Some states have done well during the pandemic, seeing increases in sales tax revenue, but the Brookings economists say that on average, states will be hurting for several years to come. They’re predicting an average reduction in state and local revenue of 5.5%. This includes but is not limited to sales tax revenue.
“In aggregate, sales taxes look to decline $49 billion this year, $45 billion next year, and $46 billion in 2022, in part reflecting lower price levels and in part because of changes in demand,” the scholars say about sales tax income in particular. The hospitality industry has been hit hard and people are traveling less, but sales of groceries and healthcare supplies have increased significantly. The effects differ from one region to another, depending on the industries they rely on.
For example, Washington, D.C., is predicted to lose 18% of its expected sales tax revenue, while Arkansas will only fall short by 6%.
Audits offer a solution
States facing billions in shortfalls have relatively few options. They need to increase their revenue, but they’re limited in what they can do. Some states lifted restrictions and say increases in COVID-19 cases ended up reducing income from tourism and travel. Some states assumed they’d get federal bailouts that didn’t materialize. Some states are planning to raise taxes. States might change their thresholds on remote sales taxes, too.
But one of the easiest ways to boost tax revenue is through audits. Sales tax audits are very likely to increase. States may not have found audits worth the trouble in the past, but in leaner times, it’s easy to find errors and gather up a little extra by auditing more companies.
Many companies have a lot of errors in their sales tax collection and calculations. They may be using the wrong rates. As many as 500 rate changes may take place across the nation each year, and it’s hard to keep up. Now that the Wayfair decision means more companies must collect sales tax in multiple states, sales tax compliance can be overwhelming. We’ve heard of companies using their home state rate everywhere, a practice that guarantees errors.
Keeping track of exemption certificates is another area where it’s easy to make mistakes.
Accuracy and advisory
Sales tax software doesn’t always guarantee accuracy. Sales Tax DataLINK uses patented software that is more accurate than the average sales tax software. We also offer comprehensive advisory services. You don’t have to face an audit alone.
Try Sales Tax DataLINK. We’re affordable, accurate, and we have American CPAs who will help you any time you need support. Call 479-715-4275 and let us impress you.