Sales tax rates reach decade high

Audit activity is expected to increase in both volume and frequency, despite the recent slowdown as a result of the pandemic

The combined sales tax rate across the country grew to its highest level in a decade as states cashed in on increasing tax revenues from online sales in 2020.

According to a report conducted by Vertex, a tax technology company, there were 592 standard sales tax rate changes across the US throughout the year, with the average rate reaching 10.12%.

The research found that the majority of tax rates changes occurred at district level (70%), with 65% of all sales tax rate changes happening at a city level.

The rise in rates follows a Supreme Court ruling in the 2018 South Dakota versus Wayfair case that allows states to force e-commerce merchants to collect taxes from their in-state consumers.

States have since been passing related market facilitator laws to boost tax revenues during the Covid-19 pandemic, as ecommerce trends replaced more traditional sales.

Bernadette Pinamont, vice president of tax research at Vertex, said: “Given the number and size of state and local budget deficits, a ‘new normal’ for indirect tax policy and activity is almost certain to emerge.”

She added that as a result, audit activity could rise in both volume and frequency, despite the slowdown that auditing has seen at federal, state, and local levels during the pandemic. 

She said: “Given the increase in online sales activity during the pandemic, as well as new compliance rules resulting from Wayfair, indirect tax teams should expect heightened audit scrutiny that will likely focus on transactions by remote sellers and those conducted on marketplaces that continue to proliferate.”

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