Online sellers could be facing a sales tax crackdown in 2021, according to Avalara. Many states that eased up on enforcement efforts due to COVID-19 will be looking to accelerate audits as soon as they can, the maker of tax compliance software said.
States are using high-tech methods to look for sellers who aren’t complying, including artificial intelligence and data mining tools. Other states are taking a more old-school approach by shopping online to see if the merchant is charging tax.
And there’s more incentive to do so than ever before, Avalara said: “Remote sales tax collections have been surprisingly resilient during the pandemic, so states in need of more tax revenue may turn a scrutinizing eye on unregistered out-of-state sellers making sales in the state.”
In addition, states are looking for revenue retroactively – marketplace sellers could come under scrutiny for past sales tax, Avalara said, writing in a recent blog post:
“It’s common practice for marketplace sellers to store inventory in warehouses and fulfillment centers owned or operated by marketplaces. California and Washington are two states that have found marketplace sellers liable for past sales tax because of such inventory. They insist the inventory gave out-of-state marketplace sellers a physical presence in the state, and therefore an obligation to register then collect and remit sales tax, before the marketplace facilitator laws took effect. Other states could pursue a similar path in 2021.”
Avalara released its annual Sales Tax Changes report this month. It noted that only two states with a general sales tax don’t currently tax online sales by out-of-state sellers via economic nexus, but that will likely change – Florida and Missouri are likely to adopt economic nexus in 2021, the company said.
You can download the full report on the Avalara.com website.