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First Six Months of 2022 Sales Tax Rules and Rates Update: Rate Increases Flourish at City Level

Sub-state jurisdictions are increasing sales tax rates at an impressive clip, even as the implementation of new sales taxes at the district level (possibly) regress to their pre-COVID mean. As a result, indirect tax teams across all industries need to remain on their toes. 

Sales tax changes will remain high due to increased funding needs of state and local governments and the likelihood of less federal stimulus. Funding is a challenge for state and local governments due to wage inflation and retention of government employees, a growing inability to issue more debt, and an overall need for social services. In addition, the sales tax base has been narrowing for many years, so rates will continue to rise. The application of sales tax to more types of services and the adoption of new digital sales taxes are likely to continue after analyzing the initial cut of Vertex’s Mid-Year 2022 Sales Tax Rates and Rules Report. 

The numbers – of sales tax increases and decreases, new rates, and changes to the average combined sales tax rate – are crucial, of course. However, it’s just as important for indirect tax leaders to understand the broader economic, business, and policy factors that ultimately cause these numbers to move -- and they’ve been moving a lot. Here are three of the most noteworthy sales tax rates and rules trends from our research on changes that occurred from Jan. 1 through June 30:

  1. City and county sales tax rate increases far outnumber decreases: At the city level, sales tax increases (126) outnumbered decreases (20) by more than a six-to-one ratio. Counties enacted nearly twice as many sales tax increases compared to decreases (15).
  2. The combined average rate reaches a new high: After holding steady for a brief COVID-induced lull from 2020 to 2021, the average U.S. sales tax rate (which combines the average state, county, city, and district rates) resumed its upward trajectory this year, hitting 10.17%. 
  3. The implementation of new district sales taxes may be leveling off: New sales taxes were imposed by districts at a near-record pace during each of the first two years of the pandemic. Through the first six months of 2021, districts enacted 127 new sales taxes; through the first six months of this year, districts implemented only 54 new sales taxes. This two-year flurry of activity appears to be leveling off. 

The decrease in new district taxes should not lull indirect tax teams into a false sense of “back to normalcy.” For the Vertex Mid-Year Sales Tax Rates and Rules Report for 2022, click here.

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.

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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

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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.

2022 Mid-Year Sales Tax Rates and Rules Report

In our 2022 Midyear Sales Tax Rates and Rules Report, we detail the standard sales tax rate changes, as well as notable trends and statistics.

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