Vertex Mid-Year Report Highlights Rising Volatility in Sales Tax Rates

Tax professionals should note the following:

• City and county sales tax rates are skyrocketing: Municipal tax rate increases (126) far outweigh decreases (20) by more than six to one, while counties enacted nearly twice as many sales tax increases as decreases ( 15).
• The average sales tax in the United States hits an all-time high: After a brief COVID-induced lull from 2020 to 2021, the average U.S. sales tax rate (which combines state, county, city, and district average rates) resumed its upward trajectory this year. , reaching 10.17%.
• The implementation of the new district sales taxes is starting to stabilize: After the first two years of the pandemic, when districts imposed new sales taxes at a record pace, the pace of new rates appears to be leveling off in 2022. In the first six months of this year, districts have not implemented only 54 new sales taxes. sales taxes compared to 127 new sales taxes enacted during the same period in 2021.

With rising interest rates, debt servicing costs will increase. Rising prices and wages mean that it costs more to run public sector organizations. Governments can either cut spending or increase revenue to meet these challenges. Unfortunately, most governments do not have the capacity to cut services further. However, sales tax revenues will decline if consumers reduce spending in response to rising prices or a recession.

Historically, over the past 60 years, it has been shown that during adverse economic cycles, sales tax provides a much more consistent method of funding compared to income tax. For this reason, several states are considering reducing, eliminating, or replacing income tax with a broad sales tax. If these legislative attempts succeed, sales taxes would become an even more important source of revenue for these states.

It is clear that the US economy is driven by consumer spending. Consumers spend the most on housing, health care, food and energy each year. Given the non-discretionary nature of these items, state and local governments will be challenged in the future as a matter of policy regarding how the sales tax base will be broadened.

Vertex is one of the world’s leading providers of indirect tax software and solutions. The company’s mission is to provide the most trusted tax technology that enables global businesses to transact, comply and grow with confidence. Vertex provides solutions that can be tailored to specific industries for key indirect tax lines, including consumer sales and use, value added, and payroll. Headquartered in North America with offices in South America and Europe, Vertex employs more than 1,300 professionals and serves businesses around the world.