Recent Blog Posts

FL TAX LITIGATION ALERT - Online Travel Companies Successful in Leon County

Jerry Donnini — Sat, 05 May 2012 12:53:00 GMT

In the ongoing battle between the various counties and the Online Travel Companies (OTC's) over the Tourist Development Tax, the OTC's won a major battle in Leon County on April 26, 2012. Specifically, a Leon County Trial Court concluded that tax was not due on the marked-up amount the OTC's, such as Expedia, Orbitz, and Travelocity, charge to their customers for hotel room rentals.

Under section 125.0104, Florida Statutes ("F.S."), the Tourist Development Tax (a type of "bed tax") is due on the consideration paid for room occupancy within the county and a particular county may charge an additional amount in its discretion. The controversy at issue is whether the "consideration" the law speaks of is the total amount paid by the customer or the discounted amount charged to the OTC and passed through to the customer? The counties have successfully asserted in previous litigation that the "consideration" is the higher amount because that is what is charged to the customer for the room, whereas, the OTC's counters that they are mere "market facilitators" or "intermediaries" and the up-charge is for the OTC's services. While the small difference on a per room basis seems insignificant, the issue has put millions of dollars in tax revenue in jeopardy for the counties.

The issue can be more clearly explained using the following two examples:

Scenario 1: Suppose a customer books a room directly from a hotel for $100. At a typical 13% tax rate for various local taxes the customer pays $113. The hotel receives its $100 and the state collects $13 on the transaction. Of the $13 approximately half goes to the county under the Tourist Development Tax regime.

Scenario 2: Using the same example, an OTC purchases the same room from the hotel for $80. At a 13% rate, it pays tax of $10.40, for a total cost of $90.40. The OTC then charges the customer the same $100, which includes a reimbursement for the $10.40 in tax and a $9.60 profit. On virtually the same transaction the state and local government collects $10.40 instead of the $13

In this case, the judge ruled for the OTC's and opined that the Legislative intent of the statute was not aimed at charging tax on this type of transaction. Further, he stated that the online travel industry has significantly evolved in the past years and the current law was not drafted with this in mind.

This case marks an important victory for the OTC's because the counties have been overwhelmingly successful in recent ligation throughout the state. In February, Palm Beach County settled with the OTC's for around $1.9 million in Tourist Development Tax. For a more in depth analysis of Tourist Development Tax, CLICK HERE. There is also current litigation in Broward County and another case is currently pending in Leon County. Of late, the counties have also been largely successful in collecting the tax on the higher, final customer price in various courts across the nation.

Mary Ellen Klas, of the Miami Herald, reported that attorneys for both sides intend to appeal the ruling. Once again, this is one of dozens of cases that is begging the Legislature to act and provide guidance in a grey area of the law. Up to this point, the law has been brought before the Legislature, but it has been unable to resolve the issue and take a position.

About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, in Fort Lauderdale, Florida. Mr. Donnini's primary practice is Florida tax controversy. Mr. Donnini worked as an accountant for a public REIT prior going to law school and is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact the firm by phone or email via the links at the top of the page.

Leon County v Expedia et al, Fla. 2nd Cir., Case No. 2009 CA 4319 (May 8, 2012) - Final Summary Judgement

WHAT SERVICES ARE SUBJECT TO SALES TAX IN FLORIDA?

James Sutton — Tue, 01 May 2012 19:55:00 GMT

SHOULD YOUR BUSINESS BE COLLECTING OR PAYING SALES AND USE TAXES ON SERVICES?

We get a lot of inquiries from new companies or companies migrating into Florida about WHAT SERVICES ARE SUBJECT TO FLORIDA SALES AND USE TAX? If this is your question, then you've come to the right place. In a nutshell, below is a list of services that are specifically subject to Florida's sales tax use tax. However, even if your company (or your client's company) does not fall into one of these categories, I suggest reading the whole article as the Florida Department of Revenue never makes things simple.

Nonresidential Cleaning Services
Commercial Pest Control Services
Commercial/Residential Burglary and Security Services
Detective Services

If your company (or your client's company) provides one of the above-listed taxable services, then the company MUST file a Form DR-1 to register with the Florida Department of Revenue to collect and remit sales tax. Invoices (or receipts if no invoices) for specifically taxable services are required to have 'FLORIDA SALES TAX' as a separate line item on each customer invoice / receipt. The state of Florida imposes a tax rate of 6% plus any local discretionary sales tax rate (up to an additional 1.5%). The company must collect and remit the tax on the schedule provided by the Florida Department of Revenue for your particular company (usually monthly).

Failure to register, collect, and remit sales taxes could make your company (or your client's company) liable for every penny of sales tax that should have been collected from customers. This amount can add up to a devastating sum because the Department of Revenue can look at your company's operations as far back in time as the statute of limitations is open. Generally, the statute of limitations is 3 years from the date the return is due or filed, whichever is later. However, if you company has not been filing sales tax returns, then the statute of limitations could be wide open. (Voluntary Disclosure procedures may lessen the look back period as well as penalties.) In other words, the company should get registered and start collecting / remitting sales tax if you are selling any of these taxable services. If your company is buying these types of services in Florida and not paying Florida sales tax, then the FL DOR will assess the tax, penalties, and interest on your company for not self-accruing use tax on the taxable services.

