Remote Sellers and Marketplaces Must Prepare Now
In June of 2018, the Supreme Court in South Dakota V. Wayfair greatly expanded the ability of state and local governments to impose sales and use tax obligations on remote businesses. It did so by replacing the physical presence nexus standard with “economic presence” — the amount of economic activity occurring in the state. Forty-three of the 45 states that impose a general sales tax and the District of Columbia have adopted the Wayfair economic nexus standard. The only holdouts have been Florida and Missouri.
This blog will cover recent developments in Florida as the state marches closer to subjecting remote sellers to sales its sales and use taxes.
Florida Sees a Drop in Tax Collections in 2020
Last year was a difficult one for most states as in-person sales and use tax revenues declined significantly. Florida experienced a drop in sales and use tax collections drop year-over-year as in-person sales and tourism dropped due to the pandemic. The Florida legislature has responded by introducing legislation that would result in the adoption of economic nexus. Economists estimate that this change could increase tax revenue in the state by as much as $1 billion at a time when revenues are sorely needed.
Remote Selling and Online Shopping Dramatically Increased
In 2020, COVID changed consumer buying behavior, accelerating the continuing shift to ecommerce. 20% of retail sales came through ecommerce, up from 16% in 2019. This hit Florida particularly hard since it relies heavily on tourism, which took a major hit in 2020. Further, 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.
Florida Legislation Would Subject Remote Sellers to Collect and Remit Sales Tax
The Florida legislature has aggressively moved forward looking to impose sales tax obligations on out-of-state sellers, by introducing legislation in the Florida Senate and House. The bills would implement both economic nexus and marketplace facilitator laws that would require out-of-state (remote) sellers to collect sales tax on sales into Florida or the “marketplace provider,” such as the Amazon Marketplace, Etsy, to collect sales tax for the out of state, remote seller.
On March 4, 2021, a Florida Senate panel unanimously passed SB 50 that 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.
Key provisions of the bill include the following:
Amends the Mail Order Nexus statute (implemented in 1987) to say remote sellers that have enough economic activity in the state will be deemed Florida dealers required to collect and remit Florida sales tax on goods (not services) delivered to a customer in Florida.
The threshold of economic nexus will be $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 towards the $100,000 economic nexus threshold and should not be reported as sales by the remote seller.
There is no threshold of the minimum number of transactions to create nexus, so 10,000 items sold into Florida for $5 per unit would not trigger economic nexus.
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.”
The Florida Department of Revenue may audit the Marketplace Provider, but it is relieved of tax liability if the Marketplace Provider demonstrates that it made reasonable efforts to obtain accurate information related to the retail sales, but the failure to collect and pay the correct amount of tax imposed under this chapter was due to incorrect or incomplete information provided by the marketplace seller.
The Marketplace Provider may recover state-imposed tax, interest, and penalties from the Marketplace Seller if incomplete or inaccurate information is provided to the Marketplace Provider.
It is anticipated that the Florida legislature will pass this legislation during this legislative session that is scheduled to end on April 30. The Governor, 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 this law would take effect on July 1, 2021, and the first threshold year to determine whether $100,000 in gross sales is exceeded, 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 as defined under this bill will need to be fully prepared to have all of their processes and systems in place to properly calculate, collect, remit sales and use tax, and file the required returns.
If you would like to learn more about the Wolters Kluwer CPA Partner Program and how to address client sales tax compliance needs, sign up for a demo.
If you have questions, concerns or need additional insight on your situation, you can reach out to author and sales and use tax expert, Mark Friedlich at firstname.lastname@example.org.
NOTE: CCH Incorporated is not engaged in rendering legal, accounting, tax or other professional services. If legal, accounting, tax or other expert assistance is required, the services of a competent professional should be obtained.
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