Existing but Uncollected Taxes from Out-of-State Online Retailers to be
Collected, Deposited Annually into Unemployment Compensation Fund
The Florida Senate today passed Senate Bill 50, Taxation, by Senator Joe Gruters (R-Sarasota). The bill prevents an unexpected tax hike on Florida businesses, creates a fair playing field with out-of-state businesses and ensures necessary compensation is available for Florida workers seeking re-employment.
“Under the law, online purchases are not tax-free. When government turns a blind eye on collecting taxes, businesses and Floridians who are following the law face a heavier burden. Collecting existing taxes that are owed is the right thing to do,” said Senate President Wilton Simpson (R-Trilby). “However, rather than treating additional revenue that is already owed to the state as a windfall, the prudent thing to do is to reinvest these funds in our Unemployment Compensation Trust Fund, helping businesses survive a situation no one could have anticipated, and shoring up benefits for the struggling Floridians who have lost their jobs as a result of this pandemic. This bill will complement legislation proposed in the Senate to increase the weekly unemployment benefit from $275 to $375.”
“Businesses with brick and mortar stores are already acting in good faith and accordance with the law by collecting sales tax for online purchases at the point of sale. Unfortunately, right now, Florida-based, brick and mortar businesses are at a disadvantage because they collect sales tax and their out of state competition does not,” said Senator Gruters. “Investing revenue already owed to the state in our Unemployment Compensation Trust Fund alleviates a huge and unexpected burden on Florida business, while also making certain that unemployment compensation benefits are available when Floridians need them. If we do nothing, unemployment taxes paid by employers at the minimum rate will remain significantly higher than last year, negatively impacting the full economic recovery we are working towards here in Florida.”
Senate Bill 50 promotes a fair climate for those doing business in Florida by ensuring that all entities doing business in Florida, whether brick and mortar or online, collect and remit to the state the existing sales tax required on purchases. Specifically the bill requires out-of-state retailers and marketplace providers with no physical presence in Florida to collect Florida’s sales tax on sales of taxable items delivered to purchasers in Florida if the out-of-state retailer or marketplace provider makes a substantial number of sales into Florida.
Beginning this year, approximately $1 billion of uncollected sales tax from out-of-state retailers will be collected and deposited into Florida’s Unemployment Compensation Trust Fund annually until the Trust Fund is replenished to pre-pandemic levels. Replenishing the trust fund will prevent an automatic increase in unemployment (reemployment assistance) taxes facing businesses, while ensuring that the fund remains solvent for employees when they need to claim their benefits. The plan uses uncollected taxes that are already due to the state to help relieve an unforeseen tax burden for businesses with a physical presence in the state.
Florida Sales and Use Tax
Florida levies a 6 percent sales and use tax (sales tax) on the sale or rental of most tangible personal property, admissions, transient rentals, and a limited number of services, and a 5.5 percent sales and use tax on commercial real estate. Chapter 212, F.S., authorizes the levy and collection of Florida’s sales and use tax, and provides exemptions and credits applicable to certain items or uses under specified circumstances. Florida requires a dealer to add the tax to the sales price of the taxable good or service and collect it from the purchaser at the time of sale.
Florida’s use tax requires an in-state purchaser to remit to the Florida Department of Revenue the tax owed on their purchase of an untaxed item. However, compliance is reported as low as two percent and is difficult to enforce. A recent Revenue Estimating Conference determined that provisions of SB 50 will result in $973.6 million in owed but previously uncollected taxes in Fiscal Year 2021-2022 and $1.08 billion each year thereafter.
Florida’s Unemployment Tax and Trust Fund
Florida’s existing unemployment (reemployment) tax is paid by employers and the tax collected is deposited into the Unemployment Compensation Trust Fund for the sole purpose of paying reemployment assistance benefits to eligible claimants. A specific rate, calculated annually, is charged by the state to the employer on the first $7,000 of wages paid to each employee.
The rate paid by each employer is based on certain factors, including the employer’s prior use of the fund, and the statewide balance of the fund. An employer who frequently lays off employees who then collect unemployment benefits will pay a higher rate. However, any employers who were forced to lay off employees due to the COVID-19 pandemic did not have those benefits charged directly back to their accounts, which was announced by an Executive Order issued by Governor DeSantis.
Unfortunately, the decline in the balance of the fund caused by the pandemic triggered an increase in rates for all employers beginning in January 2021. The rates are projected to increase even further over the next few years until the fund is replenished to pre-pandemic levels.
In the 6-month period before April 2020, Florida’s average monthly reemployment assistance benefits expense was $27.2 million. Beginning in April 2020, Florida’s monthly reemployment assistance benefits expense increased by 800 percent, and at times, the increase exceeded 2,000 percent. Florida’s reemployment assistance benefits expense remains 473 percent over the 6-month average benefit amount before April 2020, and is estimated to continue at elevated levels for the foreseeable future.