Sales Tax Competitiveness
In 2018, the U.S. Supreme Court ruled that states may impose taxes on entities that have a “substantial nexus” to the taxing state regardless of whether the entity has a physical presence within that state. This overrules previous Supreme Court precedent that had prevented states from levying sales tax on sellers without a physical presence, such as online purchases.
Florida does not currently tax entities without a physical presence in the State.
The U.S. Supreme Court’s 2018 ruling in South Dakota v. Wayfair took the unusual step of receding from a previous decision, Quill Corp. v. North Dakota, which had required a physical presence for a business’ sales to be taxed in a state. Since the Court’s Quill decision in 1992, interstate transactions such as catalog sales and later, internet sales, were not taxable without the seller having some sort of physical nexus in the taxing state. The Court did not expressly provide a new rule in place of the physical presence rule, but it did say that a sufficient nexus was established if a seller availed itself of the substantial privilege of carrying on business in the jurisdiction. The Federal Government Accountability Office has estimated that between $8.5 billion and $13.4 billion in sales taxes revenues on remote transactions went unrealized in 2017.
In response to Wayfair, numerous groups have called for Congress to enact federal sales tax collection legislation to standardize sales tax collections across the states so that sellers can avoid a “regulatory free-for-all.” Any federal law would likely seek to minimize the number of taxing entities within a state and require state and local sales tax uniformity.
Whether or not Congress is able to pass legislation, 43 of the 45 states and the District of Columbia that collect sales tax have laws in place that allow them to capture sales tax revenue from remote sales. Only two states, Missouri and Florida, are holdouts.
Current Impact in Florida
Currently, Florida’s retailers are at a competitive disadvantage in 43 states because Florida’s retailers are paying those state and local sales taxes, while vendors from those states are not paying sales tax in Florida. Passing legislation ensures sales tax fairness for local retailers.
This year, two bills have been filed for the 2021 Legislative Session and are currently making their way through committee meetings. The bills apply Florida’s sales and use tax laws to online/e-commerce sales from out-of-state retailers regardless of whether the entity has a physical presence within that state. If passed, the tax will take effect after July 1, 2021.
- SB 50 by Senator Gruters
- HB 15 by Representative Clemons
Massive Revenue Boost Expected
The revenue implications are likely to play a greater role in states that don’t have an income tax and, as a result, rely more on their sales tax to fund their budget as is the case in Florida.
This session, the State Revenue Estimating Conference projected the value of the out-of-state collections to increase the General Revenue Fund by $973.6 million in FY 21-22 and $1.08 billon each year after. Furthermore, an increase in local government revenues by $229.5 million in FY 21-22 and by $253.7 million each year after.
Last year, similar legislation from the State Revenue Estimating Conference estimated $320.8 million in FY 20-21 and $479 million each year after and an increase in local government revenues by $100.1 million in FY 20-21 and $132.9 million each year after.
Compared to last year’s estimates that is a 110.4 % increase from year to year in the General Revenue Fund and a 90.9% increase from year to year in local government revenues.
FAC is in support of the proposed legislation and will continue to keep a close eye on the bills as they move through the legislative process.