The upcoming change in sales tax compliance
Sovos’ second annual sales and use tax report sheds a surprising light on the current landscape of sales and use tax compliance and raises questions about the future, especially as we are entering the digital age.
In figures, the survey reports:
- There were 657 form revisions in 2021 alone;
- In spring 2021, lawmakers had proposed 2,148 bills against 686 in 2020;
- From July 1, 2020 to today, 640 rate changes have been implemented by the tax authorities; and,
- As of January 2021, Sovos was tracking 1,465 different tax forms.
Beyond the numbers, Charles Maniace, vice president of regulatory analysis and design at Sovos, concluded that maintaining a long-term tax compliance function within an organization is no longer scalable. .
“Obviously there are a number of reasons for this,” he said. “First, there is the pace and rate of continuous change in rates, rules and forms. Second, international sellers increasingly have a responsibility to comply with the laws regarding the levying of taxes on almost everything they sell. It is a real responsibility because we are about to see an increased emphasis on law enforcement. And finally, there’s the inevitable digitization of the app, which means states use data and analytics to find non-compliant taxpayers and assess their liability. “
“One thing that I find interesting is how things are going to play out in terms of the digital advertising trend,” he said. “Although a number of states have looked into the matter, Maryland is the first to impose such a tax on the United States. , a state imposed such a tax.
Maniace believes that digital businesses can be taxed fairly “without hitting the ‘third rail’ policy, as all of these businesses are in fact subject to existing tax regimes such as VAT on a global scale. A US state can choose to tax digital goods and services under existing sales tax regimes. They can apply a tax to digital advertising as long as it also applies to traditional advertising. That way, they don’t go against constitutional concerns and the permanent Internet Tax Freedom Act.
The Supreme Court’s ruling on Wayfair and the state laws and regulations it generated had a huge impact on the sales tax world, Maniace observed, as collection responsibilities were placed on the people. distance sellers and market facilitators.
“Many states still have a long way to go to formulate clear guidelines to facilitators and vendors to ensure that all taxes are collected,” he noted. “This raises an interesting question: What could state governments do to enforce compliance with a significantly expanded list of sellers? “
“For me, the most interesting aspect is how the United States will think about the digitization of compliance, because unlike the rest of the world, where indirect taxation largely exists at the country level, in the United States , we have over 40 individual states, ”he said. “What can they do in this environment that allows them to systematically and comprehensively understand and assess compliance? “
“Compliance with the traditional sales tax, as we know it today, must be almost complete,” said Maniace. “The idea of a state revenue department issuing an audit letter, followed by a conference call, followed by a site visit where paper and electronic documents are reviewed in detail, is not enough. simply not scalable if you want to apply requirements to a large population of remote sellers.
Maniace believes the solution could lie in a combination of digital audit files and state certification of tax engines. “This trend is already starting,” he said. “Although no other state has recently signed up to participate in [the Streamlined Sales Tax program], Pennsylvania and Illinois have launched their own Certified Provider programs, with similar programs being considered in a number of states. “