In the wake of the South Dakota v Wayfair US Supreme Court holding on June 21, 2018, states around the country have been scrambling to create new “economic nexus” laws. Mimicking South Dakota’s law, most states are enacting laws that assert taxing jurisdiction over out of state companies that sell more than $100,000 of taxable goods or services OR 200 or more transactions into the state. The individual state laws vary slightly with the dollar threshold or the number of transactions, but they are all very similar. Florida was highly expected to jump on the bandwagon and Florida Senate Bill 1112 was introduced to do just that. Interestingly, the proposed statute would not only create an economic nexus law, but would also create what is commonly known as a “marketplace facilitator” statute as well. Oh… and the bill also suggested reducing the sales tax on commercial rent from 5.7% to 4.2%, presumably funded by the increase in sales tax review from these new nexus laws. The legislation, if enacted, would be effective July 1, 2019. Continue reading for further explanation on these two types of statutes and the text of the statutes themselves.
ECONOMIC NEXUS
In what seems like a prior life, multistate sales tax used to be easy if your business only had physically presence in one state. The US Supreme Court, interpreting the Commerce Clause, denied a state from having jurisdiction over a remote seller that did not have a physical presence in that state. With the Court’s holding in South Dakota v Wayfair, the physical presence bright line standard is no more and a level of economic activity (sales) into the state is all that is required to remove the handcuffs from the state’s taxing jurisdiction on remote sellers. As of the date of this article, 30 states have enacted economic nexus laws with varying effective dates. So if your company (or your client) is selling across state lines and sells more than $100,000 or does more than 200 transaction into any remote state with a sales tax, then it is probable that you have sales tax liabilities accruing in those states.
It appears that Florida will also be jumping on the economic nexus bandwagon. Senate Bill 1112 was introduced on February 15, 2019 with proposed legislation to modify Florida’s mail order nexus statute to mimic South Dakota’s law. The proposed legislation would modify section 212.0596 to include “remote sales” of a “substantial number,” which is defined as 200 or more separate retail sales of tangible person property or services taxable under Chapter 212 or more the $100,000 of such sales in the previous calendar year. The prior mail order statute exempted out of state sellers from collecting the local surtax, but that exemption has been removed in the proposed bill. The statute also appears to apply to sales of goods are services that are taxable under Chapter 212, even if the sales are ultimately exempt from sales tax. So a wholesale company who has $100,000+ sales into Florida that are 100% exempt under the sale for resale exemption would still be considered to have economic nexus under this bill.
One other interesting thing about the proposed legislation is that the changes only apply to sellers of taxable tangible personal property and services, but not the rental of real property. So it is feasible that online travel companies and vacation rental web sites, like VRBO, HomeAway, and AirBNB would not be considered remote sellers under the proposed legislation.
Below are the proposed revisions to section 212.0596, F.S., which would create and economic nexus statute in Florida:
(1) For purposes of this chapter, a “remote mail order sale” is a retail sale of tangible personal property or services taxable under this chapter which is, ordered by mail, telephone, the Internet, or other means of communication, from a dealer who receives the order outside of this state in another state of the United States, or in a commonwealth, territory, or other area under the jurisdiction of the United States, and transports the property, or causes the property to be transported, or provides the services whether or not by mail, from any jurisdiction of the United States, including this state, to a person in this state, including the person who ordered the property or services.
