2021 Sales Tax Highlights and Advice for 2022

As 2021 comes to an end, lets recap a few important sales tax changes and offer insight into what taxpayers can expect for 2022:

• Economic Nexus – As of July 2021, two states, Florida and Kansas, have sales tax economic nexus. While both measures impose a safe harbor threshold of $100,000 in annual sales, below which remote sellers do not have to register to collect sales tax, the measures have distinct measurement criteria for determining whether a remote seller has sales tax nexus.  You can learn more about both measures in the linked Economic Nexus chart on our website.

States will focus their attention in 2022 on what this means in terms of physical presence nexus for businesses that may otherwise have not historically had nexus in a state.  

• Economic Nexus – Missouri becomes the last states to adopt an economic nexus threshold, Effective Jan. 1, 2023, remote sellers with more than $100,000 of taxable sales into Missouri, in the previous calendar year or current calendar year, must collect the state 4.225% vendor use tax rate and any applicable local use taxes.

• Digital Products - Maryland sales tax on digital goods and SAAS - extended sales and use tax to certain digital products in March 2021.  The Maryland Comptroller interpreted the new law broadly in Business Tax Tip 29, such that Maryland sales tax is imposed on most prewritten software subscriptions or licenses, regardless of how delivered or accessed, as well as streaming services and electronically delivered goods and services. While the Comptroller subsequently clarified that charges for viewing a course or lecture online by most schools and universities is not considered a digital product, lawmakers in Maryland are already seeking to amend and clarify how tax applies to other digital goods and Software as a Service.  We summarize this law change and provide a link to the Comptroller Business Tax Tip #29.

...states – even though they may not have changed their sales tax laws or rules to specifically impose tax on such online products – are eager to impose the sales tax and will often interpret their laws to do so.

• Digital Products - Colorado expanded its definition of tangible personal property to include digital goods, and clarified the language in Colorado Rule 39-26-102(15) to begin taxing digital products and streamed services on January 30, 2021.  

• Digital Products - other states, including Georgia, Kansas and Wyoming, considered measures to do impose sales tax on digital products, as well as streaming services.

It is imperative that companies proactively seek the regular guidance and input of experienced sales tax professionals ... to ensure that they are compliant with the every changing sales tax laws, particularly as relates to sales of digital products and streaming services.

What does 2022 look like?  COVID-19 changed the way companies do business.  More companies are allowing their employees to work from home.  While many states adopted emergency measures to relax their nexus standards under which resident employees working from home may have historically created physical presence for businesses, states have and will continue to remove such safe harbor nexus protections.  States will focus their attention in 2022 on what this means in terms of physical presence nexus for businesses that may otherwise have not historically had nexus in a state.  

In addition, states will continue to expand their sales tax base to include sales of digital products and streaming services.   Our current work with an online training company highlights this.  For this company, they historically sent representatives into states to conduct training seminars live and on-site.  While this historically may have created physical presence nexus, most states do not impose sales tax on live seminar and training session fees.  During COVID, the company pivoted to online training sessions, both live and pre-recorded.  Once we determined where the company had physical and/or economic nexus, we researched and sought informal guidance from states regarding the taxability of the pre-recorded training sessions that had a live, interactive chat component.  The results of our inquiries were quite interesting - Some states determined that even though the pre-recorded sessions had elements of digital products, given that there was a live, interactive chat feature, these were nontaxable services.  Other states ignored this feature and determined that this was taxable, as a digital product, an information service, and even access to an online platform (i.e., SAAS).  This exercise highlights that states – even though they may not have changed their sales tax laws or rules to specifically impose tax on such online products – are eager to impose the sales tax on digital products and streaming services, and will often interpret their laws to do so.

So much has happened in the world of sales tax nexus over the past three years, that many other areas of sales tax – particularly the sales tax base – often get overlooked.  It is imperative that companies proactively seek the regular guidance and input of experienced sales tax professionals, not only to ensure that they are registered in each state in which they have nexus, but also to ensure that they are compliant with the every changing sales tax laws, particularly as relates to sales of digital products and streaming services.