Tax preparation and planning is a year-round activity. But with business regulations changing so frequently, financial professionals must stay on top of an evolving set of compliance concerns.
What tax changes are in store for 2023? Here are some of the largest concerns today’s businesses face.
Fragmented Sales Tax Requirements
The U.S. Tax Administration lists nearly 20 states with sales tax holidays in 2022. Some of these had multiple sales tax holiday periods that affected specific segments of the state. Similar holidays will likely occur in 2023, though they typically aren’t announced until mid-year.
Sales tax already varies from state to state, but these fragmented holiday periods can be challenging for retailers to keep up with. Online merchants have to pay particular attention to these changes and holidays, as they’re uniquely affected by out-of-state tax requirements.
Sales Tax Exemptions
Tax changes also impact specific sectors and consumer goods. For example, the following sectors and products received sales tax exemptions in 2022:
- Residential energy (Rockland County, New York)
- Children’s diapers (Indiana and New York)
- Diapers and feminine hygiene products (Colorado and Iowa)
These recent changes are only a small sampling of sales tax changes that have occurred in the last year alone. Retail businesses will have to adapt quickly lest they face steep audit penalties for failing to adhere to new sales tax requirements.
State Tax for E-Commerce Merchants
Many businesses are still trying to keep up with 2018’s South Dakota v. Wayfair decision. Prior to this Supreme Court decision, states were only permitted to tax businesses that had a physical presence within that state. But now, states can tax companies that operate an economic nexus within that state.
Since even brick-and-mortar merchants often dabble in online sales, this decision can have a ripple effect on companies that expand into new territories.
Even though the decision is five years old as of 2023, many businesses still aren’t properly registered. Failing to do so could result in severe financial penalties and may even prevent companies from doing business in those states.
U.S. businesses are quickly adapting to cryptocurrency and NFTs, but the law has yet to fully catch up. Should NFTs be governed by the same tax regulations as traditional currency? If so, how can businesses account for sudden swings in the price of a coin or digital asset?
At present, the answers to these questions are unclear. But as the metaverse comes into sharper focus, such considerations may take higher priority. Companies that have dabbled in crypto payments may need to evaluate how they handle these digital currencies.
The Inflation Reduction Act
The Inflation Reduction Act (IRA) has doubled the Research & Development tax credit, allowing companies to claim a maximum of $500,000 for qualified research activities.
Other businesses may want to investigate renewable energy tax credits, but the IRA permits you to take a 15% alternative minimum tax even if you don’t qualify.
Because of the scope of these options, businesses will need to make changes to their broader strategic planning. Doing so could help you reduce your overall tax liability and provide incentive for new business initiatives.
The FUTA Credit Reduction
The COVID-19 pandemic brought a number of changes to the way businesses were taxed. But some of these changes are expiring in 2023 and 2024.
For example, during the pandemic, many states opted for Title XII loans, which allowed them to pay unemployment benefits by borrowing from the federal government.
If your company operates in one of these states, the loan must be repaid by November 10, 2023. Otherwise, you may owe additional Federal Unemployment Tax (FUTA) beginning in 2024.
Audits have always been a concern for every business, but the Inflation Reduction Act brings additional funding for IRS agents and investigative technology.
Additionally, the SEC is cracking down on “greenwashing,” where businesses boast of taking on sustainability initiatives (or even claim tax credits for them) without actually following through.
If your company uses sustainability practices as part of your marketing or financial strategy, you’ll need to make sure you have thorough documentation to back it up.
Continued Inflation Concerns
Economists predict the U.S. will face a “mild recession” in 2023. This means that the inflationary concerns of 2022 will largely continue.
For many businesses, this may mean adjusting spending to reflect the current state of the economy. It’s wise for financial personnel to be proactive and strategically plan expenditures and deductions to reduce their employers’ tax liability for the year.
Staying Informed on Tax Changes
With so many changes happening throughout the coming year, it’s important that company leadership stay on top of evolving policy changes and tax regulations.
As with anything in business, flexibility is key. Staying informed of tax changes that affect your company will improve your efficiency, reduce your risk, and provide a path to flourishing in the coming year. Join the growing Controllers Council community to stay informed on tax changes and discuss with your peers.
Additional Tax Resources
The Controller’s Guide to Streamlined Sales Tax