On June 18, Florida TaxWatch released fresh research noting that “the Legislature is likely to be forced to address a budget deficit in FY2020-21.”
According to the document, “[b]y the end of the FY2019-20 fiscal year on June 30, it is likely GR collections will have fallen short of estimates by well in excess of $2 billion.”
In addition, the research notes, other trust funds are likely to be adversely impacted by revenue losses stemming from the COVID-19 pandemic.
Florida TaxWatch cites the State Transportation Trust Fund as an example, and emphasizes that lawmakers could well be facing a fiscal headache many of them didn’t anticipate at all earlier this year, given that before COVID-19 hit, “it was estimated that Florida would have approximately $2.0 billion in unspent GR cash reserves at the end of this fiscal year” and “the Budget Stabilization Fund (BSF) also has $1.574 billion (another $100.0 million is scheduled to be added in 2020-21).”
Ouch. This is one unpleasant situation. And it is the one in which the Sunshine State now finds itself.
The good news is, there’s one easy, obvious solution at hand that legislators more or less ignored earlier in the year when it didn’t appear urgent. Now, they can resuscitate it to solve this budget problem, at least in part: Enact e-fairness legislation.
Under legislation introduced by Sen. Joe Gruters, Florida would ensure collection and remittance of sales taxes owed by Floridians on purchases of goods from out-of-state vendors, such as many of the third-party-sellers who sell via e-commerce giant Amazon.com’s platform. At present, among states that levy sales taxes, only Florida and Missouri fail to require this collection and remittance. And for Florida, it’s very costly.
Florida TaxWatch, which supports the legislation, pegs the cost right now at $478 million annually for the state government and $88 million for local governments, using data from the Florida Revenue Estimating Conference.
But in five years, those numbers could rise to $699 million and $129 million, respectively—and even those could be lowball figures.
As Amazon.com was flooded with buyers who normally bought many goods in-store but freaked out about doing so as COVID-19 spread rapidly and a desire to social distance and even self-isolate took hold, sales by third party sellers on the site reportedly spiked with the e-tailer even pushing customers to third-party sellers to avoid potential distribution and delivery problems. This is notable, because Amazon collects and remits sales taxes on products it, itself, sells to Floridians on the platform. But those rules don’t apply to a retailer in, say, New York that sells through Amazon to a consumer in Orlando. The spike in more buying from third party sellers on Amazon’s platform during COVID-19 mean Florida might be missing out on a lot more than the Florida Revenue Estimating Conference says—or even what can be calculated using public figures relevant to any mathematical analysis.
Setting aside the effects of COVID-19 on purchasing behavior by Floridians, the fact is, the amounts that the Sunshine State is missing out on in relation to third party sales to Floridians on the Amazon platform alone are mind-blowing.
According to an analysis done by my firm using Amazon’s pre-pandemic, lower-sales-volume data posted here, by virtue of not having passed the e-fairness bill introduced by Sen. Gruters, Florida is probably losing out on at least $328.5 million in taxes already owed, but never paid, on third party sales made on Amazon’s platform alone. Yes, really.
Here’s the relevant detail and breakdown. Per Amazon:
“Last year alone, Amazon collected and remitted nearly $9 billion in sales and use taxes to states and localities throughout the U.S. The recent enactment of ‘marketplace laws’ by 40 states allows Amazon to legally collect state and local sales and use taxes on behalf of third-party sellers who sell their goods on our platform.”
Here’s how we took that $9 billion and calculated out a likely $328.5 million revenue loss for Florida.
– The US population was 328 million in 2019.
– Subtract from that the populations of these states, which do not have a sales tax, plus Missouri and Florida, which have not passed marketplace fairness/online sales tax laws:
– Florida: 21.5 million
– Missouri: 6 million
– Alaska: 0.7 million
– Delaware: 1 million
– Montana: 1 million
– New Hampshire: 1.4 million
– Oregon: 4.2 million.
You are left with a population of 292.2 million.
Florida’s population of 21.5 million is about 7.3% of that figure.
7.3% of $9 billion is $657 million.
If you check here, you’ll see that just over 50% of sales on Amazon’s platform are by third party sellers. Cut $657 million in half and you get $328.5 million that Florida is possibly missing out on, just due to Sen. Gruters’ law not having been passed, coupled with the prevalence of third party sales executed through Amazon.
That’s a lot of money. And again, it’s discounting that during the COVID-19 pandemic, a higher proportion of sales on the Amazon platform appear to have been made by third-party vendors, as opposed to Amazon itself. In March, when I went to buy antibacterial wipes through Amazon, none were available except from third party sellers using Amazon’s platform. I live in Connecticut, so I paid my taxes on the purchase. But anyone doing the same in Florida would not have unless they went out of their way to do so off the platform, paying the state directly, because the retailer I bought from was not located within the Sunshine State, and e-fairness legislation remains in legislative limbo in Tallahassee.
What’s notable is that this tax revenue—again, $478 million annually for the state government and $88 million for local governments per the Florida Revenue Estimating Conference and at least $328.5 million from third party sales on Amazon alone according to our analysis— is not new tax revenue. It is tax revenue that is already legally owed. It’s just that Floridians don’t independently pay up, and the tax isn’t automatically charged by out-of-state sellers when purchases are made online because that is not a legal requirement within Florida.
So, by passing Sen. Gruters’ bill, Florida legislators would not be hiking taxes—or doing any of the other things that tax-hikers often claim they’re doing when they don’t want to cop to voting for an tax hike in disguise.
If Florida indeed finds itself facing the budgetary problems that Florida TaxWatch warns of, legislators would be smart to look at e-fairness legislation, probably Sen. Gruters’ bill, again.
The Andrew Gillums of the world would no doubt like to see a deficit plugged with higher or new progressive taxes (higher corporate taxes and new, personal income taxes are progressive fan favorites in other states that do not have personal income taxes and rely heavily on consumption taxes including sales taxes for revenue; my home state of Washington is evidence of this).
Those calls can be shut down cold by ensuring the strength of Florida’s sales tax base without raising taxes, as e-fairness legislation would do. It seems like a pretty obvious move for legislators now, even if it was not before COVID-19 hit and spurred the economic carnage we have since seen.
Liz Mair is the founder, owner and president of Mair Strategies LLC, a public affairs communications and research firm. She is based between the New York City and Washington, DC, areas and has consulted on e-fairness and online sales tax policy issues at the state and federal levels for over a decade.