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Are You Ready For Sales Tax Crackdowns?



Are You Ready For Sales Tax Crackdowns?

There isn’t a tax professional around that would say 2020 was a normal year for online sales tax developments. Between the pandemic and continuing change spurred on by South Dakota v. Wayfair (2018), 2020 was a tumultuous year to say the least.

However, as we settle into 2021 and state legislative sessions loom on the horizon, it’s safe to say 2021 may not be the calm after the storm many were hoping for.

What Do We Mean By ‘Sales Tax Crackdowns’?

Beyond the general chaos created by the pandemic, it also resulted in budget deficits for states across the nation. As a result, lawmakers are looking for revenue wherever it can be found, and as we’ve previously discussed, online sales tax could be the route many zero in on.

This is largely because revenue from online sales tax, especially in states that have implemented Wayfair-related legislation, has offered a steady source of income during the pandemic. Online shopping has skyrocketed thanks to stay-at-home orders and general health concerns, and this has been a saving grace for many states.

We’ve already seen some legislative changes that can be attributed to the pandemic, but one of the areas we anticipate seeing even more change in is increased enforcement of various online sales tax requirements, including tax remittance for marketplace sellers and unregistered sellers.

recent report from Avalara shares that, “remote sales tax collections have been surprisingly resilient during the pandemic, so states in need of more tax revenue may turn a scrutinizing eye on unregistered out-of-state sellers making sales in the state.”

Marketplace sellers may also face scrutiny for past sales tax based on inventory stored in warehouses and fulfillment centers owned by marketplaces, according to the report.

Another consideration to keep in mind are the tools used by states to ensure sales tax compliance. These days, states are utilizing various technologically advanced methods to root out sellers that aren’t complying, such as data mining tools, artificial intelligence or algorithms. With these tools, and the motivation that comes from large state budget deficits, the smallest blip to sales tax compliance can be enough to catch the attention of tax investigators.

Be Ready For Changes To Online Sales Tax

During times of economic difficulty, as we’re seeing now due to the pandemic, the last thing a business needs is an audit or financial investigation. To keep your business safe, ensuring you’re on top of your tax obligations is a must.

This is more difficult when change is coming as fast as it is now, but ensuring tax compliance can be made easier.

Have a question? Contact Monika Miles.

Monika Miles

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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