Nexus or not?
2021 Florida Economic Nexus Legislation
Florida is officially the last state (with a sales tax) to not implement economic nexus legislation. But that is about to change on July 1, 2021. Right now, there are two sister bills before the Florida Senate and House focused on implementing both economic nexus and marketplace facilitator laws that would require out-of-state (remote) sellers to collect sales tax on sales into Florida or the “marketplace provider,” such as Amazon, to collect sales tax for the out of state, remote seller.
This type of economic nexus legislation surfaced two times in Florida but gained no traction since the US Supreme Court’s 2018 earth shattering Wayfair opinion, primarily because many legislators worried that this type of legislation would be perceived as a “new tax” by the voters (even though those voters were always subject to use tax on their out of state purchases). With a worldwide pandemic having dramatic fiscal impact on Florida’s tax revenue, these legislators seem to have changed their mind as evidenced by a 11 to 0 favorable vote by the Senate Commerce and Tourism committee on January 25th.
Senate Bill 50
So, what are the details of the two bills? Senate Bill 50 would amend the Mail Order Nexus statute implemented in 1987 to say remote sellers that have enough economic activity in the state will be deemed Florida dealers required to collect and remit Florida sales tax on goods (not services) delivered to a customer in Florida.
The threshold of economic nexus would be $100,000 of sales during the previous calendar year (with 2020 as the initial threshold year). Sales made through and taxed by a Marketplace Provider would not count towards the $100,000 economic nexus threshold and should not be reported as sales by the remote seller. There would be no threshold of minimum number of tractions to create nexus, so 10,000 items sold into Florida for $5 per unit would not trigger economic nexus.
A “Marketplace Provider” would be subject to the sales tax collection and remittance requirements imposed on dealers in Florida. A Marketplace Provider is defined as a person who facilitates a retail sale by a marketplace seller by listing or advertising for sale by the marketplace seller tangible personal property in a marketplace. And who directly, or indirectly through agreements or arrangements with third parties, collects payment from the customer and transmits the payment to the marketplace seller, regardless of whether the marketplace provider receives compensation or other consideration in exchange for its services.
Notable exclusions from industries held to be Marketplace Providers would be any person who solely provides travel agency services, delivery network companies making only local deliveries (75 miles or less) and payment processor businesses whose sole activity with respect to the marketplace is to handle payment transactions between the marketplace seller and customer.
The Florida Department of Revenue would have the right to audit the Marketplace Provider, but the latter would be relieved of tax liability if he demonstrates that reasonable efforts were taken to obtain accurate information related to the retail sales, 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.
The Marketplace Provider would have the right to recover state imposed tax, interest, and penalties from the Marketplace Seller if incomplete or inaccurate information is provided to the Marketplace Provider.
In addition to Senate Bill 50, according to House Bill 15 conducting 200 or more remote sales of tangible personal property into Florida during the previous calendar year would be already enough to create nexus.
If you are a remote seller, I would strongly suggest getting ready for the Florida sales tax collection process and, even more importantly, reviewing your current connections with Florida. Many companies are unaware they already had substantial nexus with the remote states years before the Wayfair decision came out. This is a very costly problem because the process of registering to collect sales tax in a new state is designed to determine whether your company already had nexus prior to registering. More troubling is the fact that a company has no statute of limitations protections from a state going back in time if no sales tax returns have been filed.
The following is a short list of pre-Wayfair nexus generating activities that still apply even after economic nexus laws are passed:
- Holding inventory in Florida (such as through Amazon FBA)
- Salespeople in Florida
- Hiring subcontractors to do warranty work
- Remote employees in Florida
- Company owners or officers owning property in Florida
- Subsidiary or affiliated company having nexus with Florida
If you and your company are worried about pre-Wayfair nexus activities, then a voluntary disclosure might be a good solution to limit liability and cut off the lookback period to three years. To date, we have found the Department of Revenue has been willing to work with remote sellers through the Voluntary Disclosure program.
If you have any questions about nexus for past activities or the implications of the bill on future activity, please do not hesitate to contact us at Allure Accounting for an initial consultation.