Will COVID-19 trigger a remote sales tax in Florida?
Florida has no income tax or remote sales tax, so it relies heavily on sales tax collected by in-state businesses. With many of these shuttered or making only a fraction of their normal sales due to the new coronavirus (COVID-19), the Sunshine State is looking to collect significantly less sales tax revenue than normal.
That means “Florida's budget is going to get really bad, really fast,” according to Scott Peterson, vice president of U.S. Tax Policy and Global Relations at Avalara and former executive director of the Streamlined Sales Tax Governing Board. “They put all their eggs in one basket.”
Florida’s general revenue collections for the 2019–2020 fiscal year were slated to be just over $34 billion, with more than $26 billion coming from sales tax collections. Yet those numbers were calculated during a different reality, when people moved freely across state and international borders and Disney World, NASCAR, and vacation rentals were open for business.
Sales tax collections could plummet
The full impact of COVID-19 on Florida’s sales tax collections isn’t yet known, but it’s likely to be big for two reasons:
- Tourists are being encouraged to stay home
- Floridians don’t pay sales tax on many online sales
In 2018, tourists generated $5.7 billion in state and local sales tax revenue for Florida, plus $982 million in local hotel tax. While many people sheltering in place in their own states are undoubtedly eager to travel to Florida, it’s not clear when they’ll return and start spending. Some will stay away due to health concerns; some won’t come until beaches and theme parks officially reopen; and those who’ve lost their jobs may not come at all.
Meanwhile, as in other states, stay-at-home orders are forcing Floridians to shop online more than ever. Taxes from online sales contribute to the sales tax base in most states but often go untaxed in Florida, where remote retailers aren’t required to register and collect sales tax.
Florida is a reminder of the way things used to be. For decades, states could only require a business to register and collect and remit sales taxes if the business had a physical presence in the state. That changed when the Supreme Court of the United States overruled the physical presence rule in South Dakota v. Wayfair, Inc. (June 21, 2018).
The Wayfair decision allows states to require remote businesses with sales in the state to collect and remit sales tax. Basing a sales tax collection obligation solely on sales activity is known as economic nexus.
All but two of the 45 states with a statewide sales tax have adopted economic nexus and now tax remote sales, as have Washington, D.C. and some local governments in Alaska. Florida and Missouri are the two holdouts.
The Florida Legislature considered an economic nexus measure (Senate Bill 126) during its 2020 session, but the bill was withdrawn from consideration and indefinitely postponed shortly before the Legislature adjourned on March 19. Taxing remote sales would generate an estimated $700 million annually for the Sunshine State.
Another bill that could have increased sales tax collections also died. House Bill 159 would have required marketplace facilitators (e.g., Amazon, eBay) doing a certain amount of business in the state to collect and remit sales tax on behalf of their third-party sellers. According to a fiscal analysis for SB 126 and HB 159, Florida missed out on more than $8.5 million in in state sales tax revenue in 2019 because of “escaped” or untaxed marketplace sales”.
Of course, Floridians are supposed to remit use tax whenever retailers don’t collect sales tax on taxable items. Florida use tax applies to untaxed online or mail-order purchases and goods purchased in other countries or states for use in Florida. But consumer use tax compliance is famously low in Florida, as in other states. That’s one reason states fought to win the right to tax remote sales and have the retailer act as tax collector for them.
The COVID-19 pandemic has caused a drop in retail sales nationwide according to the U.S. Census Bureau. Moody’s Investors Service predicts sales tax collections will remain low for the remainder of the year. Whether this dismal news will inspire Florida lawmakers to change their attitudes toward economic nexus remains to be seen.
It may be enough to get an economic nexus law passed in Missouri, where lawmakers are just returning to their seats after a pandemic-induced hiatus. Senate Bill 529 may soon be up for debate. Read more about the measure here.
Worried your business may have economic nexus in one or more states? Take this free sales tax risk assessment to learn where your business is most at risk.
The 2021 sales tax changes report: midyear update
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