It turns out the U.S. Supreme Court has a better grasp of the economic realities of the 21st century than Congress or the Florida Legislature. The court ruled Thursday that states can require online retailers to collect sales taxes even if the retailers do not have a physical presence in the state. That could bring $500 million or more in additional sales tax revenue to Florida, and the Legislature should require that the tax be collected.
The 5-4 court opinion finally recognizes the impact of the internet and acknowledges commerce has changed since the court ruled in the 1960s and early 1990s that businesses had to have a physical presence in the state before the state could require them to collect state and local sales taxes. It’s no longer a world where goods from out of state arrived after they were ordered from a catalog that came in the mail. Nearly anything can be bought now from anywhere in the world with a couple of computer clicks and a credit card number or PayPal account.
Previous Supreme Court decisions prevented states from collecting sales tax from out-of-state retailers with no physical presence in the state because the court concluded that would be an unfair burden on interstate commerce. But as Justice Anthony Kennedy wrote in Thursday’s majority opinion, "… the administrative costs of compliance, especially in the modern economy with its internet technology, are largely unrelated to whether a company happens to have a physical presence in the state.’’
In fact, the unfair burden has been on local retailers who have been collecting sales taxes. As the court opinion notes, online retailers from out of state essentially offer lower prices because so few consumers voluntarily pay the sales tax themselves. Kennedy wrote that the unfairness of the tax collection situation also could be an incentive to avoid opening storefronts or distribution centers in states such as Florida, just to avoid collecting the sales tax. That essentially shifts more of the tax burden and the responsibility for funding government functions from public education to social services to Floridians who buy locally and away from those who buy online.
Sales tax collection in Florida already has been evolving. Amazon has been charging sales tax in the state for more than three years, since it opened large warehouses in Lakeland and elsewhere in Florida. Airbnb has been collecting sales and resort taxes for more than two years. It’s past time other online retailers such as Wayfair, which was a defendant in the South Dakota case decided by the Supreme Court, also collect sales taxes from consumers.
Those pennies on the dollar add up, particularly in a state like Florida, which has no state income tax and relies so heavily on the sales tax for revenue. The nonpartisan Government Accountability Office estimated last year that collecting sales tax on all remote sales could bring state and local governments in Florida anywhere from $486 million to $758 million a year. That’s a lot of money for schools, police departments and other government services that has been left on the table.
The Legislature should pass legislation next year to finally require retailers to collect sales tax regardless of whether they have a physical presence in Florida. Lawmakers can model the South Dakota law that was at issue before the Supreme Court, which would require retailers to collect the tax only if they delivered more than $100,000 of goods or services into the state or had more than 200 deliveries a year. Those sorts of exemptions are reasonable. Florida also finally should join 24 states that have adopted the Streamlined Sales and Use Tax Agreement, which provides common definitions of products and services and uniform rules to make it easier for retailers to administer and collect the tax.
Chief Justice John Roberts wrote in dissent that the sales tax issue should have been left to Congress to decide. But Congress has failed to deal with it, and so has Florida. The court corrected a fundamental unfairness in sales tax collections, and state legislators have an obligation to follow up.