(2) Every dealer as defined in s. 212.06(2)(c) who makes a remote mail order sale is subject to the power of this state to levy and collect the tax imposed by this chapter when any of the following applies:
(a) The dealer is a corporation doing business under the laws of this state or is a person domiciled in, a resident of, or a citizen of, this state.;
(b) The dealer maintains retail establishments or offices in this state, regardless of whether the remote mail order sales thus subject to taxation by this state result from or are related in any other way to the activities of such establishments or offices.;
(c) The dealer has agents in this state who solicit business or transact business on behalf of the dealer, regardless of whether the remote mail order sales thus subject to taxation by this state result from or are related in any other way to such solicitation or transaction of business, except that a printer who mails or delivers for an out-of-state print purchaser material the printer printed for it is shall not be deemed to be the print purchaser’s agent for purposes of this paragraph.;
(d) The property was delivered in this state in fulfillment of a sales contract that was entered into in this state, in accordance with applicable conflict of laws rules, when a person in this state accepted an offer by ordering the property.;
(e) The dealer, by purposefully or systematically exploiting the market provided by this state by any media-assisted, media-facilitated, or media-solicited means, including, but not limited to, direct mail advertising, unsolicited distribution of catalogs, computer-assisted shopping, television, radio, or other electronic media, or magazine or newspaper advertisements or other media, creates nexus with this state.;
(f) Through compact or reciprocity with another jurisdiction of the United States, that jurisdiction uses its taxing power and its jurisdiction over the retailer in support of this state’s taxing power.;
(g) The dealer consents, expressly or by implication, to the imposition of the tax imposed under by this chapter.;
(h) The dealer is subject to service of process under s. 48.181.;
(i) The dealer’s remote mail order sales are subject to the power of this state to tax sales or to require the dealer to collect use taxes under a statute or statutes of the United States.;
(j) The dealer owns real property or tangible personal property that is physically in this state. For purposes of this paragraph, except that a dealer whose only property, (including property owned by an affiliate,) in this state is located at the premises of a printer with which the vendor has contracted for printing, and is either a final printed product, or property that which becomes a part of the final printed product, or property from which the printed product is produced, is not deemed to own such property. for purposes of this paragraph;
(k) The dealer, while not having nexus with this state on any of the bases described in paragraphs (a)-(j) or paragraph (l), is a corporation that is a member of an affiliated group of corporations, as defined in s. 1504(a) of the Internal Revenue Code, whose members are includable under s. 1504(b) of the Internal Revenue Code and whose members are eligible to file a consolidated tax return for federal corporate income tax purposes and any parent or subsidiary corporation in the affiliated group has nexus with this state on one or more of the bases described in paragraphs (a)-(j) or paragraph (l).; or
(l) The dealer or the dealer’s activities, have sufficient connection with or relationship to this state or its residents of some type other than those described in paragraphs (a)-(k), result in making a substantial number of remote sales under subsection (3) to create nexus empowering this state to tax its mail order sales or to require the dealer to collect sales tax or accrue use tax.
(3)(a) Every person dealer engaged in the business of making a substantial number of remote mail order sales is a dealer for purposes of this chapter subject to the requirements of this chapter for cooperation of dealers in collection of taxes and in administration of this chapter, except that no fee shall be imposed upon such dealer for carrying out any required activity.
(b) As used in this section, the term “making a substantial number of remote sales” means:
1. Conducting 200 or more separate retail sales of tangible personal property or services taxable under this chapter in the previous calendar year to be delivered to a location within this state; or
2. Conducting any number of retail sales of tangible personal property or services taxable under this chapter in an amount exceeding $100,000 in the previous calendar year to be delivered to a location within this state.
For purposes of this paragraph, tangible personal property or services taxable under this chapter which are delivered to a location within this state are presumed to be used, consumed, distributed, or stored to be used or consumed in this state.
(4) The department shall, with the consent of another jurisdiction of the United States whose cooperation is needed, enforce this chapter in that jurisdiction, either directly or, at the option of that jurisdiction, through its officers or employees.
(5) The tax required under this section to be collected and any amount unreturned to a purchaser that is not tax but was collected from the purchaser under the representation that it was tax constitute funds of the State of Florida from the moment of collection.
(6) Notwithstanding other provisions of law, a dealer who makes a mail order sale in this state is exempt from collecting and remitting any local option surtax on the sale, unless the dealer is located in a county that imposes a surtax within the meaning of s. 212.054(3)(a), the order is placed through the dealer’s location in such county, and the property purchased is delivered into such county or into another county in this state that levies the surtax, in which case the provisions of s. 212.054(3)(a) are applicable.
(7) The department may establish by rule procedures for collecting the use tax from unregistered persons who but for their mail order purchases would not be required to remit sales or use tax directly to the department. The procedures may provide for waiver of registration, provisions for irregular remittance of tax, elimination of the collection allowance, and nonapplication of local option surtaxes.
MARKETPLACE FACILITATOR
In additional to the wave of economic nexus legislation flowing across the country, many states have been enacting a different type of statute aimed at the internet marketplaces like Amazon and Ebay that allow smaller companies to use their internet platform to market their goods and services. Known as “Marketplace Facilitator Statutes,” the laws pull the marketplace into the responsibility loop for collecting and remitting the sales tax for sales flowing through the marketplace, with certain exceptions. Generally, these laws break down different rules for “marketplace providers,” like Amazon, and “marketplace sellers” which are the smaller companies that sell through Amazon’s online platform. The proposed Senate bill 1112 introduces a Marketplace Facilitator statute for Florida.
