On the 1st of July 2021, the law dealing with the economic and market nexus regarding sales tax (Senate Bill 50 – S.B.50) came into force. The state of Florida was one of the last states to enact a law on this subject.
According to the bill, a vendor who realizes a substantial number of remote sales for the state, exceeding the amount of $100,000 in the previous calendar year, will need to register themselves for collection and remittance of the sales tax to the state.
Florida defines a “remote sale” 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 this state, to a location within this state.
From the sales tax nexus
In the United States, a tax referred to as sales tax (a tax on sales) is regulated at the state level and occurs only at the end of the chain, that is, at the time of sale to the final consumer. The tax is taken on by the final consumer, and the seller is solely responsible for collecting it (by multiplying the applicable rate on the product price), and later passing it on to the relevant state.
Historically, in the case of interstate sales the responsibility for the collection and remittance of sales tax was the vendors when there is a nexus (connection) of this with the State, established by the criterion of physical presence, that is, when the seller had a physical office, he had employees residing in the State, had a warehouse, stock, among others.
However, since the US Supreme Court ruled in favor of the State of South Dakota in the year 2018 (case of South Dakota v. Wayfair, Inc.), allowing the State to levy sales tax on sellers from other states based solely on the economic nexus, several US states have enacted laws requiring sellers from other states to collect and remit sales tax and other taxes even if they do not have a physical presence in the destination state.
Although the physical presence standard still exists, state nexus laws have been expanded to require the seller to collect and remit sales tax based on a certain level of economic activity within the state, including sales revenue, transaction volume, or a combination of both.
The responsibilities of marketplace providers
The economic nexus law of the state of Florida, like the laws of other American states on the topic, extends the responsibility for collection and remittance of sales tax to market facilitators – marketplace without a physical presence in the state, insofar that the retail sales of tangible personal goods exceed the limit of the economic nexus established in the State.
However, the law in question excluded marketplace platforms that provide online travel agency services, distribution network companies and payment processing companies from this responsibility.
In the state of Florida, the sales tax, at a rate of 6% (with some exceptions), will be required if there is a nexus of the remote seller with the State, established by the criteria of physical presence or economic connection.
In other words, if a company is based in a state and remotely sells products for a client located in Florida, there is a nexus, and they must collect the tax from the client/recipient and pass the amount onto the State of destination.
It is important to note that, as see, “remote sales” in the case of Florida’s law, includes only retail sales of tangible goods delivered to the state. Therefore, unlike some other states, non-taxable sales and service sales are not included in total sales to determine whether the limit has been exceeded.
Finally, we should mention that remote vendors, now responsible for the collection and remittance of sales tax for the state of Florida, are exempt from liability resulting from taxes, penalties and interest due on remote sales made before July 1, 2021, provided that the seller registers with the Department of Revenue before October 1, 2021.
Written by Flávia Sobral, Drummond Advisors tax consultant