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A record year for U.S. sales tax rate changes

How to Conduct a Reverse Sales Tax Audit

U.S. sales tax rate changes reached a 10-year high in 2023 – that’s one of many compelling findings from Vertex’s 2023 Year-End Sales Tax Rates and Rules report. The research I’m citing here runs up to 30 Nov., where the total number of 2023 sales tax rate changes across all jurisdictions reached 437 (state, county, city and district). 

Above all, Vertex’s Sales Tax Rates and Rules provides tangible proof of the complexity that indirect tax teams have been challenged with over the past few years. Besides the record number of rate changes, tax groups are also contending with hefty amounts of new taxes at the city and district level. That rules-and-rate volatility is what I currently find most noteworthy from our year-end data. Here are a few other highlights to provide an early look at the sales tax research based on data collected by our own Vertex Tax Research Team: 

  • A 10-year high for combined rate changes: The previous record-high number of combined rate changes (412) occurred in 2017. In 2022, we saw 377 rate changes. In 2023, 437 sales tax rate changes marks a 16% increase over last year’s combined rate changes.  
  • District rate changes also escalate: As I’ve mentioned before, roughly 100-plus new district taxes are enacted each year to fund fire protection, emergency services, hospitals and the like. As all of these new district taxes continue to accumulate, more and more tax jurisdictions are recalibrating their tax rates. The number of district-level tax changes increased more than threefold from 2022 (52 rate changes) to 2023 (169 rate changes). Fortunately for taxpayers, the vast majority of this year’s district tax rate changes consisted of rate decreases (mainly due to the prohibition of 128 municipalities in Alabama from collecting licence revenue, taxes or fees in their respective police jurisdictions). However, the opposite is true among city and county jurisdictions.  
  • Tax rate increases dominate in cities and counties: Of the 75 sales tax rate changes that took place at the county level, 52 were rate increases and only 23 consisted of decreases (a nearly 2:1 ratio). At the city level, sales tax rate increases (158) outnumbered decreases (33) by almost 5:1.   
  • States continue to issue new fees, exemptions and tax holidays: State and local jurisdictions continue to implement more fees, including green fees, retail delivery service fees and fees on transactions within airport and entertainment/dining districts. As I’ve noted, these fees are not sales and use taxes per se, but they pose similar challenges and complexities to indirect tax teams. In 2023, several states implemented new green fees (including Maryland and Pennsylvania), new sales tax exemptions or updates to existing exemptions (Ohio, Tennessee and Florida) and new delivery fees (Minnesota).  

I’ll keep you up to date on the final year-end data, along with a rundown of sales tax trends in an upcoming post.

Disclaimer

Please remember that the Vertex blog provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in the Vertex blog are those of the authors and do not necessarily reflect the official policy, position or opinion of Vertex Inc.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Chief Tax Officer, Transaction Tax

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

Sales Tax Rates & Rules Trends 2023

In this podcast, listen to Michael Bernard, V.P. of Tax Content and Chief Tax Officer of Transaction Tax at Vertex, highlight the top emerging trends for sales tax rates and rules so far in 2023.

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