Sales Tax Collections Increased at Record Rates During the Pandemic

In 2021, several states saw a significant increase in general sales tax collections due to various factors. When compared to collections prior to the pandemic, a number of states showed double-digit revenue growth. Georgia led the pack with a 40% year-over-year increase in sales tax collections from the fall of 2020 to the fall of 2021. Maryland and Nevada also saw increases of around 30% during that period. These increases can be explained by several factors, including a 2018 SCOTUS decision regarding remote sellers, changes to various state and local laws and various economic drivers.

In 2018, the South Dakota v. Wayfair ruling imposed tax collection duties on remote retailers. This primarily affected companies that had online sales to customers in different states. Most states with a sales tax were quick to implement new laws requiring tax collection by remote sellers that went into effect primarily in 2019 and 2020. These new laws permanently expanded the sales tax base for those states.

Other law changes had a significant impact as well. Maryland, for instance, imposed a new tax on digital goods and electronically-delivered software that has resulted in over a half-billion in additional tax revenue for the state. This additional revenue represents a year-over-year increase of 30%.

Increased consumer spending during the pandemic and rising inflation has also resulted in higher tax revenues for nearly all states. Online purchases surged during the pandemic as many taxpayers began working from home and limiting the amount of time outside their homes. As prices for consumer products increased due to inflation, so did the amount of tax collected on those purchases.

These revenue increases should serve as a reminder for companies that their sales tax filing obligations may have changed during the pandemic. Companies should be proactive when assessing their state and local filing obligations because states will be looking for ways to maximize these new revenue streams.

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