Florida should cash in on tax ruling

After a U.S. Supreme Court ruling last week, Florida could be on its way to a fairer, more modern and more sustainable tax system — if legislators are smart enough to seize the opportunity.

The five-justice majority behind the ruling — an unusual coalition of conservative and liberal members — overturned an outdated 1992 Supreme Court decision, known as Quill, that barred states from requiring retailers without a “physical presence” within their borders to collect sales taxes.

The Quill decision came before the explosion of commerce on the internet. At the time, annual mail-order sales amounted to $180 million nationwide. Today, internet and other remote sales are approaching $500 billion a year, and still climbing.

Because Florida and the other 44 states with sales taxes haven’t been able to compel out-of-state online retailers to collect them, those states are now being cheated out of enormous sums of tax revenue — almost $34 billion, according to an estimate cited by the Supreme Court majority. Amazon, the online retail giant, now collects state sales taxes, but many other retailers that sell through its network don’t.

Florida is among states where the law currently requires the buyers in transactions with out-of-state online retailers, rather than the sellers, to pay a “use tax” equivalent to the sales tax. Most buyers are not aware of this legal obligation, so they get the erroneous impression that online shopping is tax free.

Hundreds of millions of dollars a year in use taxes go unpaid in Florida. As retail sales continue to migrate online, the annual figure will climb into the billions.

Out-of-state online retailers have exploited the Quill decision, and unenforceable state use taxes, to wield an unfair price advantage over their in-state competitors, including traditional brick-and-mortar retailers that invest and hire locally. Essentially, the out-of-state retailers benefit from a permanent tax holiday.

Some shoppers use their local stores just to check out products in person before buying them online to avoid paying sales taxes. That’s a significant discount in Florida, where the state rate is 6 percent, and local piggyback levies can add up to two additional percentage points.

This inequity for Florida businesses explains why state business organizations, including the Florida Chamber of Commerce and the Florida Retail Federation, have pushed for online retailers to be made to collect sales taxes. So has Florida TaxWatch, a business-oriented think tank in Tallahassee.

Florida relies on sales tax revenue more than any other state except Tennessee, according to TaxWatch. So failing to collect what’s owed on a growing share of retail transactions will erode Florida’s tax base. It will have an outsized negative impact on core functions of government in the Sunshine State, including education, public safety, transportation and health care. And it’ll increase pressure to recoup the lost revenue with other kinds of taxes.

This week’s Supreme Court decision paves the way for legislators to change their laws to require out-of-state online retailers to begin charging sales taxes that are now owed but uncollected. The state law upheld in the decision, from South Dakota, could serve as a model for Florida and other states.

Members of Florida’s Republican majority might fear being falsely accused of raising taxes. One politically viable counterstrategy could be to earmark part of the additional revenue generated to phase out another state tax — say, Florida’s levy on business leases, a burden no other state imposes. Then the remaining dollars could be reserved for other priorities, such as a boost in the low salaries for public school teachers.

Florida legislators would be foolish to pass up this chance to update and improve the state’s tax system.

This editorial first appeared in the Orlando Sentinel.