A sales tax is a tax on sales or on the receipts from sales. In Florida, there is a general sales tax rate of 6% with the following exceptions: (1) 4% tax on amusement machine receipts, (2) 5.5% tax on the lease or license of commercial real property, and (3) 6.95% tax on electricity. A sales tax can be for goods and services; however, in Florida, there is only a sales tax for goods.
What is a Sales Tax Nexus?
A sales tax nexus is a connection with a state requiring you to pay sales tax, that is triggered when you meet a tax threshold. This is sometimes called an economic nexus, and it is triggered by reaching a certain number of sales and/or transactions in another state.
However, tax exemptions on goods and services, such as in Florida where services do not receive a sales tax, may count toward your economic nexus threshold in some states. In Florida, the economic nexus is $100,000 USD. In such case, you may need to register and report these sales; however, some states only count the exempt sales of physical personal property, meanwhile others, like Florida, exempt services. Florida in this case, generally does not include exempt sales in the threshold.
What is a Resale Certificate?
A Resale Certificate, also known as a tax exemption certificate, allows business owners, or their representatives, to buy or rent property or services tax free when the property or service is resold or re-rented. Certificates normally expire on December 31 of each year in Florida. Resale certificates are recommended when you have an economic nexus in Florida or even another state which allows said certificates; in Florida, the state government does not charge a fee for this certificate, but others states may.
What is a Multistate Tax Commission’s Uniform Sales and Use Tax Resale Certificate?
The Multistate Tax Commission’s Uniform Sales and Use Tax Resale Certificate is a multijurisdictional tax-exemption for purchases on resale. This Certificate has been recognized in 31 states such as Florida. Meanwhile, this Certificate exempts you from having to pay sales taxes in interstate transactions, most states such as Florida require for you to register for their individual’s state resale certificate as well.
South Dakota v. Wayfair and its Effect on Sales Tax.
In South Dakota v. Wayfair, the United States Supreme Court ruled in a 5-4 decision that states can mandate that businesses, without a physical presence in a state, with more than 200 transactions or $100,000 USD in-state sales, collect and remit sales taxes on transactions in that specific state.
This means that suppliers and other companies may collect and remit sales taxes on transactions in the state where they are shipping and delivering goods and services, if the business, regardless of whether it has physical presence in the state, has more than 200 transactions or $100,000 USD in state sales. For example, if a New York company ships goods to Florida, where they have $250,000 in in-state sales, the company that supplies and delivers these goods, may tax the New York company for the 6% Florida state sales tax.
Physical presence represents physical ties to the state; this can include having warehouses, kiosks, or your headquarters in the state. Selling on marketplaces such as Amazon or eBay may also trigger sales tax obligations.
What is the Streamlined Sales and Use Tax Agreement?
Most jurisdictions recommend using multistate accounting systems or algorithms to balance out taxation requirements; however, this may be costly. This challenge is also not ameliorated by the Streamlined Sales and Use Tax Agreement (SSUTA). The SSUTA is a uniform state statute that standardizes sales taxes among the member states and provides simplified tax rate structures; requires a single, state-level tax administration using uniform definitions of products and services; and provides sellers access to sales tax administration software paid for by the states. Sellers who choose to use such software are immune from audit liability. The SSUTA has been ratified by 30 states, such as Florida, and the District of Columbia.
The reason why the SSUTA may be costly to small businesses is because it requires costs such as:
- Identification of the sales taxability of items and transactions in approximately $10,000.00 U.S. sales tax localities, including identifying exemption situations;
- Ascertaining the appropriate tax rate for each taxable transaction;
- Collecting and remitting the appropriate tax at the appropriate filing time, and giving due consideration to various jurisdictions’ shifting filing criteria (e.g., volume of sales in a reporting period);
- Accounting for and reporting of adjustments for sales returns and allowances;
- Dealing with multiple states’ sales tax audit departments, including those that may come to conflicting conclusions regarding particular transactions; and
- Purchasing and maintaining software systems to accommodate sales tax compliance needs, and absorbing consulting, accounting, and audit costs associated with compliance.