially, the shift to ecommerce has been accelerated by the pandemic.

Not only are consumers doing more shopping online, but businesses are adding ecommerce, too. Businesses that weren’t thinking about online sales are taking them up, and often extending their offerings at the same time. Experts are recommending an omnichannel future for most businesses in response to the pandemic and changes consumer shopping habits.

If this pattern sounds familiar, you may be thinking of adding ecommerce to your revenue streams. If so, then sales tax compliance has to be on your radar. So far, at least 45 states are requiring sales tax reporting and remittance for remote sellers even if they are out of state.

Fortunately, Sales Tax DataLINK provides sales tax solutions and full sales tax compliance services. Call us at (877) 806-7715 and get the details.

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