Just because your company does not provide one of the services above, it does not mean that your company can take a sigh of relief just yet. In addition to sales tax collection obligations on companies that sell or rent tangible personal property, repair services on tangible personal property ("TPP") can become a service subject to sales tax if any TPP is provided to the customer. The classic example is the "one drop of oil" rule. DOR auditors have been known to inquire car repair service providers if the purely repair invoices (which generally are not subject to sales tax) included any type of TPP. When the answer is no, the follow up question is usually "not even a drop of oil?" This is because the FL DOR takes the position that even a single drop of oil placed on the customer's vehicle can make the entire repair service subject to sales tax. Contemplate whether your company's "non-taxable service" provides even the slightest amount of tangible personal property to the client (e.g. a flash drive). Furthermore, use tax is due on any TPP used when performing the service. Both sales tax and use tax can be very serious matters and incorrectly interpreting the tax laws, even unintentionally, can mean sales and use tax obligations for many years of transactions. Is this something your business could survive financially?

Does your company provide management services? Generally speaking, management services are NOT subject to Florida sales and use tax. However, management services for use of commercial or residential property fall into a unique category of Florida law. This is because commercial and residential property rentals are subject to Florida sales tax. A real estate management company is not initially liable for the tax, but is obligated to collect for the land owner client. If the management company does not collect the tax from the renter on behalf of the client, then the management company can be held liable for the tax not collected. Because of this, real estate management companies are also required to register with the Florida Department of Revenue.

Business must always be mindful of services that may not fall under the Florida sales and use tax realm, but are subject to Florida's Communication Services Tax, such as:

Telephone Services
Paging Services
Faxing/Facsimile Services
Video Conferencing Services
Cable Services
Direct-to-home Satellite Services

Tax rates for Florida Communication Services Tax can be significantly higher than the Florida sales and use tax rate (e.g. 9.17% state rate and up to 8.9% local rate for telecommunication services). As such, if your company provides and type of service in which communications or information is transferred electronically, then your company should strongly consider whether the FL Communication Service Tax applies.

Whether your company provides or even buys one of the designated taxable services or one of the other indirectly taxable services, you want to make sure you are aware of your obligations from a tax perspective. Proper planning could stave off devastating results when (not if) your company is audited by our good friends at the Florida Department of Revenue. If your business would like to consult with a Florida CPA / Attorney to determine how to comply with Florida's complicated sales and use tax laws or how to cost effectively start complying if your company has been incorrectly paying or charging sales tax, then we offer a FREE INITIAL CONSULTATIONto discuss you Florida tax concerns. Contact our law offices today by phone or email via either of the links on the top of this web page. Is an auditor already knocking and you need an expert to defend you? You should have the right experts on your side. Contact The Law Offices of Moffa, Gainor, & Sutton, PA for a free initial consultation on your Florida tax audit concerns.

ABOUT THE AUTHOR: MR. SUTTON IS A FLORIDA LICENSED CPA AND ATTORNEY AND A SHAREHOLDER IN THE LAW FIRM MOFFA, GAINOR, & SUTTON, PA. MR. SUTTON IS IN CHARGE OF THE TAMPA OFFICE FOR THE FIRM AND HIS PRIMARY PRACTICE IS FLORIDA TAX CONTROVERSY. MR. SUTTON WORKED FOR THE STATE AND LOCAL TAX DEPARTMENT OF A BIG FIVE ACCOUNTING FIRM FOR A NUMBER OF YEARS AND HAS BEEN AN ADJUNCT PROFESSOR OF LAW AT STETSON UNIVERSITY COLLEGE OF LAW SINCE 2002 TEACHING STATE AND LOCAL TAX, ACCOUNTING FOR LAWYERS, AND FEDERAL INCOME TAX I. YOU CAN READ MORE ABOUT MR. SUTTON IN HIS FIRM BIO.

AUTHORITY

Chapter 202, Florida Statutes (Communication Services Tax)

Rule 12A-1.006, Florida Administrative Code ("F.A.C.") (Install, Maintain, Repair Tangible Personal Property.

Rule 12A-1.009, F.A.C. (Pest Control Services)

Rule 12A-1.0091, F.A.C. (Cleaning Services)

Rule 12A-1.0092, F.A.C. (Detective, Burglar Protection, and Other Protection Services)

Rule 12A-1.051, F.A.C. (Contractors Who Repair, Alter, Improve, and Construct Real Property)

ADDITIONAL RESOURCES

TAA 10A-027 (Cleaning Services – Separately Stated Insurance IS subject to Sales Tax)

TAA 10A-035 (Warranty Contract is NOT a non-taxable professional service)

TAA 11A-007 (Residential Pool Cleaning Service is NOT subject to Sales Tax, but IS subject to Use Tax)

FL TAX ALERT: USE TAX ON MANUFACTURERS / FABRICATORS INSTALLING TPP OUT OF STATE

James Sutton — Thu, 19 Apr 2012 12:54:00 GMT

MANUFACTURED / FABRICATED TANGIBLE PERSONAL PROPERTY INSTALLED INTO REAL PROPERTY IS SUBJECT TO FLORIDA USE TAX EVEN WHEN INSTALLED OUTSIDE FLORIDA.

