Taxes and the pandemic: not always what you expect
The COVID-19 pandemic has had a huge impact on the tax world – but not always in the way people and governments expect.
For example, state tax revenues in the United States have held up better than people thought, according to Kim Reuben, senior researcher and director of the Public and Local Finance Initiative at the Urban Institute. âThe big picture is that we are in much better shape than we thought around this time last year,â she told the Crush conference audience of tax solutions provider Avalara, held online this week. âAt that time, states expected large declines in income, from surpluses to billions of dollars in deficits. It ended up being better than most states thought: Incomes were quite stable … As many people continued to work from home, income taxes remained quite high and sales taxes were reduced. moved online and were not as low as expected.
She acknowledged that there was a lot of variation between and within states – citing Nevada, Texas and Alaska as examples of states that have been hit harder than most, and noting a divide between cities. central business and tourist hubs where tax revenues have plummeted, and rural and suburban areas that depend on property taxes, which have risen as people leaving metropolitan areas have pushed up prices – but said that the general mood was much less apocalyptic than in March and April 2020.
âMost states are catching their breath as things are going better than they expected, but they are looking at their systems and seeing if they are fair to local businesses vis-Ã -vis online businesses,â he said. she declared. For example, she expects them to look to impose the same kind of tax burden on online and Airbnb-style roommates businesses that they currently place in local hotels.
And while she said states are investigating other sources of revenue as well – from sports betting and taxation services to the legalization and taxation of marijuana – she generally expects their efforts to tax. are not so strenuous.
âI think we’re going to see a little less surveillance,â she said. âLast year we thought it would end up causing states to do a lot of oversight and try to eliminate fraud and make sure everyone was paying. Right now, I think there will be a part of it, but a lot of it will be this leveling of the playing field between local businesses and online or national businesses. The fact that states and local governments can breathe a sigh of relief means we won’t quite see the level of repression, but I think as things change places are going to try to make sure that their local businesses are doing well. . “
Speaking on the same panel, Diane Swonk, the chief economist of Top 10 Company Grant Thornton, added that states will also seek to support their most disadvantaged urban centers. âThey can’t cut taxes in these hard-hit areas,â she said, highlighting restrictions on federal aid, âbut they can freeze them.
This will help them make the most of the post-pandemic world. âAs the economy unleashes pent-up demand and workers shift from working at home to a more hybrid environment, the economy will explode, pulled by state and local governments as they bring workers back – it will be a extraordinary explosion of economic activity, âshe predicted.
Swonk and Reuben both stressed the essential role of federal stimulus programs. âWe have learned from the mistakes of the past – we are transferring a huge amount of money to state and local governments,â said Swonk, noting that the process and the need to do so is underway. “You have to protect yourself so it’s more of a marathon than a sprint – we’ve gone from trying to beat the pandemic to managing it.”
âThe world on the other side is going to be very complex,â she warned. âBusinesses will need to keep this in mind when developing their tax strategies. It’s easy to say, “ I’m going to a low cost or low tax area, ” but they can charge much higher pay for big houses for people working from home or for private schools, or they may face smaller talent pools. , or a lack of infrastructure âin areas such as health care and education.
The fiscal and stimulus situation in the United States may look better than anyone could have hoped just a year ago, but that is not necessarily the case elsewhere in the world, according to Swonk.
âThe world situation is really very different,â she said. âMany countries did not have the same access to debt markets as we did, so they couldn’t necessarily mobilize the emergency aid and the aid we could, so we are leading the way. We’re going to see a lot of countries that need to increase their tax revenues, and that’s going to make it harder for them to get out of it. “
This will have major implications for businesses in those countries and for US businesses looking to improve their own collection by selling abroad, where tax processes are already very different.
“It’s no exaggeration that tax authorities around the world have access to business accounting records and continue to digitize tax returns in general,” Liz Armbruester, senior vice president of global compliance at Avalara, told attendees by Crush. âSixty countries have or plan to implement real-time tax compliance or electronic invoicing. It is not happening in the United States yet, but it is coming. “
US businesses will need to be prepared for these different tax regimes. âBusinesses need to make sure they have all compliance steps lined up and ready to go – they risk fines, and even goods stopped at the border.â
She listed five things to keep in mind for companies selling products beyond their region, and especially those selling internationally:
- Know where and when they have the obligation to collect taxes such as VAT;
- If they have an obligation, ensure that they register with the appropriate tax administration;
- Know what is taxable and what is not;
- Calculate precise rates; and finally,
- Collection and remittance of taxes.
âIt’s a lot to manage and a lot to do in a short period of time,â she said. âCompanies can’t do it all on their own – this is an opportunity for automation and advisor help.â