This is the pace of digital transformation. And it’s reshaping everything, including the complexity of varying state and local tax rates.
We’ve witnessed significant updates and changes that can impact your operational efficiency and financial planning this year. It’s why we’re diving into the most important sales tax updates for 2023, what they mean for your business, plus our tips to stay ahead of the game.
The digital transformation impact on US sales tax
Let’s cruise through the defining features of 2023’s sales tax landscape.
Changes to sales tax rates and jurisdictions in 2023
In 2023, the US sales tax landscape has seen numerous sales tax changes, sales tax increases, and updates, with at least 32 notable tax policy changes taking effect across 18 states.
What changes are worth noting?
The number of changes in sales taxes and tax rates across the U.S. increased by more than 40% compared to last year. In total, the first half of 2023 saw 431 new sales tax and tax rate changes at the state, county, city, and district levels in the first half of 2023.
Changes to economic nexus thresholds in 2023
- As of July 1, 2023, South Dakota scrapped the 200-transaction threshold, requiring only those selling $100,000 or more into the state to register and collect sales tax
- As of October 9, 2023, the following states have also eliminated the 200-transaction threshold from their economic nexus laws: California, Maine, Washington, Colorado, Massachusetts, Wisconsin, Iowa, North Dakota, Louisiana, and South Dakota. More states are likely to join this list in 2024.
- Why is this good news for small businesses?
- Diane Yetter, President of Sales Tax Institute: ”A third of our clients with sales under $50,000 in a state in the last year were required to register solely by exceeding the 200-transaction threshold.” Yetter commended the states that have removed — “the undue burden of the 200-transaction threshold” and encouraged other states to do the same.
Changes to Marketplace Facilitator Laws in 2023
This year, Arizona, New Mexico, Georgia, and South Dakota enacted marketplace facilitator laws. That means online marketplaces are legally required to collect sales tax from sellers using their platforms to sell goods and services.
Other changes to local taxes and sales tax by state 2023
California and Washington have changed their nexus laws to expand the definition of “doing business” in a state, including specific activities previously not considered taxable.
New York added a new type of nexus called “delivery nexus,” which requires out-of-state sellers to collect sales tax if they deliver goods into the state.
Overall, the changes in nexus laws in 2023 have made it more complex than ever for out-of-state sellers to comply with sales tax laws.
The 2023 sales tax changes have significantly impacted businesses, small businesses, and e-commerce sellers. To comply with the new nexus laws, many companies have had to implement new sales tax collection procedures, update their sales tax software, and train employees on the latest requirements.
This has added to the administrative burden of businesses, especially small businesses with limited resources.
What is the Federal Sales Tax 2023 (FST)?
The proposed Fair Tax Act of 2023 aims to radically restructure the U.S. tax system by replacing federal income and payroll taxes with a national sales tax. Under this bill, federal taxation as we know it, including corporate income taxation, capital gains taxation, payroll taxation, estate taxation, and individual income taxation, would be removed and replaced with higher sales taxes. The proposed federal sales tax rate would be around 23% to 30%.
If this were to become law, the Internal Revenue Service (IRS) would become obsolete, and the duty of collecting sales taxes would be transferred to the states, with the provision that they are permitted to retain 0.25% of the taxes they collect.
This proposed bill has sparked debates regarding its potential impact, with proponents highlighting its simplicity and potential net savings to Americans. At the same time, opponents argue that it could exacerbate income inequality in the U.S.
Product taxability and exemptions
You probably don’t need any reminders that the taxability of different products and services can be as complex as the varying sales tax rules across states and local jurisdictions since some items are subject to different tax rates. In contrast, others are subject to sales tax exemption.
Let’s take a closer look at what’s changed in 2023:
In a positive move directed at enhancing the accessibility of menstrual hygiene products for women and girls, these items are now exempt from sales tax in Arkansas, California, Colorado, and Illinois.
Manufacturers who fabricate or process tangible personal property for sale are now exempt from sales tax in Texas.
Arkansas, Connecticut, and New Mexico expanded their groceries and prescription medication exemptions to help consumers save on essential items.
Prepared meals are now tax-exempt in New York, while Vermont has changed its food and beverage exemptions. Also, Alabama, Kansas, Mississippi, Oklahoma, and Virginia introduced measures to eliminate or reduce the sales tax on food for home consumption.
Complyt streamlines adherence to U.S. Sales Tax updates in 2023 and beyond.
Complyt can help you automate the crucial steps of the compliance journey, giving you the vital assurance you need regarding certification management, audit documentation, and constant compliance monitoring in all your nexus states.
All on one accessible, SOC2-compliant platform.
Complyt has worked with leading companies in the SaaS field, helping to simplify and automate compliance in one of the fastest-growing industries in the world. Our easy integration with ERP systems, billing systems, or gateways (and HRS) makes compliance even smoother, helping you monitor nexus triggers of every type.
Let us show you how we can keep you updated with every last sales tax update in 2023 and beyond. Book a demo today.