CFOs and finance teams have had to navigate numerous changes in recent years. The pandemic has shifted commerce online, accelerated remote work and put governments on a roller coaster of changing rules and legislation — all of which have had cascading impacts on the finance and accounting teams across companies of all sizes.
As if all of these changes weren’t enough on their own, many have also created additional complexities related to tax. The shift to online has expanded the tax footprint for many businesses, remote work has created physical nexus obligations, and governments are continuing to bring tax collection closer to the time of transactions.
With all of the changes happening in tax alone, CFOs should be aware of two major trends that will continue to impact tax obligations in 2022.
Increasing online sales and remote tax laws will create more liability
According to Statista, over two billion people made purchases online in 2020, while online retail sales reached $4.2 trillion globally. As we move into 2022, it’s expected that online purchases will continue to increase and businesses will expand into new online channels. For companies that have already expanded or are expanding their online presence in the new year, it’s likely that they’ve reached customers in new geographies — both domestically and internationally. This expansion is creating new tax requirements in the U.S. thanks to economic nexus and marketplace facilitator laws.
Economic nexus and marketplace facilitator laws became a reality following the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc. that made it possible for states to impose sales tax on remote sellers. Today, 45 states, the District of Columbia, and parts of Alaska have adopted these laws, and every state has its own definitions when it comes to thresholds that trigger an obligation to collect. While these laws have existed for nearly four years, they will continue to dominate sales tax for businesses in 2022 due their constantly changing nature.
CFOs and their teams should also brace for an increased focus on sales tax in 2022, which could lead to more enforcement. Many states are leaving 2021 with significant budget surpluses, prompting a pull back on certain taxes, like corporate income tax. As a result, states will become more reliant on other revenue streams, like sales tax. As the spotlight shines on sales tax, remote sellers will become subject to enforcement measures, like audits.
In addition to enforcement and changes to existing laws, we will likely see adoption of remote tax laws by local governments. Some localities in home rule states are exploring implementing their own economic nexus requirements to collect revenues from remote sellers.
A desire to close the tax gap will digitize tax further
Beyond remote seller laws, CFOs should also pay close attention to the digitalization of tax compliance in the U.S. and around the world. E-invoicing and live reporting requirements continue to pop up and expand in regions like Europe. Around the world, 83 countries currently have some kind of e-invoicing or e-reporting legislation, which require businesses to electronically report sales transactions via e-invoices as they occur, or shortly thereafter. Many e-invoicing efforts are aimed at minimizing tax fraud and closing the tax gap.
While e-invoicing requirements do not exist in the U.S. today, a sales tax gap does exist — stemming primarily from businesses not registered to collect and remit as they should. In an effort to close that gap, some states are mining data to identify noncompliant sellers.
In 2022, we will continue to see states employ data mining tactics, as well as begin to explore other ways to digitize tax collection. States like Massachusetts have introduced legislation that speeds up the time between transactions and tax returns — signaling an interest in bringing tax closer to real-time across the states.
While it’s not likely that any major developments will take place this year, CFOs should begin familiarizing themselves with these requirements, which will inevitably have an impact on companies doing business in the U.S.
Tax in 2022 is poised for continued disruption and change — just like in recent years. For CFOs, understanding the shifting landscape and the implications for their businesses is the first step in remaining compliant. From there, technology solutions designed to manage tax compliance can aid in keeping businesses compliant as they continue to expand into new channels, geographies and tax types.