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

Rhea-AI Summary

Vertex, Inc. has released its Mid-Year Rates and Rules Report indicating that the average U.S. sales tax rate has reached an all-time high of 10.17%. The report highlights a significant increase in city and county tax rates, with 126 city tax increases compared to 20 decreases. Despite a leveling off of new district sales taxes with 54 newly implemented in 2022, ongoing economic factors like wage inflation and rising interest rates suggest future increases in sales tax rates. This trend could boost sales tax revenues, which are vital for funding local governments.

Positive

• Average U.S. sales tax rate reaches an all-time high of 10.17%.
• City tax rate increases (126) significantly outnumber decreases (20), indicating strong local revenue growth.
• Sales taxes provide a consistent funding method compared to income taxes during economic downturns.

Negative

• Sales tax revenues may decline if consumer spending decreases due to rising prices or a recession.
• Governments face challenges in maintaining services without further revenue increases or cuts.

Report Reveals Average U.S. Sales Tax Rate Reaches All-Time High

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:

• City and county sales tax rates soar: City tax rate increases (126) far outnumber decreases (20) by more than a six-to-one ratio, while counties enacted almost twice as many sales tax increases compared to decreases (15).
• Average U.S. sales tax reaches all-time high: Following a brief COVID-induced lull from 2020 to 2021, the average U.S. sales tax rate (which combines the average state, county, city, and district rates) resumed its upward trajectory this year, hitting 10.17%.
• Implementation of new district sales taxes begins to level off: Following the first two years of the pandemic, when districts imposed new sales taxes at a record-setting pace, the pace of new rates seem to be leveling off in 2022. During the first six months of this year, districts only implemented 54 new sales taxes compared to 127 new sales taxes enacted within the same time frame in 2021.
  

"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 additional 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.

For more information, visit www.vertexinc.com or follow on Twitter and LinkedIn. 

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

For more information, press only:
Company contact:
Marisa Norris
Vertex, Inc. 
mediainquiries@vertexinc.com
610.283.6284

Investor Relations contact:
Ankit Hira or Ed Yuen 
Solebury Trout for Vertex, Inc. 
ir@vertexinc.com 
610.312.2890 

FAQ

What is the current average U.S. sales tax rate according to Vertex's report?

The average U.S. sales tax rate has reached an all-time high of 10.17%.

How many new district sales taxes were implemented in the first half of 2022?

In the first half of 2022, 54 new district sales taxes were implemented.

What is the significance of the tax report released by Vertex on August 2, 2022?

The report highlights an increase in sales tax rates and emphasizes the importance of sales taxes for local government revenue.

What trends are affecting sales tax rates according to the Vertex report?

Trends such as wage inflation, rising interest rates, and changes in spending patterns are affecting sales tax rates.

How do city and county tax rate changes compare in the Vertex report?

City tax rate increases significantly outnumber decreases, with 126 increases compared to only 20 decreases.