On April 19, 2021, Florida Gov. Ron DeSantis approved legislation requiring remote sellers with at least $100,000 in retail sales to Florida purchasers in a calendar year to collect and remit Florida sales tax beginning July 1, 2021.1 The legislation also requires marketplace facilitators with at least $100,000 in Florida sales to collect tax on behalf of marketplace sellers that make sales facilitated through a marketplace. The marketplace facilitator provisions include carveouts for online travel companies and delivery service platforms. Finally, the law provides for a reduction in the state’s commercial rent tax rate to 2% after the state’s unemployment compensation trust fund is replenished through sales taxes obtained through this legislation.
Since the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, nearly all states with a sales tax have enacted economic nexus provisions, which impose sales tax collection and remittance requirements on remote sellers making a requisite amount of sales to in-state customers. These states have also enacted marketplace facilitator laws, which require online marketplaces to collect and remit sales tax on behalf of retailers making sales through their online marketplaces. Florida lawmakers had introduced legislation that would establish both an economic nexus standard and marketplace provider requirements in previous legislative sessions, but these bills failed to pass the legislature.2 However, Senate Bill 50, the bill introduced in the current legislative session, advanced rapidly through the legislature after lawmakers reached an agreement to use revenue from the legislation to replenish the state’s depleted unemployment compensation (UC) trust fund.
Economic nexus and marketplace provisions
Effective July 1, 2021, Florida’s economic nexus legislation requires out-of-state remote sellers without a physical presence in the state to register for, collect and remit Florida sales tax to the extent the sellers’ retail sales of tangible personal property to Florida purchasers exceeded $100,000 in the previous calendar year.3 The law also requires marketplace providers with Florida sales exceeding $100,000 in the previous calendar year to collect and remit Florida sales tax.4 The law’s economic nexus threshold does not include a minimum threshold related to the number of individual transactions with Florida purchasers.5 Remote sellers and marketplace providers whose sales in the 2020 calendar year exceed the $100,000 sales threshold must begin collecting tax on sales that occur on and after July 1, 2021.6 However, remote sellers and marketplace providers exceeding these thresholds will not be assessed tax, penalty and interest on sales made prior to July 1, provided they register with the Florida Department of Revenue before Oct. 1, 2021.7
Marketplace provider requirements
Under the legislation, marketplace providers must certify to their marketplace sellers that the marketplace providers will collect and remit the tax due on sales made through the marketplaces.8 Once a marketplace seller receives this certification from the marketplace provider, the seller may not collect and remit Florida sales tax on sales made through the marketplace.9 Effective April 1, 2022, the marketplace provider and marketplace seller may contractually agree to have the marketplace seller collect and remit all applicable taxes only if the marketplace seller: (i) has gross U.S. sales exceeding $1 billion (including gross sales of related entities); (ii) provides evidence to the marketplace provider that it has registered as a dealer in Florida; and (iii) notifies the Department that the seller will collect and remit tax on sales made through the marketplace.10 Additionally, marketplace providers will be required to collect and remit certain fees, including prepaid wireless E911 fees, waste tire fees and lead-acid battery fees, on applicable retail sales.11
The marketplace provisions provide two notable exceptions. First, the law will not apply to persons solely providing “travel agency services,” which are defined as facilitating “vacation or travel packages, rental cars, or other travel reservations … domestic travel … or hotel or other lodging accommodations.”12 This exception likely covers online travel companies, whose collection responsibilities for transient rental taxes and tourist development taxes in Florida have been disputed at length.13
Second, with respect to food and other delivery platforms, the law excludes any “delivery network companies from the marketplace provider requirements.14 A delivery network company is defined as a “person who maintains a website or mobile application used to facilitate delivery services, the sale of local products, or both.”15 A delivery network company may, however, be treated as a marketplace provider to the extent that the network registers as a dealer and notifies all of the local merchants that sell through the network’s website or mobile application that it is subject to Florida’s marketplace provider requirements.16 The bill effectively gives delivery networks the flexibility to opt into the marketplace provider requirements.
