In June 2018, the Supreme Court overturned an online sales tax precedent that had been forcing state governments to ignore potentially substantial revenues. The decision paves the way for states to fundamentally change their online tax code; many large corporations have flocked to the front lines of this fight in Florida.
The ruling in South Dakota v. Wayfair, Inc. expanded the range of goods that can be taxed if sold online.
Previously, only corporations with a “physical presence,” or tax nexus in a state could be compelled to charge that state’s sales tax. Now, goods sold from one state into another by remote vendors with no physical presence in the customer’s state are taxable, including most online sales.
The wake of the Supreme Court decision has left 42 states and the District of Columbia with new laws that reflect the South Dakota case; Florida has yet to enact any.
In the meantime, corporate lobbyists have been vying to insert themselves into the legislative process. A bill was filed on August 14.
The Orlando Sentinel reported that lobbyists for Amazon.com Inc. and Expedia Inc. have contributed parts of the bill, in cooperation with lobbyists from Uber Technologies Inc., Walmart Inc., Target Corp., and Best Buy Inc. The bill’s final draft, according to the Florida Retail Federation lobbyist who submitted the bill, was “reviewed and approved by the interested member group.” However, it is not clear who is part of the “interested member group.”
The bill was sent to and filed by Sen. Joe Gruters, R- Sarasota, to be voted on as SB 126 during the 60-day legislative session starting January 14, 2020.
Amazon is in the process of rapidly constructing fulfillment centers across the country, increasing their physical presence and liability to be taxed for online sales. Amazon has been charging an online sales tax in Florida since 2014, when it established a physical presence by constructing two in-state warehouses.
Walmart is already physically present in 49 states (all except Hawaii), the District of Columbia, and Puerto Rico, meaning they pay an online sales tax almost everywhere they do business. Implementing the online sales tax would level the playing field between Walmart and smaller businesses that operate online without charging a tax. Walmart is als0 in the process of increasing their e-commerce platforms, making the impending online tax bill more imminent to maintain their internet competitiveness.
The lack of an online sales tax code in Florida enacted in response to the Supreme Court ruling means that these unanimously present large corporations are required to charge a sales tax, while small online retailers are not.
Until Florida’s online sales tax law changes, smaller businesses that are not required to charge an online sales tax have an advantage over Amazon and Walmart in terms of online sales. Online vendors operating under a certain quantity of income or sales can charge less for products than large corporations with a physical presence.
The legislation proposed by lobbyists and Sen. Gruters would mimic South Dakota by requiring a tax starting at either $100,000 of revenue or 200 annual product sales. There are worries about the effect this would have on Florida’s small businesses.
One online realm where Amazon and Walmart currently do not pay taxes is the third-party marketplace. Third-party sales function similarly to eBay; Amazon in particular has been moving away from wholesale vending in favor of the third-party structure of Amazon Marketplace, as it generates a sizable revenue.
As a proportion of sales coming from the third-party Marketplace, Amazon has seen an increase from 26% in 2007 to 54% in Q2 of 2019, an equivalent of $229.96 billion. Walmart’s presence in the third-party marketplace is smaller, but increasing. The online sales tax bill they helped to create would expand taxable goods to the third-party market, also impeding small businesses on that front.
In Florida alone, economists estimate $700 million a year of increased state revenue upon the passing of a comprehensive online sales tax. These revenues, however, would not be coming from large corporations that are already paying significant online sales taxes. Much of the burden would fall on small businesses whose profits do not markedly exceed the minimum threshold to be taxed under the legislation.
A previous attempt to levy Internet sales taxes on out-of-state sales died in appropriations during the last legislative session. The fate of SB 126 will only be determined at the start of the legislative session. It is possible that the bill will continue to undergo changes before then.
Featured photo: The Rock-Tenn factory in Panama City, FL. Unmodified public domain photo by Balon Greyjoy.