• FREE RESOURCES
        • Accounts Payable
          Finally! The trick to securing greater T&E compliance
          Benefits
          Rooting out folks who don’t belong on your health plan: A 6-point dependent audit checklist
          IT
          3 costly misconceptions about biz email compromise
          Credit and Collections
          Collecting via email: 4 must-make moves in your subject line
          Accounts Payable
          5 Tough-to-spot signs that an invoice is fake
  • PREMIUM CONTENT
        • Staff management
          120 Proven Communications Tips for Today’s CFO
        • Payroll
          Handling Nonexempt Employee Pay: Stay Compliant and Avoid DOL Audits
          Accounts Payable
          T&E Best Practices: Complete Guide to Ensure Compliance
          Payroll
          Payroll Best Practices: 4 Ways to Save Time and Money
        • Staff management
          Email Best Practices: A 6-Question Quiz
          Staff management
          Innovative Communications Strategies: An Email Case Study
          Staff management
          A 5-part Framework for Successful Workplace Communications
        • SEE MORE
          PREMIUM RESOURCES
  • CORONAVIRUS RESOURCES
  • LOG IN
  • SIGN UP FOR FREE

Resourceful Finance Pro

  • FREE RESOURCES
        • Accounts Payable
          Finally! The trick to securing greater T&E compliance
          Benefits
          Rooting out folks who don’t belong on your health plan: A 6-point dependent audit checklist
          IT
          3 costly misconceptions about biz email compromise
          Credit and Collections
          Collecting via email: 4 must-make moves in your subject line
          Accounts Payable
          5 Tough-to-spot signs that an invoice is fake
  • PREMIUM CONTENT
        • Staff management
          120 Proven Communications Tips for Today’s CFO
        • Payroll
          Handling Nonexempt Employee Pay: Stay Compliant and Avoid DOL Audits
          Accounts Payable
          T&E Best Practices: Complete Guide to Ensure Compliance
          Payroll
          Payroll Best Practices: 4 Ways to Save Time and Money
        • Staff management
          Email Best Practices: A 6-Question Quiz
          Staff management
          Innovative Communications Strategies: An Email Case Study
          Staff management
          A 5-part Framework for Successful Workplace Communications
        • SEE MORE
          PREMIUM RESOURCES
  • CORONAVIRUS RESOURCES
  • Accounts Payable
  • Credit and Collections
  • Payroll
  • Accounting
  • Benefits
  • Finance Technology
  • Sales & Use Tax
  • More
    • Employment Law
    • Strategy
    • Policy and Culture
    • Fraud
    • Budgeting and Forecasting
    • Banking
    • Staff Management
    • Cost Control
  • Accounts Payable
  • Credit and Collections
4 minute read

Report: Fewer sales tax changes, but many tax rates are rising

Sales tax trends to track this year
Brian Bingaman
by Brian Bingaman
February 3, 2023
  • SHARE ON

The 2022 End-of-Year Sales Tax Rates and Rules report by tax technology solutions provider Vertex Inc. has both good news and bad news for your finance team.

First, the good news: The overall number of sales tax rate and rule changes impacting businesses is the lowest it’s been in eight years, with 542 changes at the state, county, city and district levels (down from 606 in 2021).

However, that’s mainly because of a decline in new district taxes. After a five-year stretch, during which an average of 180 new district-level taxes were created each year, that number fell to 115 last year (down from 197 in 2021).

According to Vertex, at the district level, tax decreases outnumbered increases 50-13.

Finance departments had to adapt to one new taxing county and 49 new taxing cities (down from 51 in 2021) during 2022.

But while the total number of transaction tax changes across the U.S. declined last year, the bad news is most taxing jurisdictions continued to raise their rates.

Your team faced 235 city sales tax rate changes, according to Vertex. Of those city sales tax changes, 200 were increases and 35 were decreases. At the county level, there were 55 rate increases and 23 decreases.

How Not to Wreck Your Reconciliations

Bottom line: If this trend continues, there’s a good chance A/P and A/R will need to make payment and collection adjustments to accommodate sales tax rate hikes in the taxing jurisdictions you do business in.

What’s behind it right now

In a statement, Vertex’s vice-president of tax content and Chief Tax Officer Michael Bernard said there are a couple of factors playing a part. “Governments need to fill budget gaps as federal COVID-related funding will begin to run dry, as borrowing becomes more expensive and overall inflationary pressures on labor, services and consumables continue,” he said.