Florida is not known for having many manufacturing or fabricating companies, but every single manufacturer / fabricator that we have is extremely valuable to the local and state economy, and particularly to our precarious job market. The state of Florida is regularly trying to attract more manufacturing companies by offering numerous tax incentives. So it will likely surprise you that the Florida Department of Revenue has taken a very aggressive position that is likely to drive manufacturing and fabricating companies away from our great state (or possibly out of business all together). Does your company (or your client's company) manufacture or fabricate tangible personal property which is then installed as real property improvements, such as cabinets, elevators, screened porches, fabricated steel, bleachers, custom stairs, solar panels, or other similar items? Do some of these products get installed into realty outside the state of Florida? If so, then you should prepare for a tax shock.

First – it should not shock you that when a company fabricates or manufactures goods that are then installed by the same company into Florida realty (e.g. a cabinet maker that fabricates and installs cabinets) the company is not supposed to charge sales tax to the customer. Instead, the fabricator/installer is supposed to pay Florida Use Tax on the "cost price" of the cabinets that includes not only materials, but also the labor and overhead allocated to the fabrication process (but not the installation labor). Hopefully you knew this already. What most Florida based manufacturers and fabricators do not know is that the same use tax applies EVEN if the manufactured or fabricated product is installed into realty in another state. At least, this is the position the Florida Department of Revenue is taking.

How can our comrades at the Florida Department of Revenue believe this type of taxpayer extortion is justified? Section 212.06, Florida Statutes ("F.S."), provides:

(1)(b) Except as otherwise provided, any person who manufactures, produces, compounds, processes, or fabricates in any manner tangible personal property for his or her own use shall pay a [use] tax upon the cost of the product manufactured, produced, compounded, processed, or fabricated without any deduction therefrom on account of the cost of material used, labor or service costs, or transportation charges, notwithstanding the provisions of s. 212.02 defining "cost price."

Because the statute doesn't say for their "own use in Florida," our friendly tax officials in Tallahassee deem this statute to mean tax is due on fabricated tangible personal property that is used or installed "anywhere." Therefore, the Florida Department of Revenue ("FL DOR") takes the position that you owe a use tax to Florida on these items whether you installed these products in North Carolina, Georgia, or even the Bahamas. Our extremely valued manufacturing companies based in Florida, lured here with warm smiles, open arms, and over flowing tax incentives, are now being hit with huge assessments for at least 6% of the fabricated cost price of all items installed out of Florida over the last 3 years.

And the surprises surrounding this situation do not end with Florida's use tax. Of course, the state where the property is installed may also (and usually does) claim a right to a use tax on the fabricated property because the final use of the tangible personal property is technically happening in that other taxing jurisdiction. Surely Florida will allow a credit for taxes paid to the other jurisdiction? Not a chance. Our friends at the Florida Department of Revenue will politely tell you to get a refund from that other jurisdiction. Even if the other jurisdiction will allow you a credit for use taxes paid to Florida, the amount of the taxpayers refund will usually not be 100% due to varying statute of limitations periods for refund claims in the other jurisdiction and the amount of time it takes for the issue to come to light during a Florida sales and use tax audit. So the likely outcome is double taxation and a considerable amount of frustration to the owners and tax departments of our Florida based manufacturing and fabricating companies.

If the FL DOR has already brought this up on audit, then you very well may want to fight this injustice and we would be glad to help. We could either attack this issue head on or there may be other technical or objective arguments at your disposal. For example, if your company (or your client) was audited before and FDOR did not assess use tax on the same out of state installations (leaving your company with the understanding that the method you used was correct). This might be a viable argument for protest, but likely will not hold water during the audit. However, you better have a copy of the prior audit's work papers to seek a compromise based on a prior written determination, since we have had prior auditors develop amnesia about what (s)he did during an audit years ago.

If your company, or one or more of your clients, falls into this scenario before the issue has been raised on audit, then there is something proactive that you can do. As long as you plan ahead, there are ways to strategically plan around Florida's crazy position of extorting use tax on exported goods. Section 212.06(5), F.S., references an exemption for a manufacturer or fabricator who properly exports an item of tangible personal property. Specially, section 212.06, F.S., provides:

(5)(a)1 Except as provided in subparagraph 2., it is not the intention of this chapter to levy a tax upon tangible personal property imported, produced, or manufactured in this state for export, provided that tangible personal property may not be considered as being imported, produced, or manufactured for export unless the importer, producer, or manufacturer delivers the same to a licensed exporter for exporting or to a common carrier for shipment outside the state or mails the same by United States mail to a destination outside the state;

A reading of this statute would imply that a fabricator merely needs to deliver the fabricated product to the out of state job site via common carrier to avoid the use tax. While this is not as easy (or as cheap) as it sounds for most types of fabricated property due to size and weight limitations, the Florida Department of Revenue ("FL DOR") does not make it this easy. The FL DOR requires the products to the shipped to a 3^rd party out of state. e.g. see TAA 11A-012 (fabricated goods installed out of state requires use tax).

The interesting concept here is that Florida sales and use tax law has always respected the simplest of legal entities, even if commonly owned and even if completely disregarded for Federal Income Tax purposes. This has created a windfall of tax revenue for the state in some areas, such as intercompany rent, but creates a perfect and completely legal loop hole in our particular use tax scenario.

The saving solution is to set up a separate, wholly owned company to do the installation work, such as a Limited Liability Company. This separate "installation company" can then purchase the goods from the related entity, but the goods must be transported by the manufactuer to the out of state job site. The installation company must separately contract with the client to do the installation work for this solution to apply. If the formalities for exporting the goods out of Florida are followed (qualifying as a tax free export), then this should eliminate the Florida use tax as well.

