Top 2018 Sales Tax Developments and 2019 Predictions from Sales Tax Pros

2018 was a year for the books. We took the opportunity to reflect on one of the most exciting years in sales tax history by gathering insights from professionals at the top of the sales tax field.

We asked sales tax pros working in government, an intergovernmental state tax agency, a law firm, consulting, and industry to share their thoughts on the most impactful sales tax developments of 2018.

Here are the top 3 sales tax developments of 2018 from our experts:

1. The South Dakota v. Wayfair decision. No surprise here! The U.S. Supreme Court handed down the Wayfair decision on June 21, 2018 and changed tax collection requirements for sellers across the states.
2. Expanding state sales tax bases. From “cookie nexus” to states including more services in their tax base, states spent time redefining what is considered taxable this year.
3. Requirements for marketplace facilitators. Marketplace nexus legislation also had a growing presence among the states in 2018, something many of our pros expect to continue in 2019.  This is a huge step for states as not too many years ago they couldn’t accept the ability to have seller’s transfer their obligation to a provider for sales tax collection and remittance liability as permitted under Streamlined Sales Tax for the Certified Service Providers.

We also asked our experts to make predictions for sales tax policy and trends for 2019. Keep scrolling to get a well-rounded picture of what to expect in sales tax in the new year by reading and listening to fantastic insights from our sales tax pros.

Jordan Goodman is a partner with the law firm of Horwood Marcus & Berk Chartered, where he chairs the firm’s state and local tax practice. Jordan is not only a talented lawyer but also a talented sales tax educator. He is a Sales Tax Institute faculty member and was awarded 2018 Instructor of the Year from the Institute for Professionals in Taxation.

Jordan shares his 2018 insights and 2019 predictions in the video below.

In 2018, Jordan has seen states not only reach out from a nexus perspective but also redefine what is subject to tax. For example, Massachusetts has redefined internet cookies as tangible personal property located in the state and subject to tax.

In the year to come, Jordan expects states to continue increasing the breadth of their taxation to include more services as services have become such a huge part of the U.S. economy. Jordan also believes states will start reaching out to foreign sellers selling into the U.S. to grab tax on their sales to the extent that they can.

Richard Cram is the Director of the National Nexus Program of the Multistate Tax Commission (MTC). During 2018, Richard and the MTC led a Wayfair Implementation and Marketplace Facilitator Work Group to develop policy recommendations post-Wayfair for states desiring to implement marketplace nexus legislation, in order to maximize compliance and minimize the burden on marketplace facilitators and sellers. He also led the MTC Remote Seller Amnesty program that a number of states offered in 2017.

Richard’s nexus expertise and involvement with the Marketplace Facilitator Work Group are reflected in his summary of top 2018 sales tax developments.

What are some 2018 sales tax developments that people should know about? What was their impact?

Richard: First, certainly, the U.S. Supreme Court’s June 21 decision in South Dakota v. Wayfair, overruling Quill and National Bellas Hess and disposing of the physical presence nexus standard, dominates the state and local taxation news for 2018—if not the 21st Century to date. Most of the states that impose sales tax have enacted statutes including economic nexus thresholds similar to South Dakota’s (over $100,000 in gross sales or 200 or more separate transactions in the state in the current or prior year), promulgated regulations, or published notices relying on existing statutory authority, and have announced prospective effective dates for imposing sales/use tax collection requirements on remote sellers.

Legislatures of states imposing sales/use tax that have not yet announced implementation of economic nexus for sales/use tax are expected to enact such legislation in 2019. Prior to the Wayfair decision, a few states put in place “cookie nexus” provisions (Iowa, Massachusetts, Ohio, Rhode Island). It is doubtful that additional states will follow suit, now that Wayfair economic nexus exists.

Another hot topic in the sales/use tax arena during 2018 has been the growing trend for states that have implemented economic nexus for sales/use tax to also enact provisions requiring marketplace facilitators or providers to collect sales/use tax on behalf of their marketplace sellers. Some states have enacted laws requiring marketplace facilitators to collect, or in some cases, be given the option to collect or comply with notice and reporting requirements, concerning sales they facilitate for their marketplace sellers.

This trend will likely continue in 2019, with the additional states imposing sales/use tax enacting similar legislation requiring marketplace facilitators or providers to collect.

What are your sales tax predictions for the New Year, 2019?

Richard: Prior to the Wayfair decision, several states enacted provisions requiring remote sellers to comply with certain notice and reporting requirements, involving sending notices to their customers and annual reports to the state taxing agencies providing total annual sales to those customers, as well as customer names and addresses. Those notice and reporting requirements may still apply for remote sellers that are not collecting sales/use tax. However, as more states implement Wayfair economic nexus, it is likely that these notice and reporting requirements may fall by the wayside.

As the service sector portion of the economy continues to expand (particularly electronically provided services) more states may consider broadening their sales tax bases to include specific services, including electronically provided services. For example, Iowa expanded its sales tax base to include certain digital goods in its 2018 tax legislation, SF 2417.

Adam Krupp gives us the perspective of a government official. Adam is the Commissioner of the Indiana Department of Revenue and was instrumental to Indiana’s thoughtful approach to implementing new requirements for remote sellers following the Wayfair decision. Diane and Adam shared the experience of waiting in line to hear the Wayfair oral arguments!

Adam shares his thoughts on the eventful year in sales tax and what we can expect for 2019 in the following video.

