In the dynamic realm of sales tax, businesses are set to face increased scrutiny in 2024, driven by technological advancements, evolving legislation, and economic pressures. According to a recent report from tax compliance technology provider Avalara, several key trends are shaping the landscape and impacting businesses’ compliance strategies.
Technology-Driven Legislative Changes:
- Avalara’s report highlights the influence of new technology, particularly artificial intelligence, prompting lawmakers to re-evaluate existing statutes and consider new ones, such as digital advertising. The global adoption of e-invoicing mandates, coupled with the development of U.S. infrastructure, further amplifies the need for businesses to adapt.
Simplification of Economic Nexus Laws:
- After years of adjusting economic rules following the Supreme Court’s 2018 decision in South Dakota v. Wayfair, 2024 might bring simplification. The Streamlined Sales and Use Tax Governing Board is encouraging states to eliminate transaction thresholds, potentially streamlining compliance for businesses, who would only need to track total sales for economic nexus.
Increased Sales Tax Audits:
- Anticipate a rise in sales tax audits at both state and federal levels. The Inflation Reduction Act of 2022 allocated substantial funds to the IRS, with a portion earmarked for enforcement. Avalara predicts that some effects of these funds could extend to states. Businesses should be prepared for enhanced scrutiny and collaboration between tax authorities, software professionals, and tax practitioners to bolster security measures.
Changing IRS Reporting Thresholds:
- The IRS has postponed the lowered $600 Form 1099-K reporting threshold, with plans to implement a phased-in approach starting with a $5,000 threshold for tax year 2024. This adjustment may impose challenges, with some lawmakers challenging the IRS’s authority in this regard.
Technology as a Revenue Solution:
- States, grappling with revenue shortfalls, are turning to technology to streamline sales and use tax compliance. As the economy evolves, tax policies in the U.S. are adapting to technological changes in commerce.
In the face of these developments, Scott Peterson, Vice President of U.S. Tax Policy at Avalara, emphasizes the rapid evolution of the U.S. tax policy. Businesses and consumers alike should brace for an increase in audits in 2024. As omnichannel commerce expands, retailers must prepare for greater complexity in compliance requirements. Understanding and adapting to the impacts of e-invoicing mandates and staying ahead of the technology adoption curve are crucial steps for businesses looking to navigate the evolving landscape of sales tax in 2024.
State sales tax changes could mean more audits | Accounting Today
