Vertex Mid-Year Report Highlights Rising Volatility in Sales Tax Rates
KING OF PRUSSIA, Pa. , Aug. 02, 2022 (GLOBE NEWSWIRE) -- Vertex, Inc. (NASDAQ:VERX) ("Vertex" or the "Company"), a global provider of tax technology solutions, announced its Mid-Year Rates and Rules Report revealed that although the implementation of district taxes is beginning to level off, state and local rates are at an all-time high. Corporate tax departments across all industries will be challenged once again and should be prepared to respond to more rules and rate changes, possibly extending sales taxes to services and introducing more digital sales taxes.
"Over the past couple of years, a great deal of funding from the federal government has bolstered state and local revenues. Budget Directors at these levels must understand that it is unlikely there will be meaningful federal assistance over the next several years, given the outcome of the midterm elections in 2022," says Vertex Vice President of Tax Content and Chief Tax Officer Michael Bernard. "To that end, sales tax revenues will play a key component in funding local governments, in addition to income and property taxes. Sales tax presents a unique opportunity because it can be implemented quickly and administered much more swiftly than income and property taxes."
Tax professionals should note the following:
"It's important for indirect tax leaders to understand the broader economic, business, and policy factors that ultimately cause these numbers to move," says Bernard. Factors such as wage inflation, rising interest rates, a long-term narrowing of the sales tax base, and less federal assistance indicate that additioal sales tax rates are more likely to increase. Despite the decrease in new district taxes, these long-term trends will affect the total revenue state and local governments can collect through sales taxes."
With interest rates on the rise, debt-servicing costs will escalate. Rising prices and wages mean it costs more to operate public sector organizations. Governments can either cut expenses or raise revenue to address these challenges. Unfortunately, most governments do not have the capacity to reduce 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, the sales tax provides a much more consistent method of funding relative to the income tax. Because of this, several states are considering reducing, eliminating, or replacing the income tax with a broad sales tax. Should these legislative attempts succeed, sales taxes would become an even more significant source of revenue for these states.
It is evident that the U.S. economy is driven by consumer spending. Consumers spend the most on housing, healthcare, 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 policy matter regarding how the sales tax base will be expanded.
For the Vertex Mid-Year Sales Tax Rates and Rules Report for 2022, click here.
Vertex is a leading global provider of indirect tax software and solutions. The company's mission is to deliver the most trusted tax technology enabling global businesses to transact, comply and grow with confidence. Vertex provides solutions that can be tailored to specific industries for major lines of indirect tax, including sales and consumer use, value added and payroll. Headquartered in North America, and with offices in South America and Europe, Vertex employs over 1,300 professionals and serves companies across the globe.
Copyright © 2022 Vertex, Inc. All rights reserved. The information contained herein is intended for information purposes only, may change at any time in the future, and is not legal or tax advice. The product direction and potential roadmap information is not a guarantee, may not be incorporated into any contract, and is not a commitment to deliver any material, code, or functionality. This information should not be relied upon in making purchasing, legal, or tax decisions. The development, release, and timing of any features or functionality described for Vertex's products remains at the sole discretion of Vertex, Inc. Any statements in this release that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to various risks and uncertainties described in Vertex's filings with the U.S. Securities and Exchange Commission ("SEC") that could cause actual results to differ materially from expectations. Vertex cautions readers not to place undue reliance on these forward-looking statements which Vertex has no obligation to update
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