The following post was submitted to The Capitolist by Andrew Wilford and is the opinion of the author.
The Supreme Court’s decision in South Dakota v. Wayfair in June that states can tax out-of-state businesses has states champing at the bit to get at this new source of revenue. But some states aren’t satisfied with just collecting taxes after the decision — they believe online sellers owe them from before it was even legal to tax these kinds of online sales. Unfortunately, Florida appears headed down that path.
The Supreme Court’s decision in South Dakota v. Wayfair that opened the door to unprecedented new state sales taxing powers has states champing at the bit for new sources of revenue. But some states aren’t satisfied with merely claiming new taxing powers — they believe they can extend their reach into the past and collect taxes from businesses retroactively.
Prior to June’s Supreme Court case, states were not allowed to collect taxes from online and out-of-state sellers unless the seller had a “physical presence” inside the state’s borders, which generally means employees or property in the state. Therefore, online sellers who did not meet these “physical presence” rules did not collect or pay out-of-state sales tax prior to June.
But Florida Attorney General Pam Bondi seemed to argue in a recent case that online sellers should have looked into their crystal balls and seen the future. According to a court filing authored by Bondi, “Wayfair controls the outcome of this matter, and there is no reason that case should not be applied retrospectively as well as prospectively.” In other words, hide your wallets, because Florida’s tax bureaucrats plan to take every penny they can get from out-of-state sellers.
But Florida should take a step back and reconsider. The biggest problem with retroactive tax collection is, of course, fairness. Taxpayers have the right to assume that taxes they face will be imposed through a legislative process before they’re held liable for them. Nobody enjoys April 15, but imagine how much more unpleasant it would be if Uncle Sam invented new taxes that day and told you to pay up.
Taxpayers budget based on what they assume their tax liability will be, and online businesses are no different. Were Florida to go ahead with retroactive collection, those budgets will go out the window, and online retailers across the country could be forced to scrounge up payment for sales made well before they had any legal obligation to Tallahassee.
Most retailers affected by the Wayfair decision are not established giants like Amazon, which has been collecting sales tax nationwide for over a year and in Florida for three years. Instead, it will be the smaller businesses that are already scrambling to find a way to cope with the sudden burden of complying with the nation’s estimated 12,000 tax jurisdictions who will be disproportionately burdened by a “retroactive” tax liability.
Florida seeks to portray itself as “open for business,” but retroactive taxes signal the opposite to businesses large and small. Business leaders consistently label uncertainty as one of the most damaging things to their prospects. Imposing retroactive tax collection tells them that Florida has little interest in creating fair and predictable tax rules, and daring to do business in the state exposes them to whatever half-baked revenue-raising scheme tax bureaucrats come up with next, even if your business is located outside the state.
The initial revenue boost may be welcome to Florida budgets, but even a full year of online sales tax revenue is estimated at as little as one-half of one percent of the state’s $89 billion budget. Is that worth establishing an anti-business reputation and punishing small businesses nationwide with unfair back taxes?
There’s also the matter of constitutionality. While the Supreme Court blessed online sales tax laws in the Wayfair decision, it did so with caveats. While the Court did not list specific requirements, it seemed to suggest that elements of South Dakota’s law made it easier to approve. Among these elements were South Dakota’s legislative prohibition against retroactive collection and its participation in a voluntary state sales tax simplification effort called the Streamlined Sales Tax and Use Tax Agreement (which Florida has not joined). Courts may well find that retroactive collection does not pass constitutional muster, creating an unnecessary hassle and wasting taxpayer dollars on a quixotic quest for a few scraps of extra revenue.
Florida should avoid going down this road altogether. The Sunshine State, and Attorney General Pam Bondi, would be better off avoiding the murky waters of online sales taxes altogether — much less sending a negative message to businesses by imposing these new taxes retroactively.
Andrew Wilford is a Policy Analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy education at all levels of government.