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Sales Tax Burden Growing Alongside Number of Sales Tax Jurisdictions

The sales tax burden on businesses operating across state and local tax jurisdictions is increasing in complexity and cost as a growing number of individual tax jurisdictions make an aggressive grab for revenue.

Despite efforts by states to simplify their sales tax systems, the compliance burden continues to grow along with the number of sales tax jurisdictions across the nation. According to the tax software company Vertex, there are now 9,998 different sales tax jurisdictions in the United States, up more than 300 since Vertex last reported the figure in 2011.

The greater the number of sales tax jurisdictions a company is subject to, the more complex the company’s sales tax return becomes. The number of jurisdictions varies widely by state. Vertex reports that states like Connecticut, Michigan and Minnesota have just one jurisdiction. Texas, however, has over 1,500 sales tax jurisdictions and Missouri has over 1,200. For a state-by-state breakdown of total number of sales tax jurisdictions, go to the Tax Foundation.

Business impact

Companies must take into account both state and local sales tax rates in calculating sales tax rates. According to the Tax Foundation Fiscal Fact (March 2014), 45 states collect statewide sales taxes. The five states without a statewide sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon.

Local taxes

Less known, however, are the local sales tax rates, which can be substantial. The Tax Foundation reports that local sales taxes are collected in 38 states. City sales taxes on individual items affect the combined state-local rate. Colorado and other “homerule” states have cities with authority to tax items irrespective of state taxes. For example, Colorado does not tax downloaded software but the city of Denver does.

Also in Colorado, businesses subject to a “non-state collected jurisdiction,” such as the city of Boulder, have to file a separate city return in addition to the state of Colorado return. So a business that operates in both Boulder and Denver may have to file a sales tax return in each of the three jurisdictions – the cities of Denver and Boulder as well as the state of Colorado. In other states, a company may be required to file one return that includes other city sales in the same state return.

Calculating combined taxes

When combined, state and local sales tax rates can be substantial. The Tax Foundation reports the five states with the highest average combined state-local sales tax rates are Tennessee (9.45 percent), Arkansas (9.19 percent), Louisiana (8.89 percent), Washington (8.88 percent), and New York (8.875 percent).

Figuring out what rate to charge in each state jurisdiction alone can be painful. Depending on what you are selling and where, sales tax programs like Vertex and Avalara can do some of the heavy lifting to calculate sales tax rates.

Other SALT developments

The growing complexity of SALT compliance is not lost on policymakers, who continue to keep SALT issues front and center.
• Individual states have considered amending their tax codes to address changing economies and shifting tax bases; some states are considering lowering rates and broadening the base.
• The Marketplace Fairness Act (MFA) continues to weave its way through Congress. If approved, the MFA would authorize states to require out-of-state sellers to collect and remit sales and use taxes.
• More than half of all U.S. states have adopted independent state tax tribunals that generally provide a state tax appeal forum for settling state tax disputes.

Contact us


Learn more about TaxOps’ SALT solutions. Meredith Theiss, SALT practice manager, can be reached at MTheiss@TaxOps.com or 720.227.0064.

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