2023 U.S. Sales Tax Trends

Keeping up with changing tax law

In a December 2022 survey of CPAs, keeping up with changing tax law ranked as the top challenge for tax professionals, by more than a two-to-one margin over the next most common concern. Between the Wayfair ruling, a global pandemic, historic inflation, rising interest rates, and a long-running talent shortage, indirect tax teams have faced relentless pressure. And 2023 shows no sign of letting up.

Tax policy signals worth watching

State fiscal health has been strong, but cracks are forming. Revenue growth is expected to slow as temporary factors fade. Higher interest rates drive up debt-servicing costs, pushing states to explore rate increases or broader tax bases. Vertex Principal Economist & Tax Policy Advisor George L. Salis advises monitoring inflation trends, recession timing, and state budget outlooks. All of which feed directly into sales and use tax rate and rules changes. Kentucky's recent expansion of sales tax to include SaaS, website services, and marketing services is one clear example of this shift.

Nexus: still complicated, still consequential

Economic nexus thresholds vary by state, and physical nexus rules remain relevant too. Remote employees, inventory stored in third-party fulfillment centers, and trade show attendance can all create nexus. Diane Yetter of the Sales Tax Institute estimates that millions of businesses are still not registered in every jurisdiction where they have an obligation. Recent cases in Pennsylvania, California, Massachusetts, and Louisiana each produced rulings that will affect how sellers and marketplace facilitators assess nexus exposure.

Audits are increasing and targeting nexus gaps

States are actively auditing companies that registered for economic nexus late. If your organization did not register until 2020, you may have a compliance gap of several months to over a year. Audit activity also focuses on challenges to when economic nexus first arose and the use of managed audits in states like California and Texas.

Digital taxation: an unsettled frontier

Cloud computing is taxable in more than 15 states, but treatment varies widely. NFT guidance is emerging state by state. Cryptocurrency is generally treated as intangible property, though states differ on how to calculate the tax base. Salis notes that the entire global tax community is still working through how to tax digital commerce, and indirect tax teams should expect continued change.

Litigation shaping future policy

Court outcomes continue to drive tax policy changes. The U.S. Supreme Court's pending decision in National Pork Producers Council v. Ross could carry implications for how states regulate remote sellers. The GAO has also called on Congress to establish clearer nationwide parameters for remote sales taxation. As Salis puts it: ongoing litigation leads to regulatory adjustments, which leads to more compliance complexity.

For tax leaders and their CPA advisors, 2023 demands close attention to all of these moving parts. Staying informed is the first step toward staying compliant.