The landscape of sales tax changes has been significantly impacted by the ongoing coronavirus pandemic. Governor Gary Herbert of Utah is rejecting a proposal to roll back the state’s sales tax exemption for railroad fuel. Maryland is delaying planned sales tax increases. And while Tennessee went ahead and passed a sales tax law change, Missouri is holding off on theirs.
Since the Wayfair decision back in 2018, states have implemented a flurry of new sales tax laws. Some states have passed laws and had to go back and change them. Others are seeing their laws challenged in the courts.
It’s been lively — even livelier than usual — in the realm of sales tax.
But the coronavirus pandemic has slowed that down. Like the examples given above, many states just aren’t in the mood to keep working on sales tax regulations.
In many cases, legislators are just too busy coping with the pandemic in their states to pay attention to less urgent matters. Sales tax filing deadlines are being pushed out, or penalties for late payments are being waived.
Legislators with sales taxes on their minds are in many cases focusing on fears that the revenue from sales taxes will be dangerously low. For one thing, nonessential businesses have closed in many states. Those that are open may be seeing far fewer customers than usual as people shelter at home. Restaurants in many states are restricted to drive-through and delivery.
And with 6.6 million new unemployment compensation filings, the U.S. is seeing a conservative attitude toward spending.
The combination of these factors has everyone predicting lower sales tax revenue. Hotels, retail, restaurants, and personal services have all dried up in many parts of the nation.
Is spending down?
Certainly, people sheltering at home are spending less on entertainment and spending less in local stores.
Yet states that are collecting sales tax from remote sellers may be able to benefit from increased online sales. E-commerce retailers have seen a 1,200% increase in online account registrations. Online shopping has increased by 25% in the past month. There has been a 62% rise in online orders for store pickup.
Specific products are seeing even larger jumps:
- Hand sanitizer, masks, and other protective gear have seen an increase of 807%.
- Toilet paper sales are up by 231%.
- Over-the-counter medication sales have jumped 217%.
- Non-perishable food sales are up by 87%.
Clothing sales are way down — but clothing is not always taxable in every state. Food items, also, may be non-taxable or may have different sales tax rates. Sales of digital products are also higher, but again they may or may not be taxable.
Many analysts suggest that the pandemic has just fast-forwarded the changes in consumer behavior that were already on the way. Online shopping has increased to levels predicted for 2025. “Brick and click” store pickups are increasing wildly. Older generations are discovering Instacart and younger generations are stocking up… often for the first time. Consumer behavior may change, even after the pandemic ends.
It will be difficult, considering all these factors, for states to predict the amount of sales tax revenue they’ll be able to collect from remote sellers.
Many states have also shut down legislative sessions to avoid having gatherings thereby spreading the virus faster. Some will shift to digital meetings, but some will just delay their sessions.
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