Moving too hastily on legislation to tax goods sold online by out-of-state merchants could lead to more civil litigation and burdensome rules, public policy experts said in a warning to Florida lawmakers.
A new report published by the Tallahassee-based James Madison Institute and the National Taxpayers Union Foundation (NTUF) warns that the revenue stream from online product sales is a fraction of estimates made prior to the 2018 South Dakota v. Wayfair U.S. Supreme Court ruling. That decision opened the door for states to tax goods from remote sellers that have no physical presence within their borders.
“E-retail has grown in importance during the COVID-19 era,” the report titled “On Wayfair, Tread Lightly” states, “but it would be a mistake for Florida to rush through economic-nexus legislation in the pursuit of an illusory revenue windfall.”
Florida and Missouri are the last two states with sales tax regimes in place that do not tax out-of-state remote sales, but Florida lawmakers are now considering legislation to tax out-of-state sellers. Business groups support the remote sales tax plan as a way to allow brick-and-mortar stores in Florida to compete on a more even playing field against online sellers.
“What the Supreme Court did is to recognize the new normal of more and more business being conducted online (and) to allow states to expand their sales tax power to businesses that are located out of state,” Andrew Moylan, NTUF’s executive vice president and a co-author of the report, told the Florida Record.
The court allowed South Dakota to tax such sales provided the seller had at least 200 annual transactions involving state residents, or a total of $100,000 in sales. But states with much larger economies than South Dakota – such as Florida – should enact tax thresholds that are higher, according to Moylan.
“It takes an awful lot less to have a significant economic effect in the state of South Dakota than it does in Florida,” he said.
The report urges Florida lawmakers to consider a sales threshold of $500,000 to $2 million as a way to protect smaller sellers. In addition, the state should make changes to its sales tax system in order to gain membership in the Streamlined Sale and Use Tax Agreement, a multistate contract that streamlines definitions and rates and eases compliance burdens for businesses.
Without learning from the mistakes of other states in creating post-Wayfair sales tax systems, Florida could be subject to legal complaints alleging violations in interstate commerce or unfair burdens, according to Moylan
“If Florida is not careful … they could see themselves on the other end of a lawsuit by businesses saying this is unconstitutionally burdensome,” he said.