It is hard to believe 2022 has come to an end. As we begin a new year, it’s important to take a look back at all that has happened in the world of sales tax to better understand what to expect for 2023. Though we can’t predict exactly what will happen with the sales tax landscape in 2023, in this blog post, we share what to expect based on trends we saw during the past 12 months.
1099-K Tax Code Changes
Taking it all the way back to the beginning of 2022, starting on January 1, small business owners using mobile payment apps such as Venmo or Paypal who made over $600 in transactions on goods and services were required to report their earnings starting on their 2023 filings.
The Wayfair Decision Turned Four
If you regularly follow our blog or have any involvement in the sales tax world, you know how monumental the June 2018 U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc. was for the sales tax climate and inspiring states across the country to introduce economic nexus legislation. In 2022, as the Wayfair decision turned four, a survey for Avalara found that the impact of economic nexus has never been greater for businesses of all sizes, and even more so for smaller businesses. Eighty-three percent of respondents recognized Wayfair impacted how their company does business, which was the highest number since the survey was first conducted.
Colorado Simplified The Sales Tax Code
While many of the sales tax changes in 2022 added complexity for business owners, some states actually implemented legislation last year in an attempt to simplify compliance requirements. Colorado is one example. Introduced in January and signed in April, Senate Bill 22-032 outlined several changes to Colorado’s complex “Home Rule” city system. We outline the specifics in this article.
Rising NFT Sales Bring Up Sales Tax Concerns
Non-Fungible Tokens, or NFTs, have been around since 2014 and started to gain mainstream use in 2021. Moving into 2022, they have only continued to gain momentum, bringing about sales tax ramifications and compliance questions. Currently, at least 31 states apply sales taxes to digital products and services, some of which are broad enough to likely include NFTs if they can be viewed or heard. In 2022, Pennsylvania, Washington and Wisconsin became the first states to officially cite NFTs as digital assets subject to sales and use taxes. The Pennsylvania Department of Revenue listed them as taxable but did not offer guidance, while Washington provided an interim statement with definitions of key terms and a proposed plan for arbitrating exactly where transactions related to the sale of NFTs physically take place. Wisconsin also issued guidance, shared here.
Sales Tax Trends For 2023
Non-Luxury Essential Sales Tax Exemptions
Almost all U.S. states exempt necessity purchases like groceries and feminine hygiene products from sales tax, but some still tax them. Last year we began to see a trend of states eliminating the tax requirements, such as Louisiana and Michigan, with more eliminations starting at the beginning of this year, including Colorado and Iowa. We expect to see other states follow their lead.
Sales Tax Law Continues To Catch Up To Technology
Carl Davis, the Research Director of the Institute on Taxation and Economic Policy shared with TaxJar information on the way sales tax laws are updated. “It all comes down to the fact that the economy often evolves more quickly than state tax codes do. Digital downloads and streaming – those were exempt from sales tax not because lawmakers decided that they deserved to be tax-exempt. They were exempt because those things didn’t exist at the time the sales tax statute was written.”
This explains the complication that newer developments like NFTs and digital goods can have on sales tax compliance. This being said, we expect this year’s tax code will continue to catch up with these evolving areas as they began to last year.
Do You Have Sales Tax Questions?
If you have sales tax compliance questions, we would love to support you. We are a skilled team of multistate sales tax professionals, so if you have questions about your state sales tax obligations, please contact us today. We’re happy to clarify any multistate tax issues you’re trying to navigate.
