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Florida is one of the last states to adopt economic nexus sales and use tax laws after the landmark Wayfair case that came down in June 2018. Prior to the Wayfair case, states could only require out-of-state businesses to collect and remit sales and use tax when the business had some kind of physical presence within the boundaries of the state. The Wayfair case allowed for states to expand their reach to out-of-state businesses by allowing them to impose sales and use tax laws on out-of-state businesses that met certain economic thresholds. Such thresholds may include either an annual gross receipts amount or a transaction count or both.
A Short History of Economic Nexus
When “physical presence” was the requirement out-of-state businesses needed to satisfy in order for states to flex their jurisdictional muscles over them, the internet provided an easy out to avoid paying tax. The rise on online sales meant that businesses could remain physically located in only one state while making voluminous sales all over the country.
As the economy changed, states began losing a substantial amount of revenue each year because they could not require online businesses to charge and collect sales tax. As the federal government failed session after session to pass any substantive sales tax law to address the dramatic loss in revenue, states grew impatient. In fact, many states grew impatient enough to pass laws in contradiction to the longstanding physical presence standard.
Such laws took a variety of forms, including affiliate nexus, click-through nexus, and economic nexus. However, it was economic nexus that the Supreme Court of the United States chose to address in South Dakota vs. Wayfair in 2018. The Court found that states could impose economic nexus thresholds in addition to the physical presence rule. Therefore, states today can require (1) businesses physically located within their boundaries as well as (2) states that make a certain dollar amount or quantity of sales to collect sales and use tax.
Florida’s Economic Nexus - Current
Immediately following the Wayfair case, states across the country rushed to issue guidance letters and state notices imposing their own economic nexus thresholds. Solidifying these state positions in the legislature, new economic nexus laws began rolling out across the country between 2018-2019. By the end of 2019, every state with a sales and use tax enacted their own economic nexus threshold except for Florida and Missouri.
How did one of the biggest states in the country fall behind the rest? The answer is unclear. Florida has proposed economic nexus legislation but it failed to pass as of the end of 2019. Regardless, without any administrative rule, state guidance, or statute, the Florida Department of Business and Professional Regulation has taken the position in litigation thatWayfair’s economic nexus threshold applies retroactively back to 2013 on tobacco excise tax. Such a liberal interpretation of Wayfair has been unheard of in the rest of the country, especially in a state without any formal economic nexus position.
In addition, the Florida Department of Revenue has aggressively been pursuing online retailers through other means. For example, Florida has assessed online retailers who make sales through Amazon when Amazon temporarily stores the retailer’s inventory within the state. Therefore, just because Florida does not have an economic nexus provision as of the end of 2019, it does not mean the state will not continue to enforce economic nexus principles or find unique ways to assess online retailers.
Florida’s Economic Nexus – Future Changes
On October 15, 2019, Senate Bill 126 was unanimously approved by the Senate Committee on Commerce and Tourism. The bill still has a long way to go to become law, but it is moving in the right direction. Senate Bill 126 enacts both Economic Nexus in Florida as well as a new Florida Marketplace Facilitator law.
If Senate Bill 126 becomes law, Florida’s economic nexus law will require remote sellers to register when they make “a substantial number of remote sales.” Don’t panic – this vague language is luckily defined to remove an ambiguity from anxious remote sellers. “Substantial” is specifically defined as (1) more than $100,000 in retail sales or tangible personal property to be delivered into Florida; or (2) 200 or more retail sales of tangible personal property to be delivered into Florida.
Meanwhile, Florida’s marketplace facilitator law would require marketplace facilitators to collect sales and use tax on all sales made through its platform when the marketplace facilitator has (1) a physical presence in Florida; or (2) Economic nexus based on the $100,000 in retail sales or 200 transaction count threshold described above.
Economic nexus will bring a dramatic increase in revenue into Florida, a state that relies heavily on sales and use tax. However, it is important to note that the new economic nexus law will not affect Florida taxpayers. Rather, it will affect taxpayers of other states who have been making sales into Florida without charging and collecting tax. If anything, this evens the playing field between in-state and out-of-state businesses.
Meanwhile, marketplace facilitators already in Florida should begin to prepare to collect sales and use tax not only on direct sales made through their platforms, but on behalf of all users making sales through their website. Companies like Amazon have already begun doing so across the country. Handling the sales tax collection and remittance for third party sellers may even benefit marketplace facilitators before SB 126 becomes law simply for convenience and uniformity for their customers. Furthermore, it may provide an additional source of revenue as your charge third party sellers for the service.
Regardless of whether SB 126 becomes law, out-of-state businesses making sales into Florida should be prepared for economic nexus to hit Florida in the near future. Nearly all states with a sales tax have enacted economic nexus laws since the landmark 2018 case South Dakota vs. Wayfair. It would be quite odd for Florida to be the lone state without such a law, especially when it would benefit so substantially from it.
Even if this legislation passes, remote sellers that have been selling through marketplace facilitators into Florida such as Amazon FBA sellers, still need to be concerned about nexus prior to any new laws. Do not expect retroactive protection from liabilities incurred prior to the legislation and, without filling sales tax returns in Florida, those prior periods will be permanently open to audit. The Florida Department of Revenue will have access to 100% of the sellers using Amazon FBA simply by auditing Amazon as the state of California has done. Any remote seller with prior nexus concerns should consider a voluntary disclosure to minimize the exposure to 3 years and removal of penalties.
Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is an executive council member of the American Bar Association Tax Section State and Local Tax Committee and the Florida Bar Tax Section. Ms. Moffa is an author of both the CCH’s Expert Treatise Library: Sales and Use Tax as well the ABA’s Sales and Use Tax Deskbook. In addition, her regular columns on state and local tax issues can be found in State Tax Notes and Actionline, a publication from the Florida Bar’s Real Property, Probate, and Trust Law Section. She also serves as assistant editor to the Sales and Use Tax Deskbook and Actionline. Ms. Moffa is a regular speaker at the American Bar Association Tax Section conferences, the Institute of Professionals in Taxation, the Florida Bar Tax Section, the Florida Bar Real Property, Probate, and Trust Law Section, and the FICPA. In her free time, she teaches as an adjunct professor at Broward College.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
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AUTHORITY
Florida Senate Bill 126, as filed August 14, 2019
Florida House Bill 159, as filed September 12, 2019
ADDITIONAL RESOURCES
Florida – Economic Nexus & Marketplace Facilitator Bill Introduced, published February 20, 2019, by James Sutton, CPA, Esq. (detailed analysis of prior FL economic nexus legislation)
Florida Nexus Questionnaire – What Is Nexus For Florida, published July 7, 2012, by Jerry Donnini, Esq. and James Sutton, CPA, Esq.
Florida Sales Tax – Voluntary Disclosure Program, published April 9, 2019, by Jeanette, Moffa, Esq.
Out-of-State Sales Tax Audit Defense, published June 18, 2019, by Jeanette Moffa, Esq.
Preparing your Online Business for an Out-of-State Sales Tax Audit, published July 2, 2019, by Jeanette Moffa, Esq.
How to Register your Online Business for Sales Tax, by Jeanette Moffa, Esq., April 6, 2019
I have nexus. What next? by Jeanette Moffa, Esq., April 4, 2019
What is Economic Nexus? by Jeanette Moffa, Esq., February 25, 2019