Vertex Research Projects More Sales Tax Changes in 2022

Vertex Inc.

Macro Trends

Next month, state legislatures, departments of revenue, and governors’ offices will be fully engaged in debate and policymaking for 2022.  Equally so, the same type of activity will be occurring at the local level. Tax policy matters will once again be at the forefront.  Even though $130 billion has been allocated to state and local governments in direct financial aid over the next several years – coming from the American Rescue Plan Act of 2021, also called the COVID-19 Stimulus Package – states and locals will still be looking for more revenue.  

Why? Several reasons:

  1. The cost of labor and materials for scheduled maintenance and capital projects have increased, so raising revenue today keeps those projects in scope, on time, and fully funded.
  2. Taking on additional debt is a last resort.  Raising revenue now and in the short term (1-3 years) will keep states and local balance sheets “clean” preventing lower credit ratings when cutting services is not an option. Lower credit ratings for well-managed, as well as poorly-managed, jurisdictions have the same impact – higher interest payment costs.
  3. States and locals can make a palpable argument for raising revenue due to cover Covid-19 medical and unemployment costs, a downturn in economic activity that drives government revenues lower, and to “re-build” any “rainy day funds.”
  4. Property tax revenues have fared well during the pandemic due to rising record housing values and a soft recovery of commercial real estate. However, nothing is better than a steady monthly cash flow of sales tax revenue.  Keep reading…

Vertex Semi-Annual Sales Tax Report Preview

The Vertex End-of-Year 2021 Sales Tax Rates and Rules Research Report preview indicates that a majority of local jurisdictions have responded to budget gaps by raising existing rates and enacting new taxes. As a result, indirect tax teams will need to monitor these changes and manage their lengthy and constantly changing lists of existing compliance requirements.
Sales tax rate increases have continued to climb, particularly at the city and district levels. The following research highlights cover the sales tax data Vertex collected from Jan. 1 through Nov. 30 (so these figures could fluctuate slightly following December changes): 

  • Of the 238 city rate changes (the third-highest total in a decade), 85% were increased; 51 new city taxes were also enacted through Nov. 30.
  • New district taxes totaled 197, the second-highest in the past decade. However, district sales tax rate changes remained relatively low, with only 30% reporting an increase out of 43 to date. 
  • States continued to hold steady as our report revealed no new taxes or changes.
  • Average rates also held: The average sales tax rates at the county (1.76%), city (1.76%), and district (1.0%) levels remained steady after each category reached its 10-year high in 2020. The combined average sales tax rate across all jurisdictional levels remains at 10.1%.

In Closing

As the calendar year 2022 unfolds, tax policy will be front and center once again to not only fund ongoing operations in state and local government, but also to pay for large bold initiatives should they emerge on the horizon.  Much remains to be determined – which means that businesses and their tax teams need to stay tuned by closely monitoring these developments.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

See All Resources by Michael

Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

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