State & Local Tax Blog

The Year of the Sales Tax Audit & Other Thoughts on State Sales Tax in 2022

The New Year is coming, and we have a few predictions for what it will bring. Every state (including Missouri) has officially passed their own economic nexus laws as of 2021. We believe this will have a huge effect on state sales tax in 2022. Here’s why.

The past few years have been eventful in the world of state sales tax – and it all goes back to 2018 with South Dakota v. Wayfair, Inc.

This landmark case made the core of South Dakota’s economic nexus legislation the law of the land. And many states quickly got on board by passing their own laws. 2021 saw Missouri, the last of those states, finally pass its own economic nexus legislation that will go into effect in 2023.

Now that most states have an active form of economic nexus legislation on the books for a couple years, we’ve arrived at the next stage of the effects of the Wayfair case. Enforcement.

Which leads us into our predictions for the coming year.

The State of State Sales Tax in 2022

We believe that 2022 will be “The Year of the Sales Tax Audit.”

Almost every sales tax state has had economic nexus in effect for some time. Those states are starting to come up against their own statute of limitations, which means their time to regain lost tax revenue will be up soon.

That increase in enforcement will have a ripple effect. In 2022, we expect:

  • Businesses will be audited more.
  • States will set up more amnesty programs.
  • There will be an increased emphasis on state sales tax in due diligence.

Here’s what each of these mean for you and your business.

#1) If you haven’t been audited before, you likely will be in 2022.

We started to see this trend in the last half of 2021 with Illinois. A lot of our clients were receiving audit notices from Illinois, and we expect that most states will start to follow suit in 2022.

That means you need to be ready.

Now if you’ve never been audited before, this can be a little frightening. But the worst thing you can do is ignore it and hope you don’t get that audit notice in the mail.

To make sure your ducks are in a row should you be audited in 2022, there are some things that you can do right away. First thing’s first, do a Nexus check and make sure that you’re remitting sales tax where you have a responsibility to do so. Once you’re audited, you’ll need to be organized and ready to answer any questions that the auditor may have for you.

We have a sales tax audit guide that will take you through everything you’ll need to know to make it through an audit with as little damage as possible. 2022 is the Year of the Audit, and it will pay dividends to be ready. Talking to a professional can also really give you some peace of mind here.

#2) There will be an increase in amnesty programs.

In the same way there will be an increase in sales tax audits, there will also be an increase in the number of amnesty programs.

A state sales tax amnesty program is designed to help sellers that have previous exposure come into compliance. In these types of programs, states will usually waive back tax penalties in order to ensure the revenue from your now-compliant business moving forward. It helps them fill holes in their budget, and it helps you get compliant without facing margin-killing penalties.

These programs are different than regular registrations and Voluntary Disclosure Agreements in that they are created through legislation and only offered for a limited amount of time. Amnesty programs have strict dates and procedures that you must adhere to in order to receive the benefits.

It’s wise to take these amnesty programs on a case-by-case basis. Not every program is beneficial, and in many cases, it takes an expert to plan out which ones you’ll want to take advantage of and which ones you’ll want to avoid.

#3) State sales tax due diligence will be more important than ever before.

The past decade has seen thousands of companies started and sold, and that trend will continue. But with states’ renewed interest in compliance enforcement, mergers and acquisitions will be affected. How?

When you think of buying a company, you tend to think about buying all the good stuff – you know, things like their business model, revenue potential and products. But companies are bought and sold in their entirety, so you’ll end up with their liabilities as well. And state sales tax is one of the most overlooked liabilities in the process of buying and selling a company.

State sales tax matters, especially in a year of heightened compliance enforcement. Without proper due diligence in this area, you may end up buying a company with significant sales tax exposure without even knowing it. And that liability can be as much as seven figures!

That’s why a state sales tax expert needs to be involved in the due diligence process. State sales tax penalties are more than a rounding error, and if left unaccounted for, they can turn the big merger success into a failure – quickly.

Conclusion

All signs indicate that we’ll be seeing a lot more state sales tax audits than ever before. With the statute of limitations beginning to run out on a lot of economic nexus laws, states are more motivated than ever before to capture that potential revenue.

That renewed focus means that you need to be ready for an audit. Explore any beneficial amnesty programs. And make sure you do your due diligence with state sales tax if you’re involved in a merger or acquisition.

Have state sales tax problems you’re looking to solve in 2022? Talk to an expert. Peace of mind and an actionable plan are a ‘What’s Next’ call away.

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