A new report shows continued changes to economic nexus and marketplace facilitator laws in the U.S. and the expansion of e-invoicing globally in 2024, both of which will lead to the likelihood of increase sales tax audits.
The Avalara Tax Changes Report covers tax changes across the U.S. and internationally, as well as specific changes in key industries, including beverage alcohol, communications, energy, lodging, manufacturing, retail, and software. Avalara is a provider of cloud-based tax compliance automation for businesses of all sizes, today released its annual t for 2024.
Notable highlights from the Avalara Tax Changes 2024 report include:
Sales tax policy continues to change
After years of new economic nexus rules following the 2018 South Dakota v. Wayfair, Inc. decision, 2024 may bring significant simplification to economic nexus laws. The Streamlined Sales and Use Tax Governing Board is encouraging states to get rid of their transaction thresholds, which would mean businesses would have to track only total sales instead of total sales and total transactions for economic nexus.
Despite momentum on simplification, businesses are likely to see more sales tax audits in 2024. The Inflation Reduction Act of 2022 provides roughly $80 billion in additional IRS funding over the next 10 years, with more than $45 billion earmarked for enforcement. Some effects of those funds could trickle down to states.
“Tax policy continues to evolve rapidly in the U.S. as the economy shifts and state governments look to adapt rules to keep pace with the changes technology is bringing to commerce,” said Scott Peterson, VP of U.S. Tax Policy at Avalara. “Because state budgets aren’t experiencing the same windfalls as they were in the immediate impacts of the pandemic, legislatures will encourage an increase in audits to make up for any lost revenue. Businesses and consumers should all prepare for an uptick in audits in 2024.”
E-invoicing is becoming the global standard
E-invoicing is the process of creating and providing an electronic invoice in the form of structured data to digitally exchange invoice data between a supplier and a buyer. More than 60 countries worldwide have announced — or already require — e-invoicing. In 2024, countries like Romania, Malaysia, and Israel and more will begin enforcing their various e-invoicing mandates.
“E-invoicing is the clear direction for the future of compliance. It’s important to remember that countries that don’t have mandatory e-invoicing requirements now will have them in the future,” said Alex Baulf, VP of E-Invoicing at Avalara. “For businesses looking to get ahead of the curve, it’s essential to understand current and forthcoming business impacts of country-specific e-invoicing mandates, and to plan for technology adoption to comply with new invoicing regimes and benefit from new efficiencies inherent in this digital transformation.”
VAT in the digital age continues to evolve
In 2022, the European Commission published a proposal for VAT in the Digital Age (ViDA) — a plan to modernize VAT within the EU. While the timeline will likely change as the detail is agreed, the catalyst reform will impact e-invoicing, ecommerce sellers, and the platform economy. ViDA also aims to close the VAT gap — the estimated difference between expected VAT revenue and actual VAT revenue collected.
Omnichannel remains essential, compliance complexity looms
Omnichannel retail provides a connected experience for consumers who sometimes shop in-store or online across devices. While omnichannel has become the preferred shopping experience for consumers, it creates compliance challenges for retailers. As omnichannel commerce grows in 2024, retailers should brace for complexity when it comes to triggering more sales tax nexus thresholds and associated compliance requirements, including new tax rates and rules, tax returns, and exemption considerations.
1099-K rules remain in flux
The IRS postponed a new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023, citing potential confusion. However, the IRS still plans to lower the reporting threshold from the current $20,000, using a phased-in approach, beginning with a threshold of $5,000 for tax year 2024, to ultimately reach the $600 limit.
Read the Avalara Tax Changes 2024 report here.