KING OF PRUSSIA, PA — The tech industry is bracing for significant challenges after a new report revealed that US sales tax rate changes hit a 10-year high in 2023. The annual 2023 End-of-Year Sales Tax Rates and Rules report from global tax technology solutions provider Vertex Inc. (NASDAQ: VERX) disclosed a rise in sales tax rate changes, signaling potential hurdles for industries navigating an increasingly complex tax landscape.
Businesses confronted 444 sales tax rate changes across varying state, county, city and district jurisdictions in 2023. The change marked a 17% jump from the previous year and eclipsed the prior record of 412 alterations made in 2017. In a broader context, the total number of rate changes and new sales tax impositions totaled 676, second only to the 724 modifications in 2017.
Vertex Chief Tax Officer Michael Bernard underscored the importance of active monitoring and comprehension of these modifications for tax professionals. He asserted, “Tax professionals must anticipate and stay ahead of these changes by monitoring what’s driving them and understanding their potential implications on the future of the indirect tax landscape.”
The recent shifts illustrate a decade-long trend in US sales tax rate changes. While state sales tax rates remained steady or saw minor reductions, local jurisdictions, particularly at the district, city, and county levels, experienced steep increases. Creating a significant departure, the number of new district taxes in the last ten years has oscillated between 115 and a high of 237.
Predicted trends for 2024 spotlight a multitude of factors contributing to sales tax and rate changes, ranging from varying jurisdictional trends to unsustainable fiscal conditions. While state sales tax rates appear stable, they contrast sharply with the escalating district, city, and county taxes.
The current fiscal conditions, buoyed by the pandemic aid, are expected to encounter future challenges and encourage a rise in taxes on digital goods. Despite existing impediments in imposing taxes on services in the US, the international landscape is witnessing a shift toward environmental taxes and a significant rise in e-invoicing requirements, especially in the European Union. Consequently, these alterations impose a demand for rapid adaptability and significant procedural changes within indirect tax groups.
As tech-focused businesses continue to evolve in a complex and dynamic tax landscape, the importance of anticipating and understanding these changes becomes more critical. The industry must stay ahead of developments and ready itself for the repercussions these changes may bring.
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