TALLAHASSEE — Floridians are supposed to pay state tax whenever they buy “tangible” things like books and DVDs through Amazon, the online retailer.
We seldom do.
We’re also supposed to pay a tax on Netflix, specifically its streaming service of movies and original series like “House of Cards” and “Orange Is the New Black.”
We pay that every month.
The difference in the two transactions is in what’s bought, the type of tax and the method of collection — and it points up the challenges state leaders face in keeping up with technology in the marketplace.
What makes the two purchases similar is that they originate outside the state and are making up a growing segment of all Florida’s commerce.
That’s what draws attention during sessions of the revenue-hungry Florida Legislature.
“The whole idea of taxing on remote sales is important,” said Kurt Wenner, vice president of tax research for Florida TaxWatch, a nonprofit group. “The questions are, what are digital goods and services? And should they be ... taxed like sales?”
In other words, should something intangible, like a digital video stream, be taxed the same as “tangible personal property,” such as a video disc you buy?
And is it fair to tax movies and music when they’re downloaded to a computer for viewing again and again, as some states do, but not when they’re streamed for one-time viewing?
The answers, so far, have been inconsistent.
“No matter what you do, there are always going to be issues of tax fairness,” said Robert S. Goldman, a Tallahassee-based tax attorney and one of the main drafters of Florida’s telecommunications tax laws.
At the center of the issue is the Communications Services Tax, levied in every state and the District of Columbia. In Florida, services that are taxed include “video streaming” and “television programming,” according to the Department of Revenue.
Service providers may bill and collect a total of 6.8 percent, the department’s website says.
At the same time, Florida imposes a separate 6 percent use tax – a levy on something used or consumed here – for out-of-state purchases from vendors like Amazon.
The revenue department provides a form that consumers are supposed to fill out to pay this tax. Almost no one does and it is largely unenforceable.
Now, once vendors establish a physical presence inside the state, Florida requires them to begin collecting and remitting sales taxes.
That’s what Amazon intends to do, with new distribution centers planned for locations that could include south Hillsborough County. The centers would bring as many as 3,000 jobs and as much as $300 million in construction.
Gov. Rick Scott has said the company “will begin collecting Florida sales tax at such time as it is required under current Florida law.”
Netflix – which accounts for nearly a third of all Internet traffic entering North American homes nightly, according to BusinessWeek – collects the Communications Services Tax from Florida residents and hands it over to the state.
One Florida customer’s invoice, for example, shows a 65-cent tax tacked onto his $7.99 monthly subscription fee for streaming service, though it did not specify what the tax was for.
Netflix spokesman Joris Evers said the company “sought a ruling from the state tax authorities to clarify exactly what we need to do and are in full compliance with that ruling.”
The tax does not apply to Internet access, which is not taxed by the federal or state government. But many customers have their Internet access bundled in with cable television, phone service or both, which are subject to the CST.
So, attorney Goldman explained, even if a customer pays the Communications Services Tax to his phone or cable company, he still pays the additional tax for Netflix because it’s a separate service and transaction.
The tax applies to other paid video services, like Hulu Plus. Audio streaming also is subject to the tax because it’s included in state law’s definition of communications services. That would include Pandora One, the for-pay version of Pandora, the streaming radio site.
Hulu and Pandora did not respond to written questions, nor did Amazon, which offers AmazonPrime, a competing service.
In 2012-13, the state collected $2.2 billion in Communications Services Tax revenues, according to Department of Revenue spokeswoman Renee Watters.
Except for tax on direct-to-home satellite, the Communications Services Tax actually has two portions, one state and one local. The state tax is further broken down into the state tax portion and the gross receipts tax portion.
It gets even more complicated.
“The local tax portion is comprised of the local tax rate adopted by each jurisdiction and a conversion rate for the discretionary sales surtax, if the county has a discretionary sales surtax tax for sales tax,” Watters said. “Each portion of the CST is distributed separately.”
Hillsborough County’s rate, for example, is 4 percent, according to county budget director Tom Fesler.
Here’s where that money goes: The state tax portion goes into general revenue and the gross receipts tax portion goes toward the Public Education Capital Outlay, or PECO, Fund. That pays for new school buildings and renovations.
An added wrinkle is that Congress is considering legislation to allow state governments to collect sales and use tax directly from online retailers who don’t have a physical presence — that is, stores and warehouses — in a state.
The Marketplace Fairness Act passed the Senate 69-27 and is now in the House, where it’s facing Tea Party opposition.
If passed, it would essentially override U.S. Supreme Court rulings, issued in the time of paper catalog and other mail-order sales, which said retailers who don’t have a physical presence in a state don’t need to collect that state’s sales tax on purchases.
Those decisions now apply to Internet purchases. But in Florida, it’s the buyer’s responsibility to pay any tax directly to the state.
The current system is “totally unfair to traditional retailers who have a store in Florida,” said TaxWatch’s Wenner, a point long echoed by the retail and small-business lobbies.
By some estimates, capturing tax on Amazon purchases by Florida residents could net the state about $200 million yearly, said Ritch Workman, chairman of the finance and tax subcommittee in the state House of Representatives.
“That’s a big chunk, but it doesn’t solve the problem,” said Workman, a Melbourne Republican. “It solves one small part of the problem.”
For instance, he mentioned the plethora of goods sold over thousands of virtual storefronts through eBay.com, the online auction and shopping site.
Still other issues loom, attorney Goldman said, including whether to tax “software as a service,” referring to programs that reside on the Internet, or “cloud,” but not on your computer or on disks.
Ultimately, discussion about tax fairness is “great for editorials but there are so many perspectives,” Goldman said. “It’s like religion.”