If you are selling goods or products through a website and have customers located in Florida, you should be aware of Florida’s Internet sales tax rules. Keep in mind that Internet tax rules have been a matter of ongoing debate both at the state and federal level.
The federal government is currently considering legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The proposed federal law, called the Marketplace Fairness Act of 2013, would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state. Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement. States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.
Below is an article on the current rules on Internet sales tax in Florida. The new federal law scheduled to be voted on in May 2013 would affect all state Internet sales tax laws so be sure to check for updates in this area. (We will continue to keep you updated as well.)
The General Rule: Physical Presence in the State
The current default rule throughout the United States is that you must collect sales tax on Internet sales to customers in those states where your business has a “physical presence.” The physical-presence rule is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail-order businesses to collect sales tax on out-of-state sales. The decision has been extended to include online retailers. Generally speaking, a physical presence means such things as
- having a warehouse in the state
- having a store in the state
- having an office in the state, or
- having a sales representative in the state
A more specific statement of what counts as physical presence under Florida law can be found among the various definitions of “dealer” (meaning a person or entity required to pay sales tax) in Section 212.06 of Florida’s sales and use tax law. More particularly, a “dealer” under this law includes “any person . . . who maintains or has within [Florida], directly or by a subsidiary, an office, distributing house, salesroom, or house, warehouse, or other place of business.”
As you might expect, the corollary to the physical-presence rule is that, if you do not have a physical presence in the state, you generally are not required to collect sales tax for an Internet-based sale to someone in that state.
Example 1: You are operating solely out of a warehouse in Passaic, New Jersey and make a sale to a customer in Tallahassee, Florida—a state where your business has no physical presence: You are not required to collect sales tax from the Tallahassee customer.
Example 2: You are operating solely out of a warehouse in Orlando, Florida and make a sale to a customer in Fort Lauderdale, Florida: You are required to collect sales tax from the Fort Lauderdale customer.
Example 3: After several years of operating solely out of an office in Passaic, New Jersey, you open a one-room satellite office just outside of Miami, Florida—a state where previously you had no physical presence. A day later, you make a sale to a customer in Tampa, Florida: You are required to collect sales tax from the Waukegan customer.
Some items sold via the Internet to Florida customers may be exempt from sales tax under Florida law. For example, software purchased primarily for research and development is exempt from sales or use tax. Section 212.08 of Florida’s sales and use tax law lays out in detail most of these exemptions.
The Customer’s Responsibility
In cases where the online retailer does not have to collect sales tax, it is the customer’s responsibility to pay the tax—in which case it is known not as a sales tax but, rather, a “use tax.” A helpful webpage on the Florida Department of Revenue’s website states, among other things, that a use tax applies to customers who make purchases through the Internet.
Status of Efforts to Institute an “Amazon Law” in Florida
The Florida legislature recently considered amending the state’s legal definition of a mail-order sale so that Internet “dealers” who do not have a physical presence in the state would nonetheless have to pay Florida sales tax. Laws of this sort have been considered in various forms in various states. They are sometimes referred to as “Amazon laws.” (As you might guess, the name refers to Amazon.com, which is a large, Internet-based retailer that does not have a physical presence in many states, and therefore, under the default sales tax rule, need not collect sales tax from customers in those states. As customers in those states often do not pay the corresponding use tax, Amazon’s sales, and those of other large online retailers, such as Overstock.com, are frequently understood to constitute significant lost tax revenue for those states.)
More particularly, earlier this year the Florida legislature considered amending the state’s sales and use tax law to require out-of-state “dealers” without a physical presence in Florida, but with so-called “click-through” arrangements with persons in Florida, to nonetheless collect sales tax. Such a dealer would need to collect sales tax from Florida customers if that dealer:
- had an agreement with one or more Florida residents to direct potential buyers to the dealer via a website link
- compensated the Florida residents for directing potential buyers to the online dealer, and
- the dealer’s “cumulative gross receipts” from such directed sales to Florida customers exceeded $10,000 within the preceding 12 months
However, the proposed legislation was never enacted. It remains unclear whether similar legislation will be re-introduced in the future.
The issue of whether to require online retailers to collect sales tax in a state where they have no physical presence has been a matter of ongoing debate. At this time, however, Florida has not enacted any law that would require such retailers to collect sales tax from Florida customers.
In Florida, the physical-presence rule continues to apply for Internet retailers. However, because the issue remains contentious, you should consider checking in periodically with the Florida Department of Revenue to see if the rules have changed. Also, for more general information on taxes on Internet sales, see Nolo's article Sales Tax on the Internet.