Marketplace facilitator type statutes are hailed by many smaller businesses as a solution to the sales tax nightmare for online retailers that merely use platforms such as Amazon and Ebay. Sales tax compliance can be a nightmare for any company, but it can be completely overwhelming for a small company with very thin profit margins. Companies like Amazon have the technology and resources to handle sales tax compliance for everyone that uses their platform.
There are many exceptions within these Marketplace Facilitator type of statutes as well as surprisingly overbroad aspects that might catch a lot of companies of guard. From the exception side of things, sales made through a marketplace provider are NOT considered sales for economic nexus purposes for the marketplace seller as written in this bill. That could exclude many, many small internet retailers from registration, collection, and remitting if they primarily sell through a marketplace provider. The marketplace provider is also relieved of tax liability (responsibility back on marketplace seller) if the marketplace seller did not provide accurate or complete information to the marketplace provider to determine whether tax was due. If the marketplace seller has nexus in Florida, then the legislation appears to require the marketplace seller to collect and remit the tax instead of the marketplace provider. Also of particular note, there is no discussion in the statute about exempt sales or related documentation.
As to the overbroad aspect of the bill, it is obvious that the marketplace statutes are designed to apply to companies like Amazon and eBay. However, I believe there will be companies and entire industries that may be surprised that the proposed language may make their company a “marketplace provider.” The proposed legislation states that any of the following activities provided by the marketplace to the seller would pull the marketplace provider into the responsibility loop for sales tax:
a. Providing payment processing services
b. Providing fulfillment or storage services
c. Listing Products for sale
d. Setting prices
e. Branding sales as those of the marketplace provider
f. Taking Orders
g. Advertising or promoting
h. Providing customer service or accepting or assisting with returns or exchanges
Reading this list, several companies come to mind, such as Craigslist, which merely matches buyers and sellers. Google itself “lists products for sale” and does “Advertising or promoting” of goods or services. I don’t believe anyone remotely considered pulling in a company like the advertising juggernaut Google into the meaning of the statute, but overbroad statutes tend to have unintended consequences. There are a huge number of credit card processing firms that provide “payment processing services” for retailers. I have no doubt that some non-internet industries will fall within the technical verbiage of the legislation, such as the SkyMall magazine which advertises products for various companies when we fly the friendly skies.
If this list of activities remains so overbroad in the final legislation, then I suppose we are simply supposed to trust that our state taxing authority will use common sense when choosing which industries to implement the statute against. This should be interesting…
Below is the proposed addition of section 212.05965, F.S., which would create and marketplace facilitator statute in Florida:
212.05965 Taxation of marketplace sales.—
(1) As used in this section, the term:
(a) “Marketplace” means any physical place or electronic medium through which tangible personal property or services taxable under this chapter are offered for sale.
(b) “Marketplace provider” means any person who facilitates through a marketplace a retail sale by a marketplace seller and engages:
1. Directly or indirectly, including through one or more members of an affiliated group as defined in s. 1504(a) of the Internal Revenue Code of 1986, in any of the following:
a. Transmitting or otherwise communicating the offer or acceptance between the buyer and seller.
b. Owning or operating the infrastructure, whether electronic or physical, or the technology that brings buyers and sellers together.
c. Providing a virtual currency that buyers are allowed or required to use to purchase products from the seller.
d. Software development or research and development activities related to any of the activities described in subparagraph 2., if such activities are directly related to a marketplace operated by the person or by an affiliated group; and
2. In any of the following activities with respect to the seller’s products:
a. Providing payment processing services.
b. Providing fulfillment or storage services.
c. Listing products for sale.
d. Setting prices.
e. Branding sales as those of the marketplace provider.
f. Taking orders.
g. Advertising or promoting.
h. Providing customer service or accepting or assisting with returns or exchanges.
(c) “Marketplace seller” means a person who has an agreement with a marketplace provider and makes retail sales of tangible personal property or services taxable under this chapter through a marketplace owned, operated, or controlled by a marketplace provider.
