Last year was not an easy one for a variety of reasons, the ongoing pandemic chief among them. 2021 has provided some relief, but COVID’s economic impacts are still being felt by individuals, businesses and governmental organizations across the country.

According to a pair of Harvard economists, the pandemic would have cost the U.S. “at least 16 trillion” if it ended this fall. Given COVID numbers are still high in many areas, it’s safe to say the pandemic is not over and its true cost will exceed their estimate. By how much is yet to be seen.

That said, some states have weathered the pandemic better than initially feared. This is largely thanks to legislation adopted following the 2018 Wayfair decision which allowed states to collect additional tax from online purchases.

For an overview of the Wayfair decision and its impact on state tax legislation, click here.

Wayfair Legislation And COVID-19

So, how has the Wayfair decision impacted states during these turbulent times? The most significant way is the adoption of economic nexus legislation.

The pandemic resulted in an explosion of online shopping in the spring of 2020, and it’s largely persisted since. Those states that have economic nexus in place, which includes every state that has a general sales tax and some jurisdictions in Alaska, have seen a drastic increase in tax revenue from online sales tax collections, especially as many retailers have triggered economic nexus in states they previously did not have nexus in.

The final hold out states, Missouri and Florida, finally implemented economic nexus legislation earlier this year and while we cannot say for certain how large of an impact the pandemic had on that decision, it certainly offered some amount of incentive.

States that have had economic nexus since before the pandemic also made changes to their own nexus legislation. Several states have either reduced or removed the sales or transaction thresholds for triggering nexus in their states within the last year (or have otherwise expanded the nexus net), including Arizona, Illinois, and Tennessee.

While these moves have increased state’s revenue streams, it’s only further complicated the already complex online sales tax situation, especially for small online retailers.

We expect additional change to come as states continue to search for additional sources of revenue to make up for what has been lost due to the pandemic, and the proven success of Wayfair laws make them a prime target.

In the meantime, businesses should be preparing themselves for any online sales tax changes that may come down the pipeline by ensuring they are compliant now and will be in the future. Being proactive can save you thousands (or more) in fees later.

Have a question? Contact Monika Miles