If you have any questions about Florida sales and use tax as it applies to manufactured or fabricated goods installed into realty, then please feel free to contact one of the professionals from Moffa, Gainor, & Sutton, PA for a free initial consultation. You may click on either of the links at the top of this page to email or call our firm.

Special thanks to Glenn A. Bedonie, CPA for his contributions to this article. Mr. Bedonie is the former Director of Technical Assistance and Dispute Resolution for the Department of Revenue, having retired after thirty years of distinguished service. Mr. Bedonie is currently the owner of Glenn A. Dedonie, CPA, PA, specializing in state and local tax matters and regularly consults with other professional practitioners.

AUTHORITY

§ 212.02(14), F.S.

§ 212.05, F.S.

§ 212.06, F.S.

Rule 12A-1.0015, Florida Administrative Code ("F.A.C.")

Rule 12A-1.005, F.A.C.

Rule 12A-1.43, F.A.C. (how to determine tax base for use tax)

Rule 12A-1.051, F.A.C. (real property improvement contractor)

Rule 12A-1.063, F.A.C.

ADDITIONAL RESOURCES

TAA 11A-012 (Taxability of Sales of Stairs and Stair Parts) (May 2, 2011)

FL Condo/Transient Rental Industry - Sales and Use Tax Issues and Savings Opportunities

Jerry Donnini — Tue, 17 Apr 2012 12:39:00 GMT

The vacation rental market is a thriving and lucrative business here in Florida, and on a national level, that caters to seasonal residents and the tourism industry alike. Unfortunately, due largely to dire economic times, the Florida Department of Revenue and other states’ taxation agencies have targeted this industry for state and local tax audits. While many companies have underreported Florida sales and use tax, a tax audit can substantially impair a company’s financial health and even put a company out of business. As most of you are already aware, the vacation rental market businesses primarily generate revenue by renting, leasing, or granting licenses to use accommodations to guests for various durations. Many businesses also offer guests tangible personal property such as food and beverage sales, mini-bars, rentals of roll-a-way beds, as well as various services and conveniences.

What is often ignored or forgotten by many businesses in Florida is that many of these charges are subject to Florida sales tax. What is taxable? In Florida, the major taxable component is the rental of what is technically referred to as a transient rental or living a c c o m m o d a - tion. A transient accommodation is a “living quarter or sleeping or housekeeping accommodation in any hotel, motel, apartment house, multiple unit structure,” which includes condos. In addition, any mandatory charges by the owner or by the owner’s agent for the use of the transient rental are also taxable. Things like mandatory processing fees, cleaning fees, and booking fees are taxable if they are mandatorily imposed for the use of the rental property. It is these “other” mandatory charges that are often not correctly taxed by the condo owner or management company that can lead to large audit assessments by the State of Florida. Moreover, these charges are also subject to the Tourist Development Taxes (TDT) in many counties that are often at a rate as high as the state sales tax. As evidenced by the staggering increase of litigation by counties against the online travel companies (OTCs), such as Obritz, Expedia, and Travelocity, the counties have been as aggressive if not more aggressive than the Department of Revenue against companies for uncollected TDT. For Condo/Transient Rental Industry - Sales and Use Tax Issues and Savings Opportunities a more thorough analysis and update on the OTC litigation, please visit our firm’s blog page at http:// www.floridasalestax.com/FloridaTax-Law-Blog.aspx.

What is not taxable? The two major exceptions to the vacation rental industry are the “bona fide written lease” and the “continuous residence” exceptions. If a person has entered into a bona fide written lease for longer than 6 months or if an individual has continuously resided in a transient rental for longer than 6 months, then the transaction is exempt from tax. Both exceptions provide creative planning opportunities to reduce or eliminate the sales and use and the TDT taxes within the vacation rental industry. Furthermore, there are ways in which to structure transactions so that certain charges are optional, rather than mandatory, which make for a way to reduce or eliminate tax assessments, or to reduce costs in an extremely competitive marketplace. Specific planning opportunities and issues will be more thoroughly developed in the future newsletters.

About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is Florida tax controversy. Mr. Donnini worked as an accountant for a public REIT prior going to law school and is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact the firm by phone or email via the links at the top of the page..

This article was originally published in April 2012 in the FVRMA E-News, the official electronic publication of the Florida Vacation Rental Managers Association. The original publication may be found be clicking on the following link: FVRMA E-NEWS - APRIL 2012

GAS STATION INDUSTRY - SALES & USE TAX ISSUES AND OPPORTUNITIES - PART II

Jerry Donnini — Thu, 12 Apr 2012 17:50:00 GMT

Gas Station Industry – Sales and Use Tax Issues and Savings Opportunities – Part II Miscellaneous Issues

On March 23, 2012, I wrote an article about the Florida gas station industry, which specifically discussed sales and use tax issues relating to distributors, such as fuel sales and equipment purchases. Since that article, I have already discussed some interesting planning opportunities with clients regarding creative ways to reduce sales tax on related party rent within the gas station industry. In addition, I have also been working on some interesting audit and refund issues with a few of the large distributors here in Florida. As I mentioned in my last article, doing work in this industry has been an extremely rewarding endeavor, as I have grown up with and been around this industry my entire life. Due to favorable feedback on the first article, I have written this article to discuss the Florida sales and use tax implications of some of the ancillary businesses that go along with running a successful gas station.