Effective July 1, 2021, remote sellers and marketplace providers meeting the state’s economic nexus threshold will also be required to calculate sales and use tax due based on a rounding algorithm instead of using the state’s current bracket system.17 The rounding algorithm may be applied to the aggregate tax amount computed on all taxable items on an invoice or to each individual item on the invoice.18 Taxpayers have the option to calculate tax due using either the rounding algorithm or the appropriate bracket system through Sept. 30, 2021.19
Commercial rent tax rate reduction
Finally, the legislation includes a provision that eventually reduces the state’s tax rate on rentals or licenses of commercial realty from the current 5.5% rate to 2%.20 The reduction to the commercial rent tax rate is effective on the first day of the second month following the end of scheduled monthly distributions to the state’s UC trust fund using revenues from the remote seller and marketplace portions of the legislation.21 Specifically, the UC trust fund will first be replenished by three distributions of $324,533,334 each during the months of July-September 2021.22 Subsequently, the Department will make monthly distributions of $90 million to the fund beginning in July 2022.23 Monthly distributions will end when the balance of the UC trust fund reaches $4,071,519,600 or on December 31, 2025, whichever is earlier.24
Florida’s adoption of a sales tax economic nexus standard leaves Missouri as the only state with a sales tax that lacks a collection requirement for remote sellers, while Missouri and Kansas are the only remaining states lacking marketplace provisions.25 Although the Florida governor and legislative leaders previously appeared hesitant to support remote seller and marketplace legislation, Florida is currently experiencing unprecedented budgetary pressure due to the state’s heavy reliance on sales tax revenues generated by the travel and tourism industries, which have been severely impacted by the COVID-19 pandemic. Additionally, Florida does not impose a personal income tax to help offset reductions in sales tax revenue. Given these circumstances, a recent agreement among legislative leaders to direct revenue generated by the new remote seller and marketplace provisions to the state’s unemployment compensation trust fund allowed the legislation to advance.26 Considering the state’s current fiscal situation, the bill’s rapid advancement, and the fact that nearly all other states have similar provisions in place, the enactment of the bill enjoyed broad legislative support.
Despite the apparent overwhelming need for an economic nexus law and efforts to market the bill as a pro-business measure – a press release from legislative leaders presented the legislation as a way to “rescue Florida business owners from a major tax increase” – lawmakers were still concerned about avoiding any perception of creating a tax increase.27 It is likely for this reason that legislators introduced a late amendment to reduce Florida’s tax rate on leases of commercial realty in order to offset the additional revenue generated by the remote seller and marketplace legislation. In recent years, several Florida lawmakers have pushed to reduce or even repeal Florida’s commercial rent tax. Since 2018, the state commercial rent tax rate has been reduced from 6% to 5.5%.28 In 2020, legislation was introduced that would reduce the rate to 5.4%, but this rate reduction was not enacted, presumably due to other legislative priorities caused by the pandemic.29 However, lawmakers were ultimately successful in leveraging the expected revenue gains created by the economic nexus and marketplace legislation to achieve a substantial reduction in the commercial rent tax rate.
Since the commercial rent tax rate reduction is contingent on the replenishment of the state’s UC trust fund to an approximately $4 billion balance as required by the law, the rate is unlikely to be reduced for several years in actuality. The fund’s replenishment will also be delayed by a legislative provision that excludes reemployment benefit charges from the second quarter of 2020 for purposes of calculating reemployment assistance tax rates for the 2021 tax year.30 Additionally, 2022-2025 rate calculations will exclude benefit charges for the second, third and fourth quarters of 2020, in addition to all benefit charges paid resulting from government lockdowns and reductions in business capacity due to the pandemic.31 This provision is intended to relieve Florida employers of increases in reemployment assistance tax payments due to increased reemployment assistance benefits resulting from the pandemic. The overall result is that the commercial rent tax rate reduction will not be effective until two months after the $4 billion fund balance is reached, which is estimated to be as late as 2025.32
Finally, the eventual reduction to the commercial rent tax rate may yet be complicated by a provision in the recently enacted federal American Rescue Plan Act of 2021 (ARPA) that appears to prohibit states from using federal relief funds to “directly or indirectly offset a reduction in . . . net tax revenue” resulting from tax cuts.33 Although the U.S. Treasury Department has announced that states may reduce taxes so long as they do not use relief funds to pay for the tax cuts, it is possible that a reduction in the commercial rent tax rate may nonetheless be considered a tax cut. If such tax cut is not considered to be netted by the economic nexus and marketplace legislation, the state might be required by the federal government to repay the amount of relief funds considered to contribute to the reduction in net tax revenue, depending on how broadly the ARPA provision is interpreted in forthcoming Treasury guidance.
