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. Collection of sales tax on Internet sales has been a matter of ongoing debate both within individual states and at the federal level.
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 a1992 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 having:
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.
Examples of Physical Presence
Example 1: You are on online retailer located in in Passaic, New Jersey and make a sale through your website 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 an online retailer with a warehouse in Orlando, Florida and make a sale through your website 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 through your website to a customer in Tampa, Florida: You are required to collect sales tax from the Waukegan customer.
While the physical-presence rule may seem clear, in the case of Florida, as well as quite a few other states, it is necessary to emphasize that in Quill, the Supreme Court discusses not only physical presence, but also several types of potential nexus (connection) between a business and a state. Many states, including Florida, have used the term nexus rather than physical presence in their sales tax laws, regulations, or other official documents. In the process, these states have sometimes defined nexus in ways that could go beyond physical presence.
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.”
Regarding nexus, Section 212.0596 of Florida’s sales and use tax law covers taxation of mail order sales and defines when mail order sales are subject to sales tax. The section includes this statement: “The dealer, by purposefully or systematically exploiting the market provided by this state by any media-assisted, media-facilitated, or media-solicited means, including, but not limited to, direct mail advertising, unsolicited distribution of catalogs, computer-assisted shopping, television, radio, or other electronic media, or magazine or newspaper advertisements or other media, creates nexus with this state.” In addition, the same section also states more generally that a dealer must collect sales tax if the dealer or the dealer’s activities “have sufficient connection” to the state to create nexus.
As a briefer and more readable option, the Florida Department of Revenue (DOR) has a webpage covering nexusfor out-of-state businesses.
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.
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.
At the federal level, Congress has repeatedly considered legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The most recent form of a proposed federal law is the Marketplace Fairness Act of 2015. As in previous versions, the 2015 Act 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.
For small online businesses, it is the long established physical presence rule that will apply in Florida. However, because Internet sales tax is a subject of ongoing debate, you should consider checking in periodically with the Florida Department of Revenue to see if the rules have changed.
Updated: April 27, 2016