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How the Wayfair Decision and COVID Helped to Skyrocket States Sales Tax Revenue

A woman shopping online in a state that collects state sales tax revenue after the Wayfair decision.

Many states have been optimizing the opportunity to further boost their sales tax revenue collection following the passing of the 2018 Supreme Court decision of South Dakota Vs. Wayfair. The Wisconsin Department of Revenue, for example, put in place a system to track sales tax collections from the Wayfair rule and online marketplaces. Leveraging technology is crucial for states to maximize sales tax collection following Wayfair.

How Did the Wayfair Decision and COVID Skyrocket States Sales Tax Revenue?

The Wayfair decision came down two years before the Covid-19 crisis, which caught the world by surprise. While businesses closed down, the state and online businesses cashed in on online shoppers. Before the pandemic, states raised funds for their budgets due by relying on brick and mortar business and concepts such as economic nexus and marketplace facilitation. However, when the crisis hit, most people working from home were filling up their shopping carts with virtual purchases. Thus, translating to billions of dollars in sales tax revenues.

States Increase Online Revenue

This also brought a wave of many success stories of small business owners who found their online niche. Indeed, state like New Jersey, reported a 5% rise in states sales tax revenue in December 2020 compared to the same month in 2019. This is despite the state going through a rough patch in the first early months of 2020. The District of Columbia also reported a surge in sales of general merchandise, grocers, and Amazon and PayPal categories by 26% in the week of March 5 to 11, 2020, compared to the same week in 2019. According to the U.S Department of Commerce, retail e-commerce sales in the U.S. rose by 16.4 % this year, reaching $612.86 billion from $526.72 billion in the first three quarters of 2020.

States like Florida and Missouri that didn't impose sales tax on remote sales in 2020 lost out on revenue. Missouri, for example, recorded a drop in sales and use tax by 10.3% in just May 2020. However, the two states have since enacted Wayfair legilstion to allow them to get their piece of the online sales revenue pie.

Technically, retail and online sales tax collections are not separated. However, most states attest that online sales taxes have helped cushion their budgetary needs. TheĀ NCSL reports a positive and unexpected performance in general sales and uses tax from when Covid-19 started. In addition, nearly 20 states expect to outdo their revised upward forecasts of sales tax collections. Further, almost 15 states are confident they will achieve their targets.

Chuck Maniace, a sales tax expert at global compliance firm, Sovos, says actions by states with sales taxes to amend laws coincided with a pandemic that has rewritten the rules of shopping. The Wayfair bill essentially acts as the curtain-raiser. Thus, allowing states to collect optimal online sales tax collections shortly before the pandemic arrived. This pushes more consumers to make more stay-at-home orders.

States Sales Tax Revenue Beyond 2021

The pandemic will likely not slow down the steady trend of online shopping in 2022. However, state governments have the backing of economic nexus laws to compel online retailers to collect and remit sales taxes. In addition, marketplace facilitators must perform their sales tax obligations on e-commerce sales made by retail sellers.

If you're an online retailer, we understand your concerns over how the Wayfair bill gives expanded authority to state governments to collect tax on your online sales. At Sales Tax Helper, we can help guide you on your nexus and all relevant sales tax laws and obligations to avoid any costly sales tax mistakes in the coming year. Please contact us today.

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