Beyond the Wayfair decision, Adam wants people to know about the significant activity related to software as a service in 2018, including in his home state of Indiana where they eliminated tax on SaaS.

Adam has several predictions for 2019, including continued Wayfair implementation, lots of activity for marketplace nexus legislation, changes in the conversation on sales tax on services, increased rates for sin taxes, and growing conversation around the development of regional taxing jurisdictions. This has been something we have seen increasing.

B.J. Pritchett has over 30 years of sales tax experience and is the President/Owner of Pritchett Sales and Use Tax Consulting. B.J. is also involved in sales education as a faculty member of the Sales Tax Institute and the founder of the Arkansas Sales and Use Tax School.

B.J. also spent 10 years as a top Senior Tax Auditor II for the Arkansas Department of Finance and Administration. Her recap of 2018 and potential 2019 sales tax issues gives us an insider perspective on trends and issues to come for auditors and those under audit.

What are some 2018 sales tax developments that people should know about? What was their impact?

B.J.:

1. South Dakota v Wayfair – U.S. Supreme Court Decision in favor of South Dakota.

• Gone is the era of nexus. Economic Nexus takes front and center stage.
• Some states have passed legislation making “economic nexus” legal for sales/use tax collection.
• Accounting & Tax Departments will now need a “cheat sheet” to honor the legislation passed in all states regarding “economic nexus”.

2. 2018 was a key year for the retirement of many state tax auditors along with the hiring of brand spankin’ new tax auditors. Most of who have never worked in the real world.
3. 2018 has also been a year of aggressive tax auditors, challenging areas of taxation not normally sought in tax audits. Examples: Procurement Cards and stricter reviews of exemption certificates with more being denied
4. 2018 has also been a year for the Arkansas Department of Environmental Quality (ADEQ) to issue pollution control letters “blessing” the machinery, equipment, repair/replacement parts {with continuing utility} and chemicals used to reduce or prevent pollution in air or water. These “blessing” letters are being looked at with an intent view. Consumables seem to be what the tax auditors call everything.

What are your sales tax predictions for the New Year, 2019?

B.J.:

1. Taxable Base is either shrinking or expanding. On the shrinkage size, states are looking intently at how much an exemption costs the state in tax collections. Some states are looking to repeal long standing exemptions. The only other place for states to expand their base will be services. No doubt every service is on the taxing block. Just need good lobbyists for protection.
2. Tax auditors are being assisted by the Federal government on imports and values placed on those imports. Several of my clients received the format letter of pay the Use Tax or get audited. The import information provides dollar values for items received and as such could be much less than the actual value and upon audit will be assessed.
3. Tax auditors in the past have been aggressive and I don’t anticipate them to slow down.
4. Sampling on audits will increase because of the short “turnaround” on audit.

Wendy Mancini is the Senior Tax Manager at 14 West Administrative Services, LLC. Wendy gives us the perspective from someone working in industry who guided her company through all the sales tax changes in 2018.

What are some 2018 sales tax developments that people should know about? What was their impact?

Wendy: 2018 is all about Wayfair!!! The fallout from the Supreme Court’s decision had (and will continue to have) a huge impact on companies that sell remotely. Many companies (mine included) found it necessary to hire additional tax professionals and redirect existing internal resources in order to comply with the “new world” rules. Aside from its impact on remote sellers, Wayfair is also impacting the average consumer’s pocketbook. It will be interesting to see if or how this impacts shopping habits in the future.

What are your sales tax predictions for the New Year, 2019?

Wendy:

• Congress will not act to limit the scope of Wayfair.
• Additional states will jump on the Wayfair band wagon.
• More states will enact laws requiring marketplace facilitators to collect sales tax.
• There will be an uptick in non-US companies registering for sales tax.
• While not a sales tax prediction, companies will also begin assessing/evaluating the potential impact of Wayfair on their income tax positions – and so will the states!

Finally, we asked Sales Tax Institute founder, Diane Yetter about sales tax in 2018 and what we can expect for 2019. Diane has been at the forefront of helping businesses understand the impact of the Wayfair decision this year through sharing resources and webinars through the Sales Tax Institute, collaboration with other organizations, and her consulting practice.

Diane shares her valuable insight on 2018 sales tax developments and 2019 predictions in the video below.

Diane confirms the consensus that 2018 was all about Wayfair – the event of a lifetime for sales tax professionals. Diane found that 2018 was a big year in taxpayer and state relations post-Wayfair, learning that the states could indeed be accommodating for sellers facing new collection requirements.

In 2019, Diane predicts states will continue to enact remote seller legislation – both economic and marketplace nexus legislation, states with low thresholds ($10,000) for notice and reporting requirements will keep their legislation in place, and competition will increase in the tax automation. Given all of the new requirements, Diane also predicts that states will be overwhelmed in 2019 and we might see less of a push for audits in the new year. However, she expects that states will increasingly rely on data analytics and that we’ll see more targeted audits due to this use of detailed data.

A huge thank you to each of our sales tax pros for sharing their thoughts! Their predictions give us a lot to think about as we prepare for 2019.

Our New Year’s wish is that in the face of continued changes in sales tax policy and requirements, various sectors involved in sales tax, from the government to the private tech space, will work together to limit the burden on taxpayers. We strive to continue doing our part by providing valuable sales tax resources for business professionals in 2019.

Happy New Year to you!