State weighs collecting tax for Web sales

When's the last time you mailed the state a check for the sales tax due on a purchase on Amazon.com or Overstock.com?

Legally speaking, that's what Florida residents who make purchases from out-of-state online retailers and portals are supposed to do if the business does not collect it at the point of sale.

"But nobody does that, of course," said Rick McAllister, president of the Florida Retail Federation. "It's a terrible situation."

Collecting that tax may be the way to make up for some of the state's projected $3.2 billion budget shortfall for 2010-11. Faced with high unemployment and foreclosure rates in an election year, GOP legislative leaders say they are adamantly opposed to raising taxes or fees.

Beefing up collections of an existing tax could be another matter, said Rep. Kevin Ambler, who is proposing a new way for the state to rake in sales taxes on Internet sales.

Some analysts estimate that Florida loses as much as $2 billion every year on such Internet purchases from out-of-state retailers who don't collect and remit the tax. "Brick and mortar" retailers have complained bitterly that they lose sales because they must charge the tax while online competitors don't.

Over the last decade, about two dozen states have joined together to align their sales tax policies so it's easier for online sellers to comply voluntarily. Florida lawmakers have declined so far to take part since the initiative, known as "streamlining," would cost the state money upfront, and only federal action will force out-of-state online retailers to collect the tax.

"Streamlining doesn't work because it relies on the same old broken model of relying on merchants collecting it," said state Rep. Kevin Ambler, R-Tampa, who has filed legislation that would allow Florida to hire credit card processing companies to collect Internet sales tax on the state's behalf.

Here's how it would work: When you make an Internet purchase, the company that processes your credit card transaction would automatically calculate and charge sales tax using software developed by a company hired by the state.

The state would recoup the cost of the contracts through the tax collections they yield, said Ambler, adding that specific costs would be determined during the contracting process.

In addition to recouping sales tax revenues, Florida could license that unique software to other states, thereby creating a second stream of income.

Once the resulting collections from Internet sales reach $5 billion, the state would reduce its sales tax rate by one penny. According to Ambler, the state will probably still be $1 billion or more ahead in tax collections, despite the rollback.

"That's almost a 20 percent sales tax reduction," he said.

McAllister said his federation wants the sales tax collected. "We are, certainly, for collecting those taxes that are legally due and not collected now from these remote sellers," he said. "The current situation is totally unfair to brick-and-mortar retailers."

But he questioned how some of the details in Ambler's bill would work. The shipping and handling portion of a transaction is normally tax-free, he said, and some purchase totals may include tax-exempted items, such as food. How, he asked, will a credit-card company using automated tax collection software be able to distinguish between what's taxable and what isn't?

Ambler, who has been researching the idea for several years, said the computer program would be able to make such distinctions. Those complex "algorithms," he said, are part of what will make the software attractive for use by other states.

The House is likely to refer Ambler's bill to the tax committee led by Rep. Ellyn Bogdanoff, who said she likes the idea so far.

"It's a very interesting concept, and it's a private-sector solution," said Bogdanoff, R-Fort Lauderdale. "I think it's extremely creative; I just need to understand more about it."

An executive for Internet mega-retailer Overstock.com declined to be interviewed for this story. Amazon.com representatives did not respond to requests for comment.

Ambler has persuaded Finance and Tax Committee Chairman Thad Altman to sponsor the proposal in the Senate. Altman called the idea "provoking," and said he intends to bring it up for a hearing this spring.

But Altman has questions about the details, too. "I don't know if it will work or not," said Altman, R-Melbourne. "It's interesting; we'll have to see."