States Enjoy Boost In Tax Revenue From Increased eCommerce

Written by Monika Miles | Posted in ECommerce • Increased Tax Revenue

While the COVID-19 pandemic has been hard, if not downright disastrous, for businesses and governmental agencies across the country, states are now seeing a small ray of hope in the form of online sales tax revenue.

With many people self-quarantining at home and brick and mortar retail locations closed over the last several months, eCommerce has been the shopping avenue of choice across the nation.

Additionally, the adoption of marketplace facilitator and economic nexus legislation over the past two years as a result of the South Dakota v. Wayfair ruling has also played a part. For states that have implemented these laws, the boost in eCommerce has compounded with the increased tax revenue these states are seeing from Wayfair legislation.

How Big Is The Impact of Increased eCommerce?

States have seen an increase in eCommerce across the board. According to data from Adobe Analytics, eCommerce grew by 25 percent from March 13-15 compared to March 1-11. Online retailers have also seen average year-over-year revenue growth of over 68 percent and have recently experienced similar online activity to the 2019 holiday season.

So, what does this mean for online sales tax revenue? As eCommerce rises, the collection and remittance of online sales tax also rises.

As shared by Bloomberg Tax, recent online sales collections in Vermont demonstrate this. Typically, Vermont sees less than 12 percent of its monthly sales tax collections come from online sales. However, since Vermont entered a state of emergency on March 13, that percentage has at least doubled. According to Bloomberg Tax, many states have seen online sales tax revenue increases ranging from 25 percent to 100 percent in comparison with data from 2019.

Online Sales Tax Revenue A Hopeful Prospect

In a time when states are projecting revenue shortfalls by the hundreds of millions as a direct result of COVID-19, the impact of increased eCommerce and online sales tax revenue may seem like a drop in the bucket. However, the combination of both increased eCommerce and marketplace facilitator legislation is nothing to scoff at.

For instance, California’s economic nexus and marketplace facilitator law, which was implemented April 1, 2019, was estimated to bring in revenue of $309 million in fiscal year 2019-20 alone. Now, after the increased eCommerce as a result of COVID-19, the actual amount will likely be higher than projected, though by how much is yet to be seen.

While online sales tax revenue is not a solution to the economic problems faced by states, it is certainly a bandage that can help stem some of the fiscal bleed.

Have a question? Contact Monika Miles and Team.

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.