April 20, 2014

Sales Tax

Taxing 'Alien Sellers'

Could an e-commerce sales tax effort lower rates?

Neil Skene | 10/1/2005
LOADING UP THE CART: Florida leaders have been working behind the scenes on ways to tax internet and out-of-state purchases. For four years, out of view of almost everyone, Florida has been toying with a clever way to collect sales taxes on e-commerce and other out-of-state purchases by Floridians. The state would agree to simplify its sales-tax exemptions and rates in exchange for the legal authority to collect sales taxes on Floridians' purchases from television and telephone vendors, from catalog stores, and from internet sellers like Amazon and eBay.

Florida retailers see those untaxed sales as a competitive disadvantage, since people who buy online from vendors like Amazon, which collect no sales tax from Floridians, are getting a 7.5-cent price break on every dollar they spend, especially if there is free shipping. Meanwhile, Florida revenuers see the untaxed sales as tax evasion, since the law says consumers are supposed to send in the sales tax on their own if out-of-state merchants don't collect it.

"The Main Street merchants in this state collect a sales tax, pay property taxes, pay payroll taxes and give jobs to the people of Florida, yet they have to compete against people who are phantoms," says Randy Miller, a former head of Florida's Department of Revenue who is now vice president of government affairs for the Florida Retail Federation. "I can go into a store and see a shirt I like, and then decide I can buy it cheaper on the internet. I go home and buy it online, free shipping, and don't have to pay sales tax."

The legal problem is that, under U.S. Supreme Court rulings on "interstate commerce," Florida does not have jurisdiction over merchants who have no physical presence in Florida. It can't require them to collect a tax on sales to Florida residents.

A few years ago, the National Conference of State Legislatures organized a "streamlined sales and use tax" initiative, known as SSUT. Florida's Legislature voted in 2001 to join the drafting effort. The legal theory is that each member state would require businesses in that state to collect the tax for other member states.

The states agreed to have just one statewide rate and one countywide local-option rate for sales taxes (no more partial tax breaks like Florida's 4% tax on "amusement machines"). They would have the same definitions for exempt categories, such as "food." (Florida, for example, exempts 100% fruit juice, but the agreement exempts 50% juices.) And both state and local sales taxes would be collected by the states, so merchants wouldn't have to deal with hundreds of local governments.

The Florida Senate passed implementing legislation sponsored by Sen. Walter G. "Skip" Campbell (D-Tamarac) in 2003 and 2004. The House has refused to even consider the idea. In 2005, the Senate just gave up on the House, and Campbell hasn't decided whether to sponsor the legislation again in 2006.

"I see no reason to discuss it," House Finance & Tax Chair Fred Brummer told Florida Trend. He thinks Congress, which regulates interstate commerce, should simply gives states the authority to collect their own sales taxes. "The streamlined-tax project totally will not help Florida," he says. He thinks some of the standard definitions in the multistate agreement will actually cost the state revenue, and states that have an income tax may not want to be as aggressive in their sales-tax provisions as Florida is.

"It's a great idea for Target and Wal-Mart, but not such a great idea for the state of Florida," Brummer says. Chain stores, which already pay the tax, expect significant savings in tax administration with a simplified tax.

Gov. Jeb Bush has been a skeptic as well and balked at Florida's participation in drafting the multistate agreement. Miller of Florida Retail says Florida's diminished role has hurt its ability to influence language and policies, such as the definition of exempt fruit beverages.

The James Madison Institute in Tallahassee typifies the conservative opposition. President J. Robert McClure says it's a mistake for Florida to "cede the crafting of its tax policy" to an interstate commission. He adds that Florida's bricks-and-mortar retailers would be more competitive against electronic merchants, "even with sales taxes tacked on, if this state's businesses were not burdened with so many costs mandated by local governments with a seemingly insatiable appetite for more revenue."

To advocates, a simplified sales tax structure cuts administrative costs for all businesses. But their larger concern is that electronic commerce is growing faster than bricks-and-mortar commerce. So is international commerce, another source of untaxed purchases. At Florida TaxWatch, funded mostly by Florida retailers and other businesses, President Dominic Calabro says the "lost" tax could be as much as $4 billion a year. Miller puts the figure at about $2 billion.

Many electronic merchants already pay Florida sales taxes -- $1.5 billion in all, says the Florida Department of Revenue. Some collect the tax voluntarily to avoid possible future liabilities. Most do it because they have some physical presence in Florida. Lisa Echeverri, deputy executive director of DOR, notes that online subsidiaries of major retailers like Wal-Mart and Target have to collect Florida sales tax because they allow purchasers to return items to their local stores.

Most "use taxes" (the name for sales taxes paid directly by purchasers) are paid by businesses, which already are subject to audits for sales taxes and which buy goods for their own business use. But individuals are supposed to pay the tax as well. "Tens of thousands of Floridians are inadvertent tax cheats," says Calabro.

People who buy from, say, Amazon are supposed to get a form from the DOR website and send it in with their tax payment, says Echeverri, the DOR official. She acknowledges that most people don't know to do that, and others just don't do it.

Gatekeeper
The state has a few enforcement tools. Agriculture Department inspection stations, set up long ago to keep out agricultural pests and disease, has morphed into a Big Brother inspector of anything Floridians ship home (as well as an agency to spot illegal aliens, drug-smuggling and incipient terrorism).

A classic example is people who buy furniture in North Carolina. The inspectors are trained to spot possible untaxed goods and forward the bills of lading to DOR, which sends the buyer a bill for taxes, interest and a 10% penalty. The program is producing an estimated $10 million a year in additional tax collections. Under development is a program to obtain bills of lading electronically and monitor their content. But air-express shipments avoid inspection.

The state collected about $458 million in use taxes in 2004, but just "a tenth of 1%" came from individuals. "People who are vigilant will send in money on every single thing they purchase," says Echeverri. "We're pretty good about waiving penalties" for those who get a bill and claim they didn't know they owed a tax, she says, but taxes and interest are still due.

It's possible, of course, that the whole problem of collecting taxes on interstate sales will take care of itself over time. More out-of-state merchants may start collecting the tax as the "streamlined tax" project expands.

Or maybe the Legislature will find political appeal in last year's proposal by House Finance & Tax Vice Chair John R. Stargel (R-Lakeland) to reduce the sales tax rate enough to offset the additional collections from out-of-state companies.

A lower sales tax? Who knows?

Tags: Politics & Law, Around Florida, Government/Politics & Law

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