Vertex 2023 Sales Tax Rates and Rules Report: U.S. Rate Changes Reach 10-Year High
January 24 2024 - 9:00AM
Vertex, Inc. (NASDAQ:VERX)
(“Vertex” or the “Company”), a global provider of tax technology
solutions, released its annual 2023 End-of-Year Sales Tax Rates and
Rules report, which found U.S. sales tax rate changes reached a
10-year high, proving once again that it will be challenging for
businesses to meet their everchanging compliance
obligations.
In 2023, businesses faced 444 sales tax rate changes spanning
state, county, city and district jurisdictions, marking a 17% rise
from last year's combined rate changes. This surpasses the former
record of 412 rate changes witnessed in 2017.
Beyond that, the total number of rate changes combined with
jurisdictions imposing new sales taxes (amounting to 676 in 2023)
is second only to the 724 changes and new sales taxes that occurred
in 2017.
“Tax professionals must anticipate and stay ahead of these
changes by monitoring what's driving them and understanding their
potential implications on the future of the indirect tax
landscape," said Michael Bernard, Vertex Chief Tax Officer. "This
is increasingly important given the escalating complexity of the
tax environment both domestically and
internationally."
The record number of U.S. sales tax rate changes in 2023 caps a
decade-long trend. On closer examination, a distinction in rate
changes becomes evident. State sales tax rates have held steady or
decreased slightly in the past several years, while the number of
new district taxes has ranged from 115 to a staggering 237 in the
past decade. Last year, rate increases outnumbered rate decreases
at the county level by a 2:1 ratio. At the city level, rate
increases outnumbered rate decreases by 5:1. Jurisdictions at the
local level are particularly challenged due to historic pandemic
spending costs and inflation.
Though the dynamics and trends shaping the changes in sales tax
rates are intricate, they can be traced back to several broader
concepts, which include:
- Current
state fiscal conditions appear unsustainable: As a result
of several years of pandemic-related federal relief, state and
local budgets are generally in excellent condition. Signs suggest
that fiscal conditions may deteriorate. These include a shrinking
sales tax base and widespread cuts to other funding sources coupled
with the end of federal pandemic funding and the growing use of
sales tax exemptions. These factors mean that more state and local
jurisdictions will need to increase sales tax rates, implement new
fees and extend sales taxes to new areas like digital goods and
services.
- Expansion of
sales tax on services seems less likely: As a general
matter, most states do not broadly tax services – professional and
personal. State and local governments will be looking to expand
their tax bases and those jurisdictions will likely introduce
additional taxes on digital goods and services. That is, in part,
because another mode of expanding the sales tax base — applying
taxes to services — seems unlikely to occur in the U.S. Although up
to half of U.S. gross domestic product is generated by services,
states have encountered hurdles when attempting to extend sales
taxes to this area. New regulations must be drafted, more auditors
need to be trained and hired with substantial process overhauls and
related behavioral changes must be performed for services taxes to
succeed. These requirements are significant, which explains why the
widespread adoption of new services taxes by state and local
jurisdictions is unlikely.
- Global
perspective – get ready for e-invoicing: Outside of the
U.S., two trends loom large. First, environmental-related taxes and
fees are increasing throughout the European Union (EU) and other
regions. Second, the adoption of new e-invoicing requirements in
the EU and other parts of the world will add to the compliance
complexity businesses face. E-invoicing rules require indirect tax
groups to get up to speed on complex requirements — distinguishing
between tax compliant invoicing and e-invoicing — and the major
process and technology-related adjustments these compliance
mandates necessitate.
Looking ahead at 2024, sales tax and rate changes are shaped by
a multitude of factors including differing jurisdictional trends,
unsustainable fiscal conditions and the unlikely expansion of sales
tax on services. While we've noted that state sales tax rates are
consistent or slightly decreasing, they stand in sharp contrast to
rapidly increasing district, city and county taxes. The current
fiscal conditions, propped up by pandemic aid, are likely to face
future challenges, prompting an increase in taxes on digital goods.
Despite existing obstacles to imposing taxes on services in the
U.S., globally we're seeing a transition toward environmental taxes
and a significant surge in e-invoicing requirements, especially in
the EU. Consequently, these changes impose a demand for quick
adaptability and major procedural shifts within indirect tax
groups.
For more information, download the full 2023 End-of-Year Sales
Tax Rates and Rules Report here.
About Vertex
Vertex is a leading global provider of indirect tax software and
solutions. The company's mission is to deliver the most trusted tax
technology enabling global businesses to transact, comply and grow
with confidence. Vertex provides solutions that can be tailored to
specific industries for major lines of indirect tax, including
sales and consumer use, value added and payroll. Headquartered in
North America, and with offices in South America and Europe, Vertex
employs over 1,400 professionals and serves companies across the
globe.
For more information, visit www.vertexinc.com or follow us
on Twitter and LinkedIn.
Copyright © 2024 Vertex, Inc. All rights reserved. The
information contained herein is intended for information purposes
only, may change at any time in the future, and is not legal or tax
advice. The product direction and potential roadmap information is
not a guarantee, may not be incorporated into any contract, and is
not a commitment to deliver any material, code, or
functionality. This information should not be relied upon in
making purchasing, legal, or tax decisions. The development,
release, and timing of any features or functionality described for
Vertex's products remains at the sole discretion of Vertex,
Inc. Any statements in this release that are not historical
facts are forward-looking statements as defined in the U.S. Private
Securities Litigation Reform Act of 1995. All forward-looking
statements are subject to various risks and uncertainties described
in Vertex's filings with the U.S. Securities and Exchange
Commission ("SEC") that could cause actual results to differ
materially from expectations. Vertex cautions readers not to
place undue reliance on these forward-looking statements which
Vertex has no obligation to update.
Company contact:
Rachel Litcofsky Vertex, Inc.
mediainquiries@vertexinc.com
Investor Relations contact:
Joe Crivelli Vertex,
Inc. ir@vertexinc.com
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