C-Store

Another major source of income and potential sales and use tax issues relate to the convenience store (C-store) located within a gas station. While the convenience store may purchase inventory as a tax exempt sale for resale, the majority of the sales are taxable to the customer. However, the majority of the problems we see in convenience store audits occur from the non-taxable sales and various breakdowns of the accounting systems that account for taxable and non-taxable transactions. Another problem is Zapper software that was discussed in detail by our partner James Sutton in a November, 2011 article that can be found here http://www.floridasalestax.com/Florida-Tax-Law-Blog/2011/November/New-Legislation-to Battle-High-Tech-Sales-Tax-Fr.aspx. Basically, the Zapper software is a computer program that reduces or eliminates cash sales transactions from the accounting system. This can be a major problem for gas station owners that collect a percentage of C-store sales from their tenants.

Some unique arrangements may arise in certain gas stations, such as delis, pizza shops, or other prepared food sales. Under rule 12A-1.011, Florida Administrative Code ("F.A.C."), sales of prepared foods are taxable. However, in Albertson's Inc. v. DOR, the court held that the deli sales of wrapped meats and cheeses for off-premises consumption are not taxable. Sales such as these may be difficult to track, but may present planning and savings opportunities for taxpayers in the gas station industry for both owner and operators alike.

CAR WASH

Another major income source for a gas station owner or operator is an on-site car wash. The car wash may be automated, and/or self-service, or it may be full service. On one hand, in the gas station car wash context, a wash job with only detergent or water softener added to the water is exempt under rule 12A-1.006, F.A.C. However, the purchases of these items used in the car wash are subject to use tax to the gas station owner. On the other hand, if other substances such as wax or silicone are added, the entire wash is taxable to the customer and the gas station owner my purchase the materials used in the car wash tax free by presenting a valid resale certificate to its vendor in lieu of paying tax.

In my experience, an item that often catches the gas station owner or operator off guard is that sales tax is due on the purchase of the machinery and equipment, parts, and supplies in connection with a car wash. Often times the gas station owner or operator presents a valid resale certificate to its vendor, purchases these items tax free, and does not accrue a use tax on such items. This would be the proper procedure if the owner was reselling the items it purchased. However, if the item purchased is used by the owner or operator in the car wash, the owner or operator is considered the end-user and use tax is due from the owner or operator on the transaction. Consequently, the gas station owner or operator can incur a large tax bill on such purchases if it is audited. The concept of use tax leaves many tax attorneys perplexed, so if you are not well versed in Florida sales and use tax law, then discuss the matter with a seasoned Florida sales and use tax professional.

A thorough analysis of the taxability of car washes from the Department's perspective can be found in Technical Assistance Advisement (TAA) 99A-059, TAA 92A-037, and TAA 90A-052, downloadable as a pdf below.

Repair Garage

It is common for a gas station to also include a repair or service garage on its premises. In the repair garage setting, materials and supplies purchased by the garage or gas station that are used in the repair, but do not become part of the repaired property are subject to the elusive use tax. Examples of such items include tools, sandpaper, steel wool, detergents, and rags, used by the service station are taxable when purchased. Conversely, items that are purchased and become part of the repaired property are allowed to be purchased tax free (assuming resale certificate procedures are correctly followed) and sales tax should be collected from the car owner—the customer. If the gas station repair shop or garage furnishes parts and services in the same repair, then the entire charge to the customer is subject to sales tax, even if the charges are presented as separate line items on the customer's invoice. As an experienced Florida sales and use tax law firm, we believe there are some creative planning opportunities within this context and we would be enthusiastic to discuss those with your or your client if he/she is in the gas station industry.

Sales Tax Remitting Process

Gas stations, like any other type of retail business in Florida, are required to account for and timely remit sales taxes collected from customers. While this might not seem terribly complicated, issues arise when a business falls short of cash during a slow period and "borrows" the sales taxes collected for operational cash flow needs. The business owner rarely is intends to be "stealing" the state's funds, but when the "down period" continues longer than expected and the business does not make enough profits to pay back the sales taxes when they are legally due, then the business owner is committing a crime. The Florida Department of Revenue takes sales tax collected but not remitted very seriously, arresting dozens of business owners every month throughout the state. Amounts which are collected and not remitted as low as $6,000 can turn into a Felony criminal charge in Florida. If your company or your client has found themselves in a situation where sales taxes have been collected but the funds are not available when the sales tax is due, then you should contact an attorney well versed in Florida sales tax criminal law matters. Take this advice very seriously because your liberty could be at stake. At the Law Offices of Moffa, Gainor, & Sutton, we are one of the only firms in the state experience with criminal defense work in the sales and use tax context.

ADDITIONAL RESOURCES

TAA 90A-052 - Sales and Use Tax on Self Serve Cash Wash

TAA 99A-059 - Sales and Use Tax on Car Wash

FL Legislation Alert - NEW LAW EASES SALES TAX LIABILITIES ASSUMED IN BUSINESS TRANSFERS

James Sutton — Tue, 10 Apr 2012 19:45:00 GMT

HAVE CLIENTS THAT ARE CONSIDERING BUYING OR SELLING A FLORIDA BUSINESS? – THE LAW CHANGED 4-6-2012 – Sec. 213.758, F.S.

Prior to April 6, 2012, the purchaser (transferee) of a business ASSUMED the past sales and use tax and communication service tax liabilities of the purchased business (transferor) without a full audit by the Florida Department of Revenue blessing the transaction (or by a certified sales tax auditor). See §§ 213.758, 213.053, 213.10, 212.10, and 202.31, 2011 Florida Statutes ("F.S."). Think about it – an audit is bad enough. Does the seller of a business really want to initiate an audit in order to sell the business? What purchaser would be willing to buy the business without one?

