As we sit on the cusp of 2020, we find ourselves living in a world where almost every state imposes tax collection and remittance obligations on remote sellers (an increase of 50 percent from last year) and where a majority of states have enacted rules that impose new tax collection and remittance responsibilities on third party intermediaries, or “marketplace facilitators.” While nothing in sales tax is ever certain, here are a few predictions for sales tax that we might see emerge in 2020.
- Every state with a sales tax will enact a remote commerce collection rule. This means Florida, Missouri and Louisiana (which already has a law in place that is not yet effective) will join the party. In Alaska, additional cities and boroughs (there are 17 or so right now) will join forces with the Alaska Municipal League in their attempt to launch a streamlined remote tax collection process.
- In Kansas, the governor, Department of Revenue and the attorney general will find a path to a non-controversial remote seller collection requirement. When the Department of Revenue enacted a rule requiring all remote sellers collect and remit tax effective as of October 1, 2019, the attorney general declared the requirement to be invalid. However, Governor Laura Kelly agrees with the DOR and holds the requirement to be fully effective and enforceable.
- States will continue to tweak their economic nexus thresholds. Today, many states require remote sellers to collect and remit tax if sellers have more than 200 individual transactions or greater than $100,000 in gross sales per year. However, as states face the daunting task of registering all these new taxpayers, answering their questions and processing their returns, we suspect they may reconsider and search for a new “sweet spot” that brings meaningful taxpayers into the fold without overwhelming their infrastructure.
- States will review their “Marketplace Facilitator” rules with guidance from the National Conference of State Legislatures and the Multi-state Tax Commission. While national uniformity for obligations of marketplace sellers and marketplace facilitators may be too much to ask, ideally every state will articulate clear rules and requirements so that both parties understand their precise obligations.
- And our final prediction for sales tax in 2020: While it’s unfair to call enforcement non-existent, states have yet to become uniformly aggressive in enforcing their new collection and remittance requirements on remote sellers. The time for enforcement is at hand. However, states have realized that audit procedures they have in place for sellers with a physical presence may not be scalable for the large amount of remote sellers that have economic nexus in their jurisdictions. It’s hard to predict how states will adapt, but an answer likely exists in an expanded adoption of technology.
If recent history has taught us anything, tax is not nearly as predictable as it used to be. In this environment, it seems probable that there is some new, innovative and challenging compliance requirements waiting to emerge that no one previously considered or envisioned.
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