Adapted from Avalara content.
2019 brought dramatic changes in sales and use tax rules. Businesses of all sizes had to scramble to keep up with changing tax liabilities, and it’s not expected to slow down. In this post, adapted from Avalara, tax experts look ahead to tax changes in 2020. For more info from Avalara tax experts, register for their upcoming webinar on January 28th: 2020 Sales Tax Changes.
Sales tax is typically described as unpredictable, but in many ways, 2019 turned out as expected. After the Supreme Court of the United States issued a sweeping decision in 2018 that allows states to impose tax obligations on businesses without a physical presence, the states saw the opportunity and ran with it. And run with it, they did. Economic nexus laws spread like wildfire.
What no one could have predicted was how the states would roll out their nexus laws. As a nation, the United States marches to the beat of its own drum, and so does its state tax authorities. Effective dates, exemptions, and small-seller exceptions vary from state to state, forcing sellers of all sizes and industries to navigate the maze of compliance. 2020 will be the year when the dust settles and businesses adapt to a new normal for sales tax compliance.
While economic nexus might be the headline for 2020, new laws affecting both marketplace sellers and marketplace facilitators will likely be the story.
Marketplace sellers and marketplace facilitators
2019 introduced a host of new laws impacting those who sell on Amazon, Etsy, and the like. As of December 2019, 39 states (including Washington D.C.) had adopted laws requiring marketplace facilitators to collect and remit sales tax for their third-party sellers — and some marketplaces aren’t taking the news lying down. Tax-free shopping in the U.S. may run its course, but not without a fight from retail giants Amazon, Walmart, and others.
Furthermore, states may consider revising their marketplace laws as they learn more about the impacts of these laws on marketplaces and individual sellers. There are many issues to sort out, for example:
– Should the collection requirement apply to referrers as well as more traditional marketplaces, or to food delivery vendors?
– Should it apply when other types of taxes are at stake (e.g., communications or lodging taxes)?
– Under what circumstances should individual sellers be held liable, if any?
Cross-Border eCommerce Sales
2020 might also be a year of international exploration for many ecommerce businesses. According to Accenture and AliResearch, cross-border ecommerce sales are forecast to reach $1 trillion by 2020. You can bet U.S. sellers are looking to enter the international market as quickly as possible, but expanding into new global markets brings — you guessed it — new tax obligations.
Sussing out these issues won’t be easy, but additional clarity is needed. The National Conference of State Legislatures and the Multistate Tax Commission (MTC) are both encouraging states to examine and improve their marketplace sales tax laws.
In the meantime, marketplace facilitators and sellers need to comply with these laws — and compliance is complicated by the fact that the laws tend to vary from state to state. Questions to be answered in each state include, but aren’t limited to:
– How soon after crossing an economic nexus threshold does a remote seller or marketplace need to register?
– Do in-state or out-of-state marketplace sellers need to obtain a sales tax license if they only sell through marketplaces that collect and remit tax on their behalf?
– Do marketplace sales and individual sales need to be reported separately?
– Do collection requirements extend to local sales taxes?
In 2020, as always, change in sales tax is likely to be as constant as it is inevitable.
Want more information on sales and use tax in the U.S. and new requirements for marketplace sellers? Check out Avalara’s 2020 Sales Tax Changes Report and register for their upcoming webinar 2020 Sales Tax Changes on January 28th.