Florida

Small businesses praise Avalara during Florida economic nexus hearing

Lawmakers in Florida recently held a hearing to discuss economic nexus and marketplace facilitator legislation that would require out-of-state sellers and marketplace facilitators to collect and remit Florida sales and use tax starting July 1, 2021. Several Florida business owners spoke in favor of the bill and Avalara, which they use to facilitate sales tax collection, remittance, and filing in other states.

South Dakota v. Wayfair, Inc., economic nexus, and marketplace facilitator laws

The hearing for House Bill 15 opened with a high-level explanation of the issue. Staff Director of the Ways & Means Committee Vince Aldridge reminded that although businesses with no physical presence in Florida currently aren’t required to collect Florida sales tax, those sales are still subject to tax. Residents are required to remit use tax to the Florida Department of Revenue when retailers don’t collect sales tax on taxable transactions.

Aldridge also provided an overview of South Dakota v. Wayfair, Inc., the 2018 U.S. Supreme Court decision that overruled the physical presence rule, giving states the authority to require businesses with no physical presence in the state to collect and remit sales tax. The case centered on South Dakota’s economic nexus law, which imposes a sales tax collection obligation on out-of-state businesses with more than $100,000 in sales or at least 200 transactions in the state in the current or previous calendar year.

The Wayfair opinion noted that “South Dakota’s tax system includes three features that appear designed to prevent discrimination against or undue burdens upon interstate commerce”: 

  • South Dakota provides a safe harbor to those who transact only limited business in the state
  • The economic nexus law ensures no obligation to remit the sales tax may be applied retroactively
  • South Dakota is a member of the Streamlined Sales and Use Tax Agreement (SST), which standardizes taxes to reduce administrative and compliance costs

Aldridge also pointed out that Florida and Missouri are the only two states in the country with a general sales tax that haven’t adopted economic nexus. And he noted that most states also have marketplace facilitator laws requiring marketplace facilitators to collect and remit sales tax on behalf of third-party sellers.

The floor was then opened to questions. Representatives from several Florida business urged the committee to “level the playing field” by requiring out-of-state businesses to collect and remit Florida sales tax, as they must.

Level the playing field

Debbie Harvey, president and COO at Ron Jon Surf Shop, was the first to ask the committee “to level the playing field for Florida businesses like myself.” She explained, “Because I have a physical presence in Florida, I must collect this tax, and this puts me at a price disadvantage to those who do not operate a physical business in Florida.”

She added, “It’s not hard to collect out-of-state taxes. There are many programs, like Avalara, that help you do this.” Finally, she pointed out that “it’s not a new tax,” saying, “This issue has been discussed for years. The lack of progress is frankly a little frustrating.”

Larry Sinewitz, EVP at BrandsMart, then talked about the problem of showrooming, when prospective customers browse products in their stores but then purchase them online from noncollecting out-of-state businesses, saving 6–7% because there’s no sales tax. He, too, emphasized that this is not a new tax: “It’s a tax that’s already on the books. … And I’d ask everyone on the committee to be honest. When was the last time you filled out one of those forms and remitted sales tax back to the state on items we bought online? ... All we’re asking for is that we have a level playing field.”

Tim Nungesser, legislative director of the Florida chapter of the National Federation of Independent Businesses (NFIB), provided more nuanced feedback: “We have members on both sides of the issue. … No matter what you do, there’s going to be some folks who aren’t happy.” He said NFIB is neutral on HB 15, but asked that the state provide a central collection point if it adopts the bill, and also protect small sellers with a de minimis exemption.

Steve DelBianco, president and CEO of NetChoice, underscored the importance of protecting out-of-state businesses from undue burdens via the three “Wayfair standards” listed above: the small-seller exception, no retroactive enforcement, and membership in the SST. DelBianco particularly emphasized the benefits of SST, recommending that Florida become a member state or at least emulate SST practices.

What are the risks for Florida if it fails to adhere to the three Wayfair standards? DelBianco doesn’t think Congress will act to limit state taxing authority. However, he said small businesses in other states could bring a declaratory action against Florida. And he brought up New Hampshire, a state intent on making life difficult for states that attempt to make New Hampshire businesses to collect sales tax.

Although Florida can’t protect businesses from the burdens they experience in other states, DelBianco said, “Florida can lead by example and try to make things as simple as they can for out-of-state businesses.”

Mike Shutley, senior manager of public policy for Amazon, spoke in support of marketplace facilitator legislation: “Our customers and selling partners are not usually tax experts, and given the U.S. Supreme Court’s decision in the Wayfair case, many remain confused or worried about their responsibilities under the different state laws. Enacting a marketplace facilitator law similar to those enacted in a majority of states across the country resolves that confusion and places the responsibility squarely on marketplace facilitators like Amazon.” He also said, “This legislation is crucial for protecting Florida’s small and medium-sized businesses and business partners.”

Praise for Avalara

Avalara was mentioned several times during the hearing.

Larry Sinewitz said, “We use a company called Avalara. It took us literally 35 days to get set up with them and we’re now remitting tax to every other state. And it was easy. And it’s not a big obligation on our end other than at the end of the month they send us a report. We fulfill the report. And we’re now actually able to deliver sales tax down to individual streets, individual cities, counties, and whatever. They represent us. They make sure that we don’t get into any kind of hot water by not collecting the proper taxes. And it’s not an aggravation for anyone.”

Debbie Harvey echoed that: “We use the same program, and even for someone unsophisticated like we are, it’s a program that’s very easy to use.”

It was pointed out that SST member states often compensate Avalara and similar companies for the services they provide. Learn more about how Avalara and SST can reduce the hassle and cost of sales tax compliance.

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