The prior statutes were stifling the market of buying and selling businesses in Florida and savvy purchasers often required large contingency escrow accounts to hedge against adopting potentially large, unknown Florida tax liabilities. The escrow account would often need to stay in place for 3 years to allow the statute of limitations to run on Florida's ability to assess the relevant taxes. What surprised many people is the same egregious rule forced liability on the buyer even when the buyer only purchased substantially all the assets of a business. To make matters even worse, most business purchasers could reasonably mark on their calendar a big "X" 30 days from the date when the DOR received notice that the business had been purchase. The X would represent the deadline by which the new purchaser would receive a Form DR-840: Notice of Intent to Audit Books and Records for the old business.

To address this problem, two identical bills were introduced into Florida's Congress to provide relief to both buyers and sellers of businesses in Florida. House Bill 103 was filed by Representative WOOD on August 25, 2011 and the identical Senate Bill 170 was filed by Senator ALTMAN on August 29, 2011. After 8 months of haggling in the Florida Legislature, on April 6, 2012, Governor Rick Scott signed into law a combined version of these bills. There are various provisions in the new law, but the heart of the matter is that the buyer of a business can now purchase a business or substantially all the assets of a business without assuming the sales and use tax and communication services tax liabilities of the prior business if:

The transferee (buyer) receives a certificate of compliance (DOR provided document) from the transferor (seller) showing that the transferor (1) has not received notice of audit, (2) has filed all required tax returns, (3) has paid the tax due from those returns, and (4) there are no insiders in common between the transferor and the transferee; OR
The Department of Revenue conducts an audit, at the request of the transferee or transferor, and finds that the transferor is not liable for any taxes.

In addition, the new law provides that section 213.758, F.S., would not impose liability on a transferee of a business, assets of a business, or stock of goods of a business when:

The transfer is an involuntary transfer; or
The transferee is not an insider; and
- The asset transferred is a 1 to 4 family residential real property, real property that has not been improved with any building, or owner-occupied commercial real property; and
- No other assets of the business are included in the transfer.

The net effect of new law brings much greater certainty to the buyer of businesses (or unsuspecting buyer of substantially all the business assets) and make Florida businesses both more marketable and more valuable in the process. The new law amends sections 213.758 and 213.053, F.S., and repeal sections 212.10 and 202.31, F.S., and became effective immediately upon being signed into law. A redacted version of the new section 213.758 (Chap. 2012-55) is downloaded below so you can see the exact verbiage of the statute that changed.

If you or a client of yours has been considering buying or selling a Florida based business, then you should read the new law (downloadable below). Both buyer and seller may come out ahead if the transaction takes place after the effective date of the law - April 6, 2012.

If you are considering buying or selling a business in Florida, then make sure you have someone very knowledgeable in Florida State and Local Tax on your side of the table. Our firm consists of Florida licensed CPA's and Attorneys with strong state and local tax backgrounds and a primary practice are of Florida State and Local Tax Law. Contact us today for a free initial consultation about your proposed or executed business sale.

AUTHORITY

§ 213.758, F.S., Transfer of tax liabilities

§ 213.053, F.S., Confidentiality and information sharing

§ 213.10, F.S., Deposit of tax monies collected

§ 212.10, F.S., (REPEALED) Sale of business; liability for tax; procedures; penalty for violations (Sales and Use Tax)

§ 202.31, F.S, (REPEALED) Sale of business; liability for tax; procedures; penalty for violations (Communication Services Tax)

Florida Senate Bill 170 (2011) (ANALYSIS)

Florida House Bill 103 (2011) (ANALYSIS)

Chapter No. 2012-55 <--(redacted version of the statutes amended by this new law)

COPY OF LETTER SIGNED BY GOVEROR RICK SCOTT - ENACTING NEW LEGISLATION ON 4-6-2012

FL TAX LITIGATION ALERT - FL LEGISLATURE SUES ONLINE TRAVEL COMPANIES

Jerry Doninni — Thu, 29 Mar 2012 20:59:00 GMT

FL TAX LITIGATION ALERT – FL Legislature Sues ONLINE TRAVEL COMPANIES

In early December 2011, I blogged about litigation involving Online Travel Companies (OTC's) such as Expedia, Travelocity, and Orbitz. Who could have ever guessed that the counties going after tourist development tax and sales tax would have led to a case in which President Nixon's impeachment cases would be cited? In an interesting turn events that is exactly what happened early today, March 29, 2012, in The Florida House of Representatives v. Expedia, Inc et. al., a 1^st DCA opinion. The issue in the case is whether members of the Florida House of Representatives are entitled to a legislative privilege claim as a ground for refusing to testify.

For purposes of very general background information, the principle of legislative privilege dates back to the English common law that existed long before our country was founded. Upon our country's creation, our founding fathers incorporated this principle into our Constitution. Legislative immunity is a legal concept that prevents a member of the legislature from having to appear in court for a civil case to testify about anything he or she said during his duties as a legislator. Specifically, the "Speech and Debate Clause" of the Constitution states that "in all cases, except Treason, Felony, or Breach of the Peace, [Legislators shall] be privileged from Arrest during their Attendance at the Session of their respective Houses, and in going to and returning from the same; and for any Speech or Debate in either Houses, they shall not be questioned in any other Place." The purpose of the immunity is fairly obvious and exists to allow the government to carry out its duties and speak freely without fear of having to answer for their thoughts in court.