1 Fla. Ch. 2021-2 (S.B. 50), Laws 2021.
2 Florida uses the term “marketplace provider” instead of “marketplace facilitator.”
3 S.B. 50, § 5, amending FLA. STAT. §§ 212.0596(1)(a), (b); 212.0596(2).
4 S.B. 50, § 5, amending FLA. STAT. § 212.0596(4).
5 Previous versions of the legislation included a 200-transaction threshold, but were subsequently eliminated.
6 S.B. 50, § 24.
7 S.B. 50, § 25. This provision is not applicable for persons or entities that are under audit, have been issued a bill, notice or demand for payment, or are involved in an administrative or judicial proceeding as of July 1, 2021.
8 S.B. 50, § 6, adding FLA. STAT. § 212.05965(3).
9 S.B. 50, § 6, adding FLA. STAT. § 212.05965(4)(a).
10 S.B. 50, § 7, adding FLA. STAT. § 212.05965(11).
11 S.B. 50, § 7, adding FLA. STAT. § 212.05965(10).
12 S.B. 50, § 6, adding FLA. STAT. § 212.05965(1)(b)(1).
13 See, e.g., Alachua Co. v. Expedia, Inc., 175 So. 3d 730 (Fla. 2015); Orange Co. v. Expedia, Inc., No. 48-2006-CA-2014-O (Fla. 9th Cir. 2011); Leon Co. v. Expedia, Inc., No. 2009-CA-4319 (Fla. 2d Cir. 2012).
14 S.B. 50, § 6, adding FLA. STAT. § 212.05965(1)(b)(2).
15 S.B. 50, § 6, adding FLA. STAT. § 212.05965(1)(b)(2)(a).
16 S.B. 50, § 6, adding FLA. STAT. § 212.05965(1)(b)(2).
17 S.B. 50, § 11, amending FLA. STAT. § 212.12(10).
18 S.B. 50, § 11, amending FLA. STAT. § 212.12(10)(b).
19 S.B. 50, § 21.
20 S.B. 50, § 14, amending FLA. STAT. § 212.031(1)(c), (d).
22 S.B. 50, § 13, adding FLA. STAT. § 212.20(6)(d)(6)(h)(I). These distribution amounts are based on an estimated $1 billion in tax collections from remote and marketplace sales during the remainder of 2021.
23 S.B. 50, § 13, adding FLA. STAT. § 212.20(6)(d)(6)(h)(II).
24 S.B. 50, § 13, adding FLA. STAT. § 212.20(6)(d)(6)(h)(III), (IV); Tax Info. Publication No. 2173B-01, 2021 Reemployment Tax Legislative Changes, Florida Department of Revenue, Apr. 27, 2021.
25 The Missouri legislature is currently considering remote seller and marketplace legislation, with competing bills being reconciled by the House and Senate. Mo. H.B. 554; Mo. S.B. 153. Meanwhile, the Kansas governor recently vetoed remote seller and marketplace legislation for the third consecutive year, because the legislation contained provisions that would decouple the state from certain income tax provisions of the Tax Cuts and Jobs Act of 2017. Kan. S.B. 50. However, the Kansas legislature may attempt to override the governor’s veto.
26 Press Release, President Simpson, Speaker Sprowls Announce Plan to Prevent Unexpected Tax Hikes on Florida Businesses, Replenish Unemployment Compensation Trust Fund, Florida Senate, Mar. 10, 2021.
28 FLA. STAT. § 212.031(c); see Fla. S.B. 620 (2018).
29 See Fla. H.B. 7097 (2020).
30 S.B. 50, § 16, amending FLA. STAT. § 443.131(3)(e)(3).
31 S.B. 50, § 16, amending FLA. STAT. § 443.131(3)(e)(4), (5).
32 Tax Info. Publication No. 2173B-01, 2021 Reemployment Tax Legislative Changes, Florida Department of Revenue, Apr. 27, 2021.
33 P.L. 117-2 (2021), § 9901(a).
Kevin Herzberg is a leader in the Grant Thornton Florida market territory's Tax Services and SALT practices. He has more than 25 years of broad-based state tax experience, including tax planning, Sarbanes-Oxley Section 404 review, ASC 740 and 450 tax accounting, M&As, ruling requests, tax controversy, and tax compliance.
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Jamie C. Yesnowitz
Jamie Yesnowitz, principal serving as the State and Local Tax (SALT) leader within Grant Thornton's Washington National Tax Office, is a national technical resource for Grant Thornton's SALT practice. He has 22 years of broad-based SALT consulting experience at the national and practice office levels in large public accounting firms.
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