(2) Every marketplace provider that is physically located in this state, or that is making or facilitating through a marketplace a substantial number of remote sales as defined in s. 212.0596(3)(b), is subject to the requirements imposed by this chapter on dealers for registration and for the collection and remittance of taxes and the administration of this chapter.
(3) A marketplace provider shall certify to its marketplace sellers that it will collect and remit the tax imposed under this chapter on taxable retail sales made through the marketplace. Such certification may be included in the agreement between the marketplace provider and marketplace seller.
(4)(a) A marketplace seller may not collect and remit the tax under this chapter on a taxable retail sale when the sale is made through the marketplace and the marketplace provider certifies, as required by subsection (3), that it will collect and remit such tax. A marketplace seller shall exclude such sales made through the marketplace from the marketplace seller’s tax return under s. 212.11.
(b)1. A marketplace seller physically located in this state shall register, collect, and remit the tax imposed under this chapter on all taxable retail sales made outside of the marketplace.
2. A marketplace seller making a substantial number of remote sales as defined in s. 212.0596(3)(b) shall register, collect, and remit the tax imposed under this chapter on all taxable retail sales made outside of the marketplace. Sales made through the marketplace are not considered for purposes of determining if the seller has made a substantial number of remote sales.
(5)(a) A marketplace provider shall allow the department to examine and audit its books and records pursuant to s. 212.13. If the department audits a marketplace provider, the department may not propose a tax assessment on the marketplace seller for the same retail sales unless the marketplace seller provides incorrect or incomplete information to the marketplace provider as described in paragraph (b).
(b) The marketplace provider is relieved of liability for the tax for the retail sale, and the marketplace seller or customer is liable for the tax imposed under this chapter if:
1. The marketplace provider demonstrates to the satisfaction of the department that the marketplace provider made a reasonable effort to obtain accurate information related to the retail sale facilitated through the marketplace from the marketplace seller, 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 to the marketplace provider; or
2. The marketplace seller or the customer has already remitted the tax imposed under this chapter for a taxable retail sale.
This paragraph does not apply to a retail sale for which the marketplace provider is the seller, if the marketplace provider and marketplace seller are related parties, or if transactions between a marketplace seller and marketplace buyer are not conducted at arm’s length.
(6) For purposes of registration pursuant to s. 212.18, a marketplace is deemed a separate place of business. 904
(7) A marketplace provider and marketplace seller may agree by contract, or otherwise, that if a marketplace provider pays the tax imposed under this chapter on a retail sale facilitated through a marketplace for a marketplace seller as a result of an audit or otherwise, the marketplace provider has the right to recover such tax and any associated interest and penalties from the marketplace seller.
(8) Consistent with s. 213.21, the department may compromise any tax, interest, or penalty assessed on retail sales conducted through a marketplace.
(9) For purposes of this section, the limitations in ss. 213.30(3) and 213.756(2) apply.
About the Author: Mr. Sutton is a Florida licensed CPA and Attorney and a shareholder in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Sutton is in charge of the Tampa office of the firm and his primary practice area is Florida sales and use tax controversy. Mr. Sutton worked in the State and Local Tax department of Arthur Andersen for a number of years and was an adjunct professor at Stetson University College of Law from 2002 – 2013 as well as at Boston University’s LLM in Tax Law teaching classes on State and Local Taxation in 2014. Mr. Sutton is an active member in the FICPA, NIADA, Florida Bar, and AICPA. Mr. Sutton also serves as the Chairman of State and Local Tax for the American Academy of Attorney-CPA’s and speaks frequently throughout Florida on Florida tax matters. You can read more about Mr. Sutton in his firm BIO.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is state and local taxes, with a very heavy emphasis in sales and use tax. We have defended Florida businesses against the state departments of revenue since 1991 and have well 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 also have multiple former Florida Department of Revenue agents on staff. So, we can honestly say that Florida sales and use tax controversy is our business. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
AUTHORITY
Florida Senate Bill 1112, as filed 2-15-19 (economic nexus, marketplace facilitator, reduction in rent)
ADDITIONAL RESOURCES
POST-WAYFAIR - CAN YOU AFFORD TO WAIT TO REGISTER, published August 8, 2018 by James Sutton, C.P.A., Esq.
FLORIDA SALES TAX FORGIVENESS POST-WAYFAIR: AMAZON FBA SELLERS, published June 28, 2018 by James Sutton, C.P.A., Esq.
FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.