“On top of these economic factors, sales tax is generally more efficient to impose and administer relative to property and income taxes, making it a more resilient revenue source for governments, particularly in times of economic distress.”

What it means going forward

The report also identified these trends that you’ll need to keep in mind:

The feds are paying close attention to all the post-Wayfair sales taxes and may take measures to get it under control. The General Accounting Office recently encouraged Congress to work with states “to establish nationwide parameters for state taxation of remote sales” for several reasons, including the headaches remote sellers experience while trying to comply with “a complex patchwork of requirements … governing the taxation of remote sales.” Also, the U.S. Senate Finance Committee conducted a hearing to examine the impact of the South Dakota v. Wayfair decision on small businesses and remote sellers.

Tax policy has a lot to do with economic and fiscal conditions. Although inflation tends to be headed downward, it remains high and is unlikely to return to pre-2022 levels any time soon. Many economists say there’s going to be a recession this year, even if it’s only a moderate one. As high debt-servicing costs sustain or increase, state and local jurisdictions may feel the need to make some moves to satisfy their revenue needs amid higher prices and labor costs.

Shrinking sales tax bases may lead to more taxation of services and digital goods and services. The sales tax base has shrunk significantly in the past two decades, according to Vertex’s research. State sales tax bases “are narrowing,” according to the Tax Foundation, “forcing states to either raise rates or shift to other sources of tax revenue.” These sources include a growing number of digital taxes and could soon extend to professional services, such as accounting and other B2B offerings.

Sales tax increases are connected to property and income tax revenue declines. State legislature activity and ballot initiatives in 2022 reflected a growing desire to limit income tax rate increases. And as you’re probably aware, commercial office space values are declining due to permanent hybrid work models. This will result in lower property tax receipts in 2023 and beyond. Because property taxes, income taxes, and sales and use taxes represent the top three funding sources for state and local governments, you need to be prepared for the possibility of higher sales tax rates.

By the numbers

Some fun facts for Finance:

  • The average state sales tax rate in 2022 was 5.6255% (compared to 5.6281% in 2021).
  • The average county tax rate last year was 1.7721% (1.7622% in 2021).
  • In 2022 the average city tax rate was 1.7703% (an increase of .0088% over 2021)
  • At the district level, the average tax rate was 1.0123% (up .0103% from 2021)
  • The average combined sales tax rate was 10.1802% (vs. 10.1237% in 2021)
  • Puerto Rico has the highest state sales tax rate at 10.5%. Indiana, Mississippi, Rhode Island and Tennessee are the second-highest at 7%.
  • Kodiak and Wrangell, Alaska, and Winter Park, Colorado, have the highest city sales tax rate at 7%. Close behind are Hoonah, Klawock and Selawik, Alaska at 6.5%, and
  • Sterlington, Ouachita Parish with the Sterlington Economic Development District No. 1 in Louisiana has the highest combined sales tax rate of 12.95%.
Brian Bingaman
Brian Bingaman
Brian researches and writes about accounts payable and CFO management trends. He was a newspaper journalist in suburban Philadelphia for nearly 20 years.

Get the

Resourceful Finance Pro Logo

Newsletter

With Resourceful Finance Pro arriving in your inbox, you will never miss critical stories on accounting, benefits, payroll & employment law strategies.

  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • Hidden
  • This field is for validation purposes and should be left unchanged.
Resourceful Finance Pro Logo
  • ABOUT
  • CONTACT
  • WRITE FOR US
  • ADVERTISE WITH US
  • Accounting
  • Benefits
  • Payroll
  • Policy and Culture
  • Employment Law
  • Fraud
  • Finance Technology
  • Sales & Use Tax
  • Accounts Payable
  • Credit and Collections
  • Strategy
  • Budgeting and Forecasting
  • Banking
  • Staff Management
  • Cost Control

Resourceful Finance Pro, part of the SuccessFuel Network, provides the latest Finance and employment law news for Finance professionals in the trenches of small-to-medium-sized businesses. Rather than simply regurgitating the day's headlines, Resourceful Finance Pro delivers actionable insights, helping Finance execs understand what Finance trends mean to their business.

Privacy Policy | Terms of Service
Copyright © 2023 SuccessFuel

WELCOME BACK!

Enter your username and password below to log in

Forget Your Username or Password?

Reset Password

Lost your password? Please enter your username or email address. You will receive a link to create a new password via email.

Log In

During your free trial, you can cancel at any time with a single click on your “Account” page.  It’s that easy.

preloader