A TaxWatch Top Issue
The most significant tax compliance and collection issue facing Florida and other states is the application of sales and use taxes on sales by remote vendors. Remote vendors are those without a physical presence, or “nexus,” in a state. These transactions can be performed by telephone, mail and Internet.
The U.S. Supreme Court has ruled (Quill Corp. v. North Dakota) that a retailer must have a physical presence in a state for that state to require the out-of-state retailer to collect sales and use taxes from in-state purchasers. Therefore, when a Floridian makes a purchase from a seller located outside of Florida, the remote seller does not have to collect the sales and use tax at the time of the transaction, although the tax is still legally owed to the state by the Floridian.
However, few Florida residents know that they are required to pay the sales tax owed on remotely conducted transactions directly to the Florida Department of Revenue (DOR), and even fewer actually make such payments. This situation is costing Florida’s state and local governments hundreds of millions of dollars. Moreover, not requiring internet sellers to collect sales tax erodes Florida’s tax base and creates an unfair advantage over “bricks-and-mortar” retailers and “clicks and bricks” retailers with both online and traditional stores. A 6 to 7.5 percent price break is hard to overcome for Florida’s retailers.
Due to a lack of state-specific e-commerce data, estimates of the sales tax revenue on remote sales that are not collected vary. A 2009 study estimates Florida’s sales tax losses from uncollected e-commerce sales at $803.8 million for FY2011-12. Another report in 2011 estimated tax revenue losses of $454 million in 2012. While federal action is needed to mandate that all remote sellers collect and remit Florida sales taxes, there are two avenues Florida can take to begin collecting some of the taxes due: the Streamlined Sales and Use Tax Agreement (SSUTA) and “affiliate” legislation to expand which companies must collect and remit the sales tax.
The SSUTA provides an opportunity for Florida to begin collecting money from a compact of sellers that voluntarily collect the tax and remit to SSUTA states. The SSUTA is the result of the cooperative effort of 44 states, Washington, D.C., local governments, and the business community to simplify sales and use tax laws and minimize costs and administrative burdens on retailers that collect sales tax. It levels the playing field so that local “brick-and-mortar” stores and remote sellers operate under the same rules. Florida joined the coalition in 2002 but, despite broad support, legislation to bring Florida fully into the SSUTA has not been enacted. Twenty-four other states (representing more than one-third of the nation’s population) have passed such a law, with Georgia and Utah being the most recent additions.
Recent “affiliate” legislation considered in Florida provides that a representative of a dealer, in addition to an agent, soliciting or transacting business in a state may cause the dealer to have nexus for mail order sales. This legislation asserts nexus over remote retailers that are related to in- state companies, such as an out-of-state retailer that holds a substantial interest in an in-state retailer. Further, “click-through” provisions assert nexus exists if an out-of-state internet retailer pays an in-state agent for advertising or referring customers from their website.
There are already more than 1,400 retailers voluntarily collecting and remitting sales tax revenue to SSUTA member states. These retailers have remitted $1.4 billion in sales and use tax revenues to member states, and this amount is rising. Given the rate of growth in Internet sales transactions and the growth of revenue collected though the compact, it is not unreasonable to assume a 10 percent growth per year in collections, at least in the short-term. Moreover, state and local governments will collect significantly more revenue if the federal government requires remote retailers to collect and remit the sales and use tax.
COST SAVING ESTIMATE: If Florida were to collect a percentage of the total equal to its percentage of population among the participating states, it would bring in approximately $72 million in additional sales taxes through the SSUTA in 2015. A revenue estimate of “E-Fairness” legislation has not been developed; however, it would likely be even higher than the estimated revenue from SSUTA.