Florida Expands Sales Tax Base by Subjecting Online Retailers and Marketplace Facilitators to Sales and Use Tax

On April 19, 2021, Florida’s Governor signed S.B. 50 into law (The Act). Following the United States Supreme Court decision in South Dakota v. Wayfair in June 2018, which paved the way for state and local governments to impose sales and use tax obligations on remote businesses, forty-three of the forty-five states that impose a sales tax and the District of Colombia have enacted Wayfair nexus standards. Florida and Missouri stood alone for some time as the two states without a Wayfair nexus standard.

The Act establishes two new distinct regimes with varying set of requirements and responsibilities – remote retailers and marketplace providers/sellers. The Act also revises Florida’s sales tax rounding methodology and permits the reduction of the tax rate on commercial real property rentals when certain conditions are met.

Remote Retailers

The Act amends “retail sale” to include “remote sales” and sales facilitated through a marketplace.  “Remote sales” are defined as a retail sale of tangible personal property ordered by mail, telephone, the Internet, or other means of communication from a person who receives the order outside of the state and transports the property or causes the property to be transported from any jurisdiction, including the state, to a location in the  state.

The Act, effective July 1, 2021, applies to dealers with significant number of remote sales or facilitated on, defined as taxable remote sales exceeding $100,000 in tax year 2020. Unlike most other states, the Act does not provide a minimum number of transactions to establish economic nexus. The Act amends “dealer” to include a retailer who transacts a substantial number of remote sales or a marketplace provider that has a physical presence in the state or that makes or facilitates through its marketplace a substantial number of remote sales. A person subject to the requirement of the Act to collect and remit tax on remote sales is relieved of liability for tax, penalty, and interest due on remote sales that occurred before July 1, 2021, provided that the person registers with the Department before Oct. 1, 2021.

Marketplace Providers / Sellers

For sales made through marketplace providers (i.e. Amazon, Ebay, Overstock.com, Wayfair), the Act shifts the burden of tax collection and remittance from the marketplace seller (the party selling through the marketplace) to the marketplace provider. The marketplace provider is deemed to facilitate the retail sale by the marketplace seller. Marketplace providers are required to certify to its marketplace sellers that it will collect and remit the sales tax to the Department. Once the certification is made to the marketplace seller, the marketplace seller may not collect or remit tax to the Department on the same taxable retail sale. The Act excludes the following platforms from the definition of a marketplace provider –

  1. Person who solely provides travel agency services
  2. Person who is a delivery network company (person who maintains a website or mobile application used to facilitated delivery services, the sale of local products, or both)
  3. Payment processor business

Marketplace sellers with physical presence in Florida must register and collect and remit tax on all taxable retail sales made outside of the marketplace. Marketplace sellers without a physical presence in Florida but who make a substantial number of remote sales outside of the marketplace (taxable remote sales exceeding $100,000 in tax year 2020 that are not facilitated by a marketplace provider), must register with the Department, and collect and remit tax on all taxable retail sales made outside of the marketplace.  For example, if a company sells through Amazon and also through their own website, they would be required to register, collect and remit Florida sales tax on the sales made through their own website if they exceed the $100,000 threshold.

The Act requires the Department to examine or audit the books and records of the marketplace provider for sales facilitated through the marketplace. The Department is prohibited from examining or auditing the marketplace seller’s books and records, as well as prohibited from assessing the marketplace seller unless the marketplace provider demonstrates to the Department’s satisfaction that the marketplace provider made a reasonable effort to obtain accurate information related to the facilitated sales through the marketplace, and that the failure to collect and remit the correct tax was due to incorrect or incomplete information provided to the marketplace provider. The Act permits the marketplace provider and marketplace seller to enter a contract allowing the marketplace provider the right to recover tax, interest, and penalties paid to the Department from the marketplace seller resulting from an audit regarding retail sales that were facilitated through a marketplace.

Other Matters

The Act permits a reduction in the tax rate on commercial real property rentals from 5.5 percent to 2 percent, two months after the Unemployment Compensation Trust Fund exceeds $4,071,519,600. Currently, Florida is the only state that considers the commercial rental of real property to be subject to sales tax.  The Act will redirect tax collections from remote retailers and marketplace providers from the General Revenue Fund into the Unemployment Compensation Trust Fund. These deposits into the Unemployment Compensation Trust Fund will begin in July 2021. In July 2022, the Department will make monthly deposits of $90,000,000 into the Unemployment Compensation Trust Fund.  Once the Unemployment Compensation Trust Fund is funded as described above, tax collections will be deposited into the General Revenue Fund. It will likely take several years for the Department to fully fund the Unemployment Compensation Trust Fund in order for taxpayers to see the reduction in the tax rate. 

The Act establishes a simpler approach to calculate the sales tax due than previously established. Florida currently leverages a bracket system rather than rounding to determine the amount of sales tax calculated on an individual transaction, which caused some minor discrepancies on some transactions (usually 1 cent) for taxpayer who rounded to the nearest cent.  Going forward, instead of calculating the tax based on the bracket system, the Act requires the tax calculation to be carried out to the third decimal place (rounded up when the third decimal point is five or higher and rounding down when the third decimal point is less than five).

There are two provisions of the Act with an effective date of April 1, 2022 – 1) a marketplace seller with annual United States gross sales exceeding $1 billion and is registered with the Department, can opt-out of having the marketplace provider collect and remit tax on their behalf and 2) the marketplace provider is responsible for collecting and remitting any prepaid wireless E911 fees, waste tire fees, and lead-acid battery fees made through its marketplace.

ABOUT THE AUTHORS

Blake Burge
Senior Associate

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