With that thought in mind, this specific case was borne from tax cases that were filed by Broward and Osceola County against Expedia, Orbitz, Travelocity, Priceline, Hotwire, and other OTCs. Those cases were settled and blogged about on our website which can be found [OTC blogs here and settlements if you want]. As I previously wrote, the crux of the issue is whether sales tax, bed tax, and/or other occupancy type taxes are due on the OTC's reduced purchase price for the rental of hotel rooms or if the tax base is the increased price charged to the end-user.

Also, as previously discussed, the type of litigation has been a hot-topic throughout the county. In a related Georgia case, Expedia was forced to produce several confidential documents to the opposing side. At some later point, a lawyer representing Broward County received the "confidential" documents and unsuccessfully attempted to use the documents against Expedia in a case for underpaid tourist development taxes in Broward County.

Amidst the litigation, the Florida Legislature has been attempting to enact a law to settle the dilemma as to what amount the tax was actually due on. As it turns out, the potential law reportedly would be in favor for the OTC's including Expedia, Orbitz, and Travelocity. As the law was being considered, Rick Kriseman, a House Representative, opposed the law and was provided a copy of the "confidential" document from Broward County. The "confidential" document (hopefully you sense my sarcasm by this point) was of course passed along to the entire House and members of the press. Just to reiterate, the documents were given to an attorney in Georgia under a protective order, mysteriously received by an attorney for Broward County, passed along to the Florida Legislature, shared with the entire legislature, and coincidentally made available to the press.

Expedia, who was obviously ecstatic by the news, attempted to haul Rep. Kriseman into court to determine how the Representative obtained the documents because such information was pertinent to Expedia's litigation in Broward County. The trial court ruled that hauling the Representative into court for this limited purpose was permissible, however, the House of Representatives jumped in to prevent the trial from moving forward by asserting legislative privilege.

The first DCA went through a lengthy but thorough history of the legislative privilege in its opinion and interestingly pointed out that Florida has never ruled on whether a member of the state legislature is afforded such a privilege. The court ultimately reasoned that based on a long history of case law and section 2.01, Florida Statutes, which states that the common laws of England, which are general in nature, are declared to be applicable in Florida. Further, the Florida Constitution provides the separation of powers, meaning that the judicial branch cannot encroach on the powers of the legislature and the Supreme Court stated that this idea is "the cornerstone of American democracy." Bush v. Schiavo, 885 So. 2d 321, 329 (Fla. 2001).

Applying the law to this case, the 1^st DCA ruled that the Representative did not have to testify because the "confidential" documents were part of the course of debate within the House in connection with a pending law. The court also stated that this idea is not absolute and could not be asserted to withhold evidence of a crime. Citing U.S. v. Nixon, the court reminded us that such an absolute privilege is not available to the President of the United States, so it certainly doesn't apply to a Florida legislator.

While Expedia and the other OTC's were unsuccessful in this particular case, it was successful on shedding some light on some morally questionable behavior by state officials of both Florida and Georgia. It was also successful in providing more attention to a tax provision that most were previously uninterested in following. Hopefully, this case marks the beginning of what is needed by our Legislature here in Florida—guidance for taxpayers in an ever evolving complex internet marketplace.

THE FLORIDA HOUSE OF REPRESENTATIVES and DAVID FLINTON vs EXPEDIA, INC.; ORBITZ, LLC; INTERNETWORK PUBLISHING CORP., DBA LOGING.COM; TRAVELOCITY.COM, LLP, PRICELINE.COM, INC.; TRAVEL WEB, LLC; HOTWIRE, INC.; HOTELS.COM, L.P.; BROAWARD COUNTY, FLORIDA; AND FLORIDA DEPARTMENT OF REVENUE, Case No. 1D11-6545 (FL 1st DCA, March 29, 2012)

FL TAX LEGISLATION ALERT - FELONY TO EVEN POSSESS SALES SUPRESSION SOFTWARE

James Sutton — Mon, 26 Mar 2012 16:40:00 GMT

FLORIDA LEGISLATION CRIMINALIZING AUTOMATED SALES SUPRESSION SOFTWARE (aka "ZAPPER SOFTWARE") AWAITS GOVENOR'S SIGNATURE

UPDATE - APRIL 27, 2012 - PENDING STATUTE VETOED TO GOVERNOR RICK SCOTT. What is this state turning into that our politicians are so afraid of voting for something that appears to be a tax increase or non-business friendly that a statute specifically designed to stop sophisticated sales tax fruad is vetoed? Even I was in favor of this legislation.

In March 2012, the Florida legislature passed a rather unique piece of legislation aimed specifically at a new type of tax fraud software moving into the United States. The software is known as "Automated Sales Suppression Device," "Zapper," or "Phantom-ware." The purpose of the software is to suppress the cash sales from the business's accounting records – at the cash register level. The sales are simply eliminated from the system and the user of the software pockets the cash. You can imagine this practice is not only tempting for morally questionable business owners, but that it would also be highly fraudulent for federal income tax and state sales tax purposes as well. The software might be used by an unscrupulous business owner or even an employee (turning the cash register into his personal ATM machine). Businesses that charge rent based on a percentage of sales can also be significantly affected by tenants who fraudulently under report sales using Phantom-ware or Zapper software. Our firm wrote a detailed article on the zapper software in November 2012, which is available by CLICKING HERE.

