Tax law changes you need to know for 2024

Whether you’re a small brick-and-mortar retailer, a midsize manufacturer, or a global enterprise company, you’ll probably be affected by a tax law change in 2024 because tax changes happen to everyone, everywhere (if not all at once).

The Avalara Tax Changes 2024 report doesn’t list every upcoming tax law change for all jurisdictions. No one guide could. But it’s chock-full of industry and tax trends, with a multitude of specific tax law changes thrown in for good measure.

So.

States continue to refine economic nexus and marketplace facilitator laws

With five years of South Dakota v. Wayfair, Inc. under their belts, states are continuing to refine the economic nexus laws that enable them to tax remote sales. There is mounting pressure for states to drop their transaction thresholds if they haven’t already, and several states will likely do so in 2024. 

Many states are also refining the marketplace facilitator laws that require online marketplaces to collect and remit sales tax on behalf of their third-party sellers. Most of the first marketplace laws focused on online retailers and sales tax, and states now need to determine whether their marketplace laws apply to other industries and taxes. 

There’s growing interest in retail delivery and bag fees

• Two states have enacted retail delivery fees

• More than 100 states and localities have enacted bag fees

Colorado and Minnesota are the only two states that have enacted retail delivery fees to date — but other states are interested in them because fuel tax revenues are declining as more drivers switch to electric and hybrid vehicles, online sales (and therefore deliveries) of tangible taxable goods are growing, and the high number of deliveries are increasing emissions and eroding roads.

A growing number of jurisdictions are also implementing local bag fees, and at least two states, Colorado and Washington, are pursuing statewide bag fees.

Such fees may not be all that noticeable on customer invoices, but they can create a surprising amount of compliance complexity for the retailers required to collect and report them.

Sales tax holidays are out of control

• There were 122,974 sales tax holiday rule updates in 2022

• There were at least 45 sales tax holidays across 24 states in 2023

If a little bit of a good thing is good, a lot of a good thing must be better, right? Well, when it comes to sales tax holidays, maybe not.

Sales tax holidays make consumers happy because no one wants to pay sales tax and everyone likes a bargain. Whether sales tax holidays actually are a bargain for consumers is an open question — some retailers may jack up prices during sales tax holidays — but tell that to someone gone glassy-eyed over saving 6% sales tax.

For retailers, especially retailers that are registered to collect and remit sales tax in multiple states, sales tax holidays can be a real burden. Nonetheless, several states are trending toward longer, broader sales tax holidays. So there’s that.

Taxes go on, taxes come off

Numerous states are providing new sales tax exemptions for essentials, such as diapers, groceries, and tampons, as well as for a variety of other goods or services. On the flip side, some states are broadening sales tax to products or services that were previously exempt. While the specific products, services, states, and rates differ from state to state, new exemptions and new sales taxes are something we see every year — and indeed several times a year.

A few anomalies have been proposed. Maine briefly considered a seasonal sales tax that would impose a higher rate of sales tax on goods or services favored by visitors. New York has introduced a bill that would lower the sales tax rate for small, in-state businesses. 

And of course, there are always sales tax rate changes to report.

Home-rule sales tax continues to be a pain point for businesses

• There are five home-rule states: Alabama, Alaska, Arizona, Colorado, and Louisiana

• There are more than 70 home-rule jurisdictions in Colorado

• There are approximately 449 self-administered localities in Alabama

In a handful of states, local governments can administer and levy local sales taxes themselves. These home-rule sales taxes tend to eat up a lot of time for businesses, as they may require registering with and remitting to local tax authorities in addition to state departments of revenue.

All home-rule states are working to simplify sales tax compliance for in-state and out-of-state businesses, but the road to simplification is long and has a lot of speed bumps. We examine some of the most pressing issues of the day in the Avalara Tax Changes 2024 guide.

States are still catching sales tax laws up to technology

We’ve been reading ebooks for close to 20 years and streaming music and videos for even longer, but some states still haven’t updated their sales tax laws to account for digital goods and services. As technology and commerce continue to charge into new frontiers, such as digital ad taxes, the metaverse, and NFTs, tax laws are falling further behind the times.

Tax authorities may be hesitant to establish new tax laws for new tech because it can be hard to change a tax policy once it’s set, and new taxes often lead to legal challenges. There are also a number of knots to unravel, such as sourcing challenges. But as more money changes real (or virtual) hands, new tax policies are bound to follow. 

Online marketplaces and third-party settlement organizations (TPSOs) should have spent 2023 gearing up for a dramatic decline in the 1099-K reporting threshold, which was set to apply to tax year 2023. Yet on November 21, 2023, the IRS pushed back the effective date for the lower threshold.

It now looks like the reporting threshold for the 1099-K will drop from the current $20,000 in aggregate income and more than 200 transactions to $5,000 (and no transaction threshold) for tax year 2024. The effective date for the $600 threshold previously set for tax year 2023 has yet to be announced.

In the U.S., businesses are leading the e-invoicing charge because these machine readable digital files can be automatically exchanged and processed by accounting and ERP systems, streamlining tax reporting and improving accuracy. 

Elsewhere in the world, e-invoicing and live reporting mandates are proliferating because they can help increase tax collections, reduce tax gaps, and streamline tax reporting overall. More than 60 countries require (or soon will) electronic invoices for certain types of businesses or transactions.

“Taking advantage of technology can help tax agencies rethink their digital workflows and data management,” says Liz Armbruester, EVP of Customer and Compliance Operations at Avalara, “while also ensuring a better taxpayer experience.”

The European Commission is working to bring value-added tax (VAT) into the digital age. ViDA, as the plan is called, is designed to level the tax playing field for all businesses operating within the European Union. A number of changes set to take effect in 2024 and 2025 will impact ecommerce sellers, e-invoicing, and marketplace platforms.

Starting January 1, 2025, ViDA will also make the EU’s Import One-Stop Shop (IOSS) scheme mandatory for marketplaces facilitating low-value imports into the EU. Marketplaces and ecommerce platforms will face additional requirements starting in 2028, when they’ll be the “deemed importers” responsible for collecting VAT and customs duties from customers at the point of sale.

These are just some of the global tax changes addressed in our 2024 guide.

Electric and hybrid vehicle mandates are reshaping fuel taxes. Internet of Things (IoT) devices are complicating communications tax compliance. Consumer preference for low-alcohol, no-alcohol, and ready-to-drink beverages are causing states to rethink their beverage alcohol taxes. Short-term rental restrictions are shaking up the lodging industry and impacting occupancy tax collections. Manufacturers are getting on the anything as a service (XaaS) bandwagon with servitization.

Finally, businesses across all industries — and governments too — are discovering how automation, artificial intelligence, and other technologies can improve efficiencies and streamline tax compliance.

No parallel universe will save you from the tax law changes that impact your business. You have to confront them head-on, and to do that, you have to know what’s coming down the pike. 

Get an insider’s view of 2024 tax changes at the Avalara Tax Changes 2024 webinar. Save your seat here.

Read Avalara Tax Changes 2024.