As we embark on a new year’s sales tax journey, some exciting changes are on the horizon! States have been hard at work reevaluating their sales tax policies to bring positive changes for taxpayers. The 2023 legislative session saw many bold tax proposals, and we can expect more of the same in 2024.
For professionals tasked with navigating sales tax compliance, it’s essential to be prepared for these changes. With insights from our sales tax experts, let’s explore three trending sales tax issues of 2024 that could have significant impacts on your operations.
States across the country have been and are continuing to pursue taxpayers in situations where they were subject to sales tax due to physical nexus activities before the 2018 South Dakota v. Wayfair Supreme Court Case. Companies that should have been collecting sales tax but are still out of compliance should be aware that states have increased their audit inquiries. These companies should take the time to evaluate their activities and take proactive steps to come into compliance.
Now that rules are in place for economic nexus, marketplace facilitators, and reporting requirements in every state, we are seeing more related lawsuits and challenges. States are attempting to determine who owes tax on periods before those laws were enacted.
As one of the largest marketplace facilitators in the country, Amazon has been faced with legal challenges. The South Carolina Court of Appeals held that Amazon Services, LLC owes uncollected taxes, penalties, and interest on third-party sales made through the facilitator for pre-South Dakota v. Wayfair tax periods. This decision upheld the tax assessment of around $12.5 million imposed by the South Carolina Department of Revenue back in September 2019. The administrative law judge determined that Amazon met the criteria of being engaged in the selling as outlined in the state’s sales and use tax Act and found the statutes at issue were not ambiguous further finding that Amazon failed to show evidence of constitutional violations on behalf of the Department of Revenue. Consequently, Amazon was deemed liable for taxes on third-party sales made by merchants on its platform.
In Washington, Citibank became a case to watch. The state of Washington argued that Citibank was subject to their B&O tax throughout the years of 2007-2010 based on activities performed by retailers in relation to private label credit cards. Citibank argued that they had no physical presence based on employees, property or place of business over those years, but the state of Washington argued that Citibank had agreements with retailers for their private label cards obligating the retailers to market the cards to customers in Washington stores with the intention of soliciting new Citibank accounts. Additionally, the retailers were authorized to accept payment from customers on behalf of Citibank on amounts customers owed to Citibank. Citibank used Washington attorneys when filing some 3,000 lawsuits in Washington courts for debt collection. These activities met the constitutional requirements for the imposition of the B&O tax due to the activities of these parties opportunity on its behalf. A number of states and some localities have a similar tax to the Washington B&O tax where gross receipts are taxed and imposed on the seller for the privilege of doing business with the state. A few examples of these include Ohio Commercial Activity Tax, Nevada Commerce Tax, and Oregon Corporate Activity Tax.
These cases are good reminders that physical nexus is still valid and states are still pursuing companies that should have been registered before economic nexus. In the early days after the Wayfair decision, some states were aggressively pursuing taxpayers with physical presence in the state – most notably Amazon FBA sellers. More than 5 years after the decision, there are still many businesses that have escaped detection by the state for either physical or economic nexus. These businesses should do a complete evaluation of their activities as proactive steps such as pursuing a voluntary disclosure agreement with a state could result in significant tax savings due to the reduction in the lookback period typically available.
The world of taxation is evolving rapidly, and artificial intelligence (AI) is playing a significant role in this transformation. AI is set to revolutionize how sales tax is collected, managed, and enforced, offering promising opportunities for businesses. In the United States, sales tax has long been a complex, data-intensive, and ever-changing obligation for businesses and consumers alike. AI is impacting the way sales tax is collected, managed, and enforced, which will have practical implications for the future of businesses operating in the U.S.
Investing in AI solutions is increasingly worthwhile, with advancements paving the way for more efficient sales tax management by simplifying processes like sales tax filing, payment, and auditing while making them more accurate. AI tools can even help in identifying tax fraud, optimizing tax deductions and credits, and assisting in global pricing structure comparisons for tax compliance. As we continue into 2024, we can expect to see more solutions for sales tax becoming available to companies like yours.
Take a look at what sales tax vendors are integrating into their products:
There are so many opportunities to incorporate Generative AI and Machine Learning into the sales tax functions. Of course, confidentiality, ethics and validation of results are all critical aspects of using these new technologies. Looking for the right applications will help sales tax professionals free up time and mind space to do more value-added activities to help companies address the most complex sales tax challenges.
Reform to make filing sales tax easier? Yes, please!
Tax reform happens all the time, but the process for implementing new processes can be drawn out. Since the pandemic, states have realized that electronic filing is the future. Every state has some type of electronic filing system – but how they vary! A number of states use the same platform which makes it much easier to navigate the various state systems. But there are some out there that are really so different and so deficient in what taxpayers can do online. Some states are moving more and more towards making electronic filing easier and more comprehensive. There are a few routes states are taking in this transition, some are mandating e-filing for additional tax types, some are improving their e-filing systems, and others are removing reconciliation returns (which are tricky to do without tax software!). Let’s get into the details of exactly what updates you need to know…
Modernizing E-filing Systems: Effective February 2024, online filing of many business taxes, including Withholding, Sales and Use, and Admissions and Amusements in Maryland moved to a new online filing portal, Maryland Tax Connect. Maryland Tax Connect includes self-service access to online payments, viewing historical returns, business registrations and license renewals, and online return filing. New Jersey announced that they launched a new taxpayer portal in 2024, and Sales and Use tax is the first tax type to be available to be filed through the new taxpayer portal. The new portal will allow faster access to accounts, easier filing, and more self-service options.
Reform of E-filing Systems: e-TIDES, the online filing system for Pennsylvania taxpayers, was officially retired as of February 24, 2023. After this date, taxpayers are no longer able to use e-TIDES to file returns or make payments. As a result, taxpayers will need to use myPATH to file many taxes including sales tax, employer withholding, and corporation taxes. In addition, to submit W-2s, 1099-Rs, 1099MISC, 1099 NEW and REV-1667s, taxpayers are required to sign up for myPATH accounts.
Removing Reconciliation Returns: The Rhode Island Department of Revenue (DOR) issued an advisory informing sales tax permit holders that the Rhode Island Annual Sales and Use Tax Reconciliation Return (Form T-204R-Annual) will no longer be required for tax year 2023 and forward. The updated sales tax return (Form RI-STR) introduced in late 2022 for periods beginning on and after January 1, 2023, allows taxpayers to reconcile sales each period instead of at the end of the year. This helps to ease the administrative burden on taxpayers, eliminating the need to file an additional return at year-end. Note that if a taxpayer is delinquent on a prior year filing, the annual reconciliation return is still required for tax years prior to 2023.
Multistate taxpayers have enough challenges keeping track of the different tax laws. As states migrate their online systems to more common platforms, taxpayers can more easily navigate systems and be much more efficient in these administrative duties.
With 2024 shaping up to be a year of transformative changes in sales tax, it’s crucial to stay informed and proactive.