As states across the nation continue to struggle with immediate concerns related to the pandemic, lawmakers are turning their sights to the future and looking for ways to make up the massive budget shortfalls brought on by COVID-19.
One potential avenue is sales tax. There are a variety of ways that legislators could change or implement sales taxes to increase revenue. In the following article, we’ll examine these and other long-term changes that we may see over the coming months and years as a result of the pandemic.
Economic Nexus Legislation
For a breakdown of economic nexus and the impact it has had over the last two years, please click here.
An ongoing theme of the pandemic has found states with robust economic nexus legislation faring (at least slightly) better than those without. While over 40 states have now enacted economic nexus laws, there are still two states with a general sales tax that have yet to do so: Florida and Missouri.
We’ve previously discussed our thoughts on whether COVID-19 may finally be the push these states need to enact economic nexus legislation, but states that have already done so may soon also be making changes.
Tennessee and North Carolina have led the charge, both reducing or removing the sales threshold that triggers economic nexus in their states earlier this year. As we previously acknowledged, these changes may have already been in the pipeline, but the rush to introduce, and then pass these laws, no doubt came as a result of the pandemic.
We expect to see similar changes from other states during legislative sessions in 2021.
Increased Taxation Of Digital Goods And Services
While the taxation of digital goods and services has been steadily growing over the last decade, the pandemic will likely trigger increased expansion, and at a much faster rate.
A number of states are already taxing goods like electronically downloaded software or streaming services like Netflix and Hulu, but of those states that have yet to tax digital goods or have limited taxation, a handful have already introduced legislation to change that.
Maryland is one such example. While the General Assembly did pass H.B. 732 in March 2020, which would create a new tax on digital advertising revenue, Gov. Larry Hogan vetoed the bill in May. However, his veto could be overridden in 2021 by the General Assembly.
Moving forward, as the digital economy continues to grow and the effects of the pandemic add up, we expect more states to expand existing digital goods and services taxes, or introduce new taxes if they don’t already exist.
Other Tax Avenues
In addition to taxes on digital goods and services, as well as the potential changes to economic nexus legislation, some states are turning to entirely new tax avenues for revenue.
Arizona, Montana, New Jersey and South Dakota looking to legalize and tax recreational marijuana, while Maryland lawmakers are looking to increase excise taxes on alcohol to raise revenue for healthcare spending.
We expect to see other states follow suit and expand taxation to make up for COVID-related budget shortfalls as we move into 2021 and beyond.
Do You Need Help With Your Online Sales Tax Compliance?
If you have questions about your tax liability from online sales or any other state sales tax compliance questions, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate.
