As one of the most dynamic sources of state and local revenue, sales tax is subject to frequent change. Each year, Avalara explores emerging trends in its annual sales tax changes report. In 2021, we expect to see additional COVID-19 tax relief programs, new economic nexus and marketplace facilitator laws, and more state efforts to streamline sales tax compliance.
States Will Create New COVID-19 Sales Tax Relief Programs
Numerous states provided sales tax relief when COVID-19 first gut-punched businesses, though it petered out as 2020 wore on. With no end to the pandemic in sight, new relief programs are being introduced. For example, Colorado is offering a special limited state sales tax deduction for the November 2020–February 2021 tax periods. And on Jan. 6, 2021, the comptroller of Maryland extended filing and payment deadlines for certain Maryland business taxes — including sales and use tax. If the pandemic continues to negatively impact businesses and individuals, additional tax relief programs are likely to emerge.
Florida and Missouri Will Enact Economic Nexus
Of the 45 states with a general sales tax (plus Washington, D.C., and many localities in Alaska), only Florida and Missouri haven't adopted an economic nexus law. Economic nexus legislation is pending in both states. Two bills have been introduced in Florida. The main difference between them is the economic nexus threshold: Senate Bill 50 would require out-of-state vendors with more than $100,000 in sales of tangible personal property in the state in the previous calendar year to register. House Bill 15 sets a threshold of more than $100,000 in sales or 200 or more retail sales transactions. If either is enacted as written, many out-of-state sellers will be liable for Florida sales tax starting July 1, 2021.
Missouri House Bill 2 would place a sales tax collection obligation on out-of-state vendors with $100,000 or more in cumulative gross receipts from sales of tangible personal property and digital goods and services in the state in the current or previous calendar year. The collection requirement would take effect Jan. 1, 2022.
Marketplace Facilitators Will Have to Collect Tax Third-Party Sales in Florida, Missouri, and Kansas
The economic nexus legislation under consideration in Florida and Missouri would also make certain marketplace facilitators (aka, marketplace providers) liable for the tax due on marketplace sales. Along with Kansas, they’re the only states with a sales tax that doesn't require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers.
A marketplace facilitator bill is likely to be introduced in Kansas in 2021, too. In November 2020, the Governor’s Council on Tax Reform recommended the legislature “consider and pass legislation that would require marketplace facilitators to register and begin collecting compensating use tax on sales to Kansas customers.” Such legislation would “further level the tax playing field that has for 53 years been skewed in favor of out-of-state retailers and against in-state Main Street Kansas retailers.”
Florida, Kansas, and Missouri could greatly increase sales tax collections by requiring marketplaces to collect and remit tax on third-party sales. Globally, business-to-consumer (B-to-C) marketplace sales are expected to reach $3.5 trillion annually by 2024 (up from $1.8 trillion in 2018). Global business-to-business (B-to-B) marketplace sales could experience even greater growth, from $680 billion in 2018 to $3.6 trillion in 2024.
More States May Streamline Sales Tax Compliance for Remote Sellers
Missouri hasn’t yet adopted economic nexus in part because it has an incredibly complex sales tax system. There are approximately 1,500 different local tax jurisdictions in the Show-Me State, and local rates change frequently.
To ease the burden of compliance, lawmakers are looking to participate in the Streamlined Sales and Use Tax Agreement (SST) as a nonmember state. This would allow out-of-state businesses to use SST central registration system services and certified service providers (CSPs) to facilitate Missouri sales tax calculation, collection and remittance. The Streamlined Sales and Use Tax Agreement was created to “simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance.” Businesses that register through the SST Registration System may be eligible to obtain CSP services for free in states where they’re a CSP-compensated seller (see the SST website for additional details).
Missouri isn’t looking to become an SST member state at this time, but the state is interested in allowing sellers to use the SST central registration system services and CSP services. The SST Governing Board supports opening these services to nonmember states, though Missouri would be the first. Several other nonmember states, including Illinois and Pennsylvania, have created similar programs to facilitate compliance for out-of-state sellers. Like SST member states, these states cover the cost of CSP services for qualifying businesses. Should these programs prove as successful as the SST program, it’s likely other states will follow suit — either joining SST or creating their own programs.
If 2020 is an indicator, 2021 will be a year of unexpected events. Though we can’t say for sure what it will bring, it’s sure to include many interesting sales tax changes. Find out more in the 2021 sales tax changes report.
Gail Cole is a tax writer at Avalara, a leading provider of cloud-based tax compliance automation for businesses of all sizes.
Related story: The Top Sales Tax Changes Coming in 2020