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Vertex report shows substate sales tax complexity is soaring

Michael Bernard highlights findings from Vertex’s 2024 Mid-Year Sales Tax Rates and Rules report.

Three women executives sit at a conference room table, discussing business.

New taxing cities, new district taxes and a spike in city-level rate changes drive home the magnitude of substate U.S. sales tax rates and rules complexity that indirect tax teams must address. Those developments feature prominently in Vertex’s 2024 Mid-Year Sales Tax Rates and Rules Report. 

Our research also sheds light on the difficulties sustaining end-to-end compliance in the face of a narrowing tax base and high tax rates. The following data points are worth considering: 

  • It remains easier to create new taxing cities and district taxes than to change state sales tax rates: The volume of new taxing cities and district taxes emerging remains high. While the number of new taxing cities (30) and new district taxes (77) adopted from Jan. 1 through June 30 dipped a bit compared to the same period last year, the pace of new tax adoption continues a decade-long trend. While state tax rate changes typically require a lengthy legislative journey, most city councils and district officials can implement a new sales tax in a single meeting. 
  • City rate changes spiked during the first half of the year. Through the first six months of 2023, city jurisdictions enacted a total of 95 rate changes. Through June of this year, those same cities authorised 159 sales tax rate changes, a 67% year-over-year increase. This is more than just a rise in the number of changes; it's a significant spike in the frequency with which tax rates themselves are being adjusted.
  • County and city governments are eager for revenue. City and county governments are raising sales tax rates to cope with stubborn inflation that affects their budgets the same way higher prices disrupt household budgets. Higher interest rates have reduced their appetite for taking on additional debt. Through the first six months of this year, sale tax rate increases at the county level (28) have outnumbered decreases (8) by a 3.5:1 ratio. The difference is far greater at the city level, where sales tax increases (147) outnumbered decreases (12) by a 12:1 ratio. 
  • Taxing jurisdictions continue to reach for the fee lever: States continue to adopt airport, environmental, special shopping/dining district and retail service delivery fees. New York and Illinois are the latest states adopt this trend, and more are sure to follow. 

Here are a few other notable numbers gathered, reviewed and cleared by our talented tax research team. These figures highlight the complexity and ever-changing landscape of tax jurisdictions:

  • Since 2014, there have been 2,308 jurisdictions which have implemented new sales and use taxes.
  • Since 2014, there have been 3,788 sales and use tax changes.
  • The combined number of new and changed sales and use tax rates since 2014 is 6,096.
  • Total taxing city jurisdictions: 7,008 
  • Total taxing county jurisdictions: 1,964
  • Total taxing district jurisdictions: 3,015
  • Total taxing state jurisdictions: 46

Given that there are roughly 19,000 taxing jurisdictions in the U.S., these numbers underscore the ongoing challenges businesses face in keeping up with tax compliance. The frequent changes and new implementations demonstrate the necessity for robust tax technology solutions to navigate this complex environment effectively.

That’s a lot to digest. I’ll provide additional context on fee-related challenges and other compliance implications in a follow-up 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.