2022 Annual Report

The Continuing Evolution of Sales Tax

Where we are today

SALES TAX BY THE NUMBERS

The size and scope of the sales tax universe can be overwhelming

As of December 31, 2021, there were 22,688 political subdivisions (states, counties, cities) in the United States. Of those political subdivisions, sales tax currently exists in 12,472 of those locations. This includes 44 states (along with Washington D.C. and Puerto Rico), 2,215 counties, 7,883 cities and 2,328 districts.  

SALES TAX BY THE NUMBERS

The impact of South Dakota v. Wayfair, Inc.

When economic nexus became a reality with the Supreme Court’s decision in June of 2018, managing sales tax became a vastly more complicated exercise for businesses. Continuous change, new laws and greater oversight and enforcement all contributed to a tougher experience for businesses selling across multiple jurisdictions.

Year Sales Tax Changes
July 2018 – June 2019 652
July 2019 – June 2020 571
July 2020 – June 2021 640
July 2021 – April 2022 523**

For perspective on how frequently things change from a sales tax administration perspective, our team of regulatory compliance experts tracked all the rates and forms, changes and new laws/bills being considered, as well as trends since June 2018. 

State-by-state map

Stay up to date on all sales tax rates and obligations with Sovos’ State-by-State Guide to Sales Tax Nexus Laws

SALES TAX BY THE NUMBERS

Complexity and change continue to define the state of sales and use tax

When it comes to sales tax, the only constant is change. Not only are we seeing a trend in new jurisdictions implementing sales taxes for the first time, but existing taxable jurisdictions are continuously changing and tweaking their laws in ways that can impact how you collect and remit sales tax. 

Year Total Forms Tracked Number of Form Revisions
2018 1422 843
2019 1431 754
2020 1452 657
2021 1460 592

Staying on top of changes and implementing them timely can be a business’ best defense against notices and audits. 

In addition to the number of changing forms, many jurisdictions are implementing technology that is changing traditional processes. This means that in several jurisdictions, the traditional tax return process has been scrapped in favor of electronic portals. 

“Without Sovos it would be a disaster for us to try and manage tax rates and rules, especially in states with multiple levels of jurisdictional rates. I’m confident in Sovos that all the rates are accurate and timely, and if we have a sales tax holiday then we know they are going to be handled. Sovos helps us avoid auditing issues and responds quickly to any questions we may have.”

– Mark Oulds
director of taxation, Boscov’s 

SALES TAX BY THE NUMBERS

The tax gap is real, and governments are taking action

According to figures published by the IRS, the annual tax gap in the United States is more than $400 billion. To combat this, legislatures are constantly proposing new bills that impact how sales taxes are assessed, collected and remitted. The expectation is that sales tax is likely to become more complicated in the coming years as jurisdictions move to collect revenues owed.

A comparison of proposed laws tracked between 2020 and 2022 shows the escalating number of bills being considered to secure more revenue and ensure the collection of revenue legally owed. 

“If I were to offer a company advice on choosing a sales tax provider, I would definitely steer them towards a model like Sovos, where you have an individual who’s responsible for your account, understands your business and is responsible for it month over month. ”

– Erik Hinkie
CIO, Holmes Corporation

Conclusion

Four years have passed since the implementation of economic nexus laws based on the Supreme Court South Dakota v. Wayfair decision. Jurisdictions continue to implement, change and tweak their laws and processes while increasing their ability and desire for greater enforcement. 

With a large tax gap to pare down and coming out of a global pandemic, the expectation is that things will continue to grow more complex and confusing as jurisdictions grapple with how to collect revenue owed.