Florida moves closer to Wayfair nexus standard

The Sunshine State seems to be on the verge of requiring more online merchants to collect sales and use taxes from customers.

The U.S. Supreme Court significantly expanded the ability of state and local governments to impose sales and use tax obligations on remote businesses in its South Dakota v. Wayfair decision in June 2018. It did so by replacing the physical presence nexus standard with “economic presence” — the amount of economic activity occurring in a state. In other words, a business that does not have a physical location in a state but sells products in that state above certain thresholds would still be required to collect and remit sales tax in that state. Forty-three of the 45 states that impose a general sales tax and the District of Columbia have adopted theWayfair economic nexus standard. The only holdouts have been Florida and Missouri.

Both states have made significant moves in their legislatures to pass Wayfair-like bills, but Florida seems more likely to have a bill on the desk of their governor during this legislative session.

The last year has been a particularly difficult one for states, as tax revenue cratered for many. The Tax Foundation reported that during the first nine months of 2020, state tax revenues in Florida were 8 percent below the same period a year earlier. Particularly hard hit were sales and use tax collections as in-person sales and tourism dropped to record levels due to the pandemic. The Florida legislature has responded by introducing legislation that would result in the adoption of economic nexus rules. Some economists estimate this change could increase tax revenue in the state by as much as $1 billion at a time when revenues are sorely needed.

Online shopping increase

In 2020, e-commerce made up 20 percent of all retail sales, compared to 16 percent in 2019. This was the result in changing consumer behavior, driven in large part by COVID-related shutdowns. Legislative and business leaders have pointed out that Florida actually puts small local retailers at a disadvantage, since these businesses remain obligated to collect sales taxes even though out-of-state sellers do not.

The Florida legislature has aggressively moved forward with its plans to impose sales tax obligations on out-of-state sellers, by introducing legislation in the Florida Senate and House. The proposed bills would implement both the economic nexus and marketplace facilitator laws that would require out-of-state remote sellers to collect taxes on sales into Florida or the “marketplace provider,” such as Amazon Marketplace or Etsy, to collect sales tax for the out-of-state remote seller.

A Florida Senate panel unanimously passed SB 50 on March 4, which would require remote sellers to collect and remit sales and use tax and expand the definition of retail sales to include marketplace facilitators. The bill would require remote sellers and marketplace facilitators to collect and remit tax if they had more than $100,000 in gross sales in 2020. This would be effective on July 1, 2021. The next step for this bill is a full floor vote in the Senate during this term.

Key provisions of the bill include the following:

• The Mail Order Nexus statute is amended to provide that remote sellers with sufficient economic activity in the state are deemed to be Florida dealers who are required to collect and remit Florida sales tax on goods (not services) delivered to customers in the state.
• The threshold for economic nexus is $100,000 of sales during the previous calendar year (with 2020 as the initial threshold year).
• Sales made through and taxed by a marketplace provider do not count toward the $100,000 economic nexus threshold and should not be reported as sales by the remote seller.
• There is no minimum number of transactions to establish economic nexus. The only threshold that applies is $100,000 in annual sales.
• A marketplace provider is subject to the sales tax collection and remittance requirements imposed on dealers in Florida.
• A marketplace provider is defined as “a person who facilitates a retail sale by a marketplace seller by listing or advertising for sale by the marketplace seller tangible personal property in a marketplace, and who directly, or indirectly through agreements or arrangements with third parties, collects payment from the customer and transmits the payment to the marketplace seller, regardless of whether the marketplace provider receives compensation or other consideration in exchange for its services.”
• A marketplace provider can recover tax, interest and penalties from the marketplace seller if incomplete or inaccurate information is given to the provider.
• A person subject to the requirements of the statute to collect and remit the tax on remote sales is relieved of liability for tax, penalty and interest due on remote sales that occurred before July 1, 2021, provided they register with the Florida Department of Revenue before Oct. 1, 2021. This is intended to provide relief to a marketplace seller for remote sales made before July 1, 2021, which were facilitated by a marketplace provider. The relief doesn’t apply to a person who is under audit; has been issued a bill, notice, or demand or payment; or is under an administrative or judicial proceeding before July 1, 2021.

What comes next

It is anticipated that the Florida legislature will pass the legislation during this legislative session, which is scheduled to end on April 30. Governor Ron DeSantis, who has been against similar legislation in the past, is likely to sign the bill into law if it makes it to his desk.

Given the fact that the law would take effect on July 1, 2021, and the first threshold year to determine whether $100,000 in gross sales is exceeded is 2020, it is essential that remote sellers and marketplace providers begin planning for these sales and use tax compliance requirements as soon as possible. In particular, marketplace providers will need to be fully prepared on July 1 to have all of their processes and systems in place to properly calculate and collect sales and use tax as of that date. Then, they should be prepared to remit the tax and file the required returns to the Florida Department of Revenue on the next filing date, assuming the $100,000 threshold has been met.