Washington Retail Insight

Tax Group Urges Florida to Join Internet Sales Tax Agreement

By J. Craig Shearman
Washington Retail Insight
March 10, 2010

A watchdog group is urging Florida lawmakers to join nearly two dozen states that have signed an agreement aimed at making it easier to require out-of-state Internet and mail-order merchants to collect sales tax from their residents.

“Technological changes, especially the Internet, were not contemplated when the state’s tax laws were developed,” Florida Tax Watch said. “This situation is costing the state and local governments hundreds of millions if not billions of dollars annually.”

Tax Watch last week issued a 125-page report recommending steps Florida could take to close its $3.2 billion budget shortfall.

Among other recommendations, the report said Florida should join the Streamlined Sales and Use Tax Agreement, which currently includes 22 states. Florida would be the largest state to join the agreement, and would account for one-sixth of the total population of participating states.

The sales tax agreement was created in response to a 1992 U.S. Supreme Court ruling that Internet sellers, mail-order merchants and other “remote” sellers cannot be required to collect sales tax from out-of-state customers unless they have a physical presence in the customer’s state. The court held that sales tax systems across the country were too complicated for a merchant to know what tax to charge otherwise. But the agreement sets uniform definitions of taxable items and takes a wide variety of steps to simplify sales tax laws, and also establishes a system for distributing sales tax collections to the appropriate state.

Federal legislation awaiting action in Congress would allow states that have signed onto the SSUTA to require out-of-state sellers to collect sales tax from their residents regardless of whether they have a physical presence in the state.

Legislation to bring Florida sales tax laws into compliance with the agreement has been pending for some time but has stalled because of concerns over the short-term reduction in tax revenue that would come under the changes required, Tax Watch said. But the group said the estimated $41.5 million upfront cost would be offset almost immediately, and that an extra $35 to $50 million could be expected each year, with growth projected at 15 percent annually.

NRF is a longtime supporter of sales tax simplification and helped draft the SSUTA. NRF is concerned that online sellers who don’t collect sales tax from most customers enjoy an unfair tax advantage over local stores that are required to collect tax from all customers.

In the meantime, state Representative Kevin Ambler, R-Tampa, and state Senator Thad Altman, R-Melbourne, introduced legislation two weeks ago that would require the state Department of Revenue to develop computer software to automatically collect sales tax on out-of-state purchases by Florida residents. Published reports say the software would be used by companies that process credit card transactions, but it is unclear whether that means retailers who accept credit cards or the processing companies and banks that process transactions. It is also unclear how Florida could compel out-of-state companies to comply with the requirement, and the bill offers no details.

In another development, Colorado Governor Bill Ritter Jr. has signed legislation requiring out-of-state sellers to include a notification on Colorado customers’ invoices that they are required to pay sales tax to the state if it was not collected by the out-of-state retailers. Sellers would also be required to send Colorado tax authorities a yearly listing of Colorado customers, the tax category of items they purchased and the dollar amount spent so Colorado authorities could track state residents who did not pay. As with the Florida legislation, it was unclear how Colorado could force retailers outside its jurisdiction to comply.

For more information, contact NRF Vice President and Government and Industry Relations Counsel Maureen Riehl at (202) 626-8121.