Halfway Through 2021: Sales Tax Changes That Are Impacting Retailers

The first half of 2021 was busy for tax policy changes in the U.S. In its mid-year sales tax changes report, Avalara uncovered some of the major changes impacting business this year, including how states are reconsidering COVID-19 tax relief policies, examining benefits of broadening the tax base, and continuing to pass remote sales tax bills.

Here are some of the changes that are impacting retailers today.

Changes to COVID-19 Tax Relief

Many states continued providing sales tax filing or payment extensions to help businesses cope with the impact of COVID-19 in the first half of 2021, including:

• Maryland granted taxpayers an automatic filing and payment extension during the first half of 2021.
• California allows certain taxpayers to apply for a 12-month, interest-free payment plan.
• Massachusetts extended payment deadlines for certain vendors, giving them until Oct. 30, 2021, to pay room occupancy excise tax and sales and use taxes that are normally due on March 20, 2020, through June 1, 2021.
• New Mexico required taxpayers to file returns on time, but gave them more time to pay gross receipts tax.
• Pennsylvania and Washington are offering tax relief on a case-by-case basis, while Texas and Vermont may allow special payment provisions for taxpayers struggling because of COVID-19.

Additionally, some states are finding alternative ways to ease the adverse effects of COVID-19 on businesses. Virginia is providing a temporary sales tax exemption for personal protective equipment (PPE) to encourage businesses to comply with COVID-19 prevention measures. While Indiana is waiving use tax on donated COVID-19 goods such as medical supplies, food, and cleaning supplies. Connecticut, Minnesota, and New Jersey have also considered exempting PPE, but haven’t put anything in place as of now.

States Explore New Sales Tax Revenue Streams

With things getting back to business as usual, lawmakers and tax officials across the country are considering how re-evaluating their tax base can help minimize the negative effects of any future events. Hawaii is looking into policies that could encourage businesses to relocate to the Aloha State, which suffered greatly during the COVID-19 lockdown due to its reliance on tourism.

Similarly, Vermont recently voted to extend a program that pays people to move to Vermont, an option open to more people now that many employers have shifted to a remote workforce. Vermont has also explored broadening its tax base. For example, the Vermont Tax Structure Commission has determined that “the broader the [sales tax] base, the less likely a particular crisis is to have a disproportionate negative effect.” Of course, this can be a hard sell; Louisiana and Nebraska are among the states that unsuccessfully tried to expand sales tax to services this spring.

The Final Two States Pass Remote Sales Tax Bills

Since June 2018, when the U.S. Supreme Court ruled in favor of the state in South Dakota v. Wayfair, Inc. authorizing states to base sales tax nexus solely on economic activity in the state (economic nexus), extending sales tax to remote sales has been one of the most effective ways for states to increase sales tax collections. Three years later, economic nexus laws have been adopted by every state with a sales tax.

In April 2021, Florida enacted an economic nexus law that would require out-of-state sellers with no physical presence in the state to register for, collect and remit sales tax if it has more than $100,000 in taxable sales into Florida in the previous calendar year. The Sunshine State is also requiring marketplace facilitators to collect and remit the tax due on third-party sales on and after July 1, 2021.

Missouri became the last state with a sales tax to enact economic nexus on June 30 when Senate Bill 153 passed. Missouri will require certain remote vendors and marketplace facilitators to register with the Missouri Department of Revenue then collect and remit sales and use tax starting Jan. 1, 2023. Lawmakers have been working to get an economic nexus bill across the governor’s desk shortly after the Wayfair decision in 2018, but with more than 2,000 local taxing jurisdictions in the state, many of which overlap, Missouri’s complex local sales and use tax system provided an array of challenges for policymakers to overcome.

For the remaining months of 2021 and beyond, businesses will have to stay informed and be ready to adapt to the ever-changing tax landscape. From changing tax relief measures across states to expanding remote sales tax obligations, there's no shortage of tax-related obstacles that retailers may need to overcome. Staying up-to-date on compliance regulatory changes is paramount to reduce the risk of future audits.

Liz Armbruester is senior vice president of global compliance operations at Avalara, automated tax compliance software.