The Significance of Accelerating Sales Tax Remittance in Economic Recovery
Sales tax remittance, the process of submitting collected sales tax to the appropriate tax authorities, has become a significant topic of discussion amid the economic challenges faced by states during the ongoing pandemic. With declining sales tax revenues due to business closures and contractions, states are exploring various strategies to bolster their financial stability. One such strategy involves accelerating sales tax remittance schedules, aiming to expedite the arrival of funds and alleviate cash flow pressures. Massachusetts, in particular, is considering implementing new rules that would require businesses to remit sales tax collected within specific timeframes, potentially providing a much-needed boost to the state’s coffers. However, this proposed change raises concerns about the impact on businesses and the feasibility of adapting accounting systems to meet the accelerated remittance requirements.
Massachusetts Considers Accelerating Sales Tax Remittance to Address Economic Challenges
States are suffering economically during the pandemic, and they’re looking for solutions. Sales tax is an area that has been hit hard, with many states seeing tumbling sales tax revenues as businesses close or contract. So states are looking for ways to shore up their sales tax revenues, be that increased tax rates, more audits, or speeding up sales tax remittance schedules.
This last idea is currently being considered in Massachusetts. Till now, merchants in Massachusetts have sent in sales tax payments three weeks after the end of the month. Sales tax collected in November, for example, must be turned in on the 20th of December.
Under the new rules, sales tax collected during the first three weeks of November would be due by the end of the month– in November. The first three weeks of December’s tax, plus the rest of November’s sales tax collections, would be due at the end of December.
The state figures that this will bring in $300 million or so in 2020. It won’t be additional funds, but they would show up sooner and help the state with its cash flow crunch.
The effect on businesses
The move won’t help with the cash flow crunch businesses are facing this year.
In theory, businesses are collecting the sales tax and sending it to the state, and it doesn’t really matter when they send it along. In fact, Massachusetts wants to work toward remitting sales taxes as they are collected, maybe even on a daily basis.
There’s already been some talk about how large companies benefit from holding onto those sums of money longer. The state would like to get the interest those companies currently amass while they hold onto the sales tax funds they’ve collected.
They’re also considering that this sudden change will require businesses to change their accounting systems in a very short time. They will need to update their software and change the schedule on which they file and remit their sales tax. Some advocates want the rule to apply only to the top 10% of companies. Others want to extend the rules to all of the state’s businesses. The governor is convinced that modern sales tax compliance systems can easily capture sales tax data in real-time and remit the funds electronically, so the speed up “does not create a technological challenge.”
For small and medium-sized businesses paying a fee for each return, a change from one monthly return to 30 or 31 returns each month would certainly be a hardship. Sales Tax DataLINK charges a single fee for each return, but many sales tax software solutions charge multiple fees — often unexpected. These systems would create greater hardships with a sped-up remittance requirement.
In fact, a similar rule came up in 2017 and was defeated, based on the added cost to taxpayers.
Not just Massachusetts
Other states have made these proposals as well. The State Tax Research Institute concluded that accelerated payment requirements would cause “substantial process changes” and significant additional costs. Referring to the Wayfair decision, they point out that the proposed changes will affect companies all over the nation, not just in Massachusetts.
The STRI suggestion is to require prepayment of estimated sales tax by the large retailers who most benefit from holding onto sales taxes. This approach is in place in 19 states already.
Sales Tax DataLINK
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