BORN Partner Post: Avalara and 2020 Sales Tax Changes
Welcome to BORN’s Partner series! Through this program we look to highlight thought leadership from our vast array of technology partners. Follow along using the hashtag #thisisBORN and #BORNpartner!
This month, we’re thrilled to call attention to our longtime partner, Avalara. Through this insightful piece, we hope you gain a better understanding of the effects of 2020 sales tax changes on your digital landscape.
In 2019, an astonishing amount of states enacted sweeping changes to their sales tax collection laws. Expect 2020 to be equally exciting, in different ways.
Riding that Wayfair wave
The number of states requiring remote sellers to collect and remit sales tax more than doubled in 2019. By the end of 2018, six months after the Supreme Court of the United States overruled the physical presence rule in South Dakota v. Wayfair, Inc. (June 21, 2018), 19 states were enforcing economic nexus. As of December 2019, 43 states and the District of Columbia have economic nexus laws or rules requiring out-of-state sellers with a certain amount of sales in the state to collect and remit sales tax.
The last two holdouts will likely cave in 2020. Only two states with a statewide sales tax haven’t adopted economic nexus: Florida and Missouri. Both have economic nexus legislation drafted and ready for discussion during their 2020 legislative sessions, which start in January.
A state with no general sales tax may beat them to the punch. Close to 20 local jurisdictions in Alaska have signed the Alaska Intergovernmental Remote Seller Sales Tax Agreement, which was created by members of the Alaska Municipal League and will be managed by the Alaska Remote Seller Sales Tax Commission. The agreement allows local jurisdictions to “implement a single-level, statewide administration of remote sales tax collection and remittance.” Remote vendors could be required to collect and remit sales tax in some parts of Alaska by early 2020.
The rise of the marketplace
If the Alaska Municipal League, Florida, and Missouri all succeed in their efforts, marketplace facilitators will be required to act as the tax collector for third-party sellers in those locations. And Florida, Missouri, and municipalities in Alaska aren’t the only ones looking to implement marketplace facilitator laws in 2020.
Like economic nexus, marketplace facilitator laws exploded in 2019. Only seven states required marketplace facilitators to collect and remit tax on behalf of their third-party sellers as of December 2018, and most allowed marketplaces to opt out of collection by complying with use tax reporting requirements. By contrast, 37 states and D.C. have marketplace facilitator laws now. And counting.
One benefit of marketplace facilitator laws is that they reduce or remove the burden of compliance for the smallest sellers. Another is that state tax authorities don’t have to deal with auditing individual marketplace sellers — they can focus on the larger marketplace facilitators instead.
There are similar benefits when businesses outsource sales tax collection and remittance to a certified service provider.
Simplifying compliance with certified service providers
Before states won the right to tax remote sales, the Streamlined Sales and Use Tax Governing Board came up with a way to encourage voluntary compliance.
Streamlined Sales Tax (SST) member states simplified sales tax compliance for remote sellers by establishing a central, electronic registration system; uniform definitions, rules, and tax bases; and more. They also compensate certified service providers (CSPs), like Avalara, for providing sales tax software and services for businesses that qualify as a volunteer seller.
The CSP program has been such a success that other states are emulating it. Pennsylvania already has a CSP program up and running. Connecticut, Illinois, New Mexico, and the Alaska Municipal League are developing similar CSP programs of their own. Expect more states to follow suit in 2020.
Other sales tax changes
Though they grab headlines, taxes on remote sales aren’t the only news in the sales tax world. As did 2019, 2020 will see changes in exemptions, product taxability rules, sourcing rules, and more. Expect to see sales tax developments in:
- Bitcoin: How states treat it and whether tax departments accept it
- Digital products: If they’re not already taxed, ebooks and streaming services likely soon will be
- Food: Marketplaces that deliver food may be required to collect sales tax
- Tampons: More states are likely to exempt feminine hygiene products in 2020
- Transportation: More states will look to tax personal transportation services (e.g., Lyft and Uber)
And, of course, there’ll be sales tax rate changes. There are always sales tax rate changes.
Want to know more about 2020 sales tax changes? Get the report.