The purpose of this article to provide the reader updated information concerning the verbiage of the pending statute, criminalizing almost anything related to the software. Upon signature by the Governor, Section 213.295, Florida Statutes, will be created to criminalize Zappers. After the approved legislation becomes law, a person who knowingly sells, purchases, installs, transfers, possesses, utilizes, or accesses any automated sales suppression device is guilty of a felony of the 3^rd degree. It is expected that the Governor will sign this piece of legislation and, unlike like most of the other sales and use tax legislation approved by the Florida Legislature, this statute will take effect immediately after it is signed.

If you have any questions about whether your company or a client of yours might be using some type of Automated Sales Suppression Device, then you should be aware that any communications with a consultant or accountant regarding a criminal matter could be obtained by criminal investigators. Take this matter very seriously. When you have questions about possible criminal activity, always make sure to utilize a qualified Florida licensed attorney under attorney-client privilege. The Law Offices of Moffa, Gainor, & Sutton, P.A. is one of the few law firms in the State of Florida that practices in both Florida Sales and Use Tax and Criminal Law.

For your convenience, the verbiage of the pending statute is provided below:

Sec. 213.295, Florida Statutes, Automated sales suppression devices.—

(1) As used in this section, the term:

(a) "Automated sales suppression device" or "zapper" means a software program that falsifies the electronic records of electronic cash registers or other point-of-sale systems, including, but not limited to, transaction data and transaction reports. The term includes the software program, any device that carries the software program, or an Internet link to the software program.

(b) "Electronic cash register" means a device that keeps a register or supporting documents through the use of an electronic device or computer system designed to record transaction data for the purpose of computing, compiling, or processing retail sales transaction data.

(c) "Phantom-ware" means a hidden programming option embedded in the operating system of an electronic cash register or hardwired into the electronic cash register which can be used to create a second set of records or to eliminate or manipulate transaction records, which records may or may not be preserved in a digital format, in order to represent the true or manipulated record of a transaction in the electronic cash register.

(d) "Transaction data" includes data identifying an item purchased by a customer; the price for an item; a taxability determination for an item; a segregated tax amount for each taxed item; the amount of cash or credit tendered; the net amount returned to the customer in change; the date and time of the purchase; the name, address, and identification number of the vendor; and the receipt or invoice number of the transaction.

(e) "Transaction report" means:

1. A report that contains, but is not limited to, documentation of the sales, taxes, or fees collected; media totals; and discount voids at an electronic cash register, and that is printed on a cash register tape at the end of a day or a shift; or

2. A report that documents every action at an electronic cash register and that is stored electronically.

(2) A person may not knowingly sell, purchase, install, transfer, possess, utilize, or access any automated sales suppression device, zapper, or phantom-ware.

(3)(a) A person who violates this section commits a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084.

(b) A person who violates this section is liable for all taxes, fees, penalties, and interest due the state as a result of the use of an automated sales suppression device, zapper, or phantom-ware and shall forfeit to the state as an additional penalty all profits associated with the sale or use of an automated sales suppression device, zapper, or phantom-ware.

(4) An automated sales suppression device, zapper, phantom-ware, or any device containing such device or software is a contraband article under ss. 932.701-932.706, the Florida Contraband Forfeiture Act.

ABOUT THE AUTHOR: JAMES H SUTTON IS A FLORIDA LICENSED CPA AND ATTORNEY AND A SHAREHOLDER IN THE LAW FIRM MOFFA, GAINOR, & SUTTON, PA. MR. SUTTON IS IN CHARGE OF THE TAMPA OFFICE FOR THE FIRM AND HIS PRIMARY PRACTICE IS FLORIDA TAX CONTROVERSY. MR. SUTTON WORKED FOR THE STATE AND LOCAL TAX DEPARTMENT OF A BIG FIVE ACCOUNTING FIRM FOR A NUMBER OF YEARS AND HAS BEEN AN ADJUNCT PROFESSOR OF LAW AT STETSON UNIVERSITY COLLEGE OF LAW SINCE 2002 TEACHING STATE AND LOCAL TAX, ACCOUNTING FOR LAWYERS, AND FEDERAL INCOME TAX I. YOU CAN READ MORE ABOUT MR. SUTTON IN HIS FIRM BIO.

FL SALES TAX - GAS STATION INDUSTRY - PART I

Jerry Donnini — Fri, 23 Mar 2012 20:01:00 GMT

FLORIDA GAS STATION INDUSTRY

SALES AND USE TAX ISSUES AND SAVINGS OPPORTUNITIES

PART I - DISTRIBUTORS AND MAIN COMPONENTS

Ranging from multinational corporations to small mom and pop stores, the gas station and distribution industry is one of the largest industries both in the world and here in Florida. Growing up in a family business that owns, operates, and distributes petroleum in South Florida for more than over 30 years, it has been a privilege and has given me the insight to see firsthand how a the gas station industry works. Unfortunately, I have also seen firsthand how the Florida Department of Revenue aggressively pursues the industry at all levels, severely hindering business owners at all levels of the petroleum industry. Such focused scrutiny has even put some gas station owners and operators out of business. This article is written to provide gas station owners, operators, and distributors some insights into how to fight back and plan against the Florida Department of Revenue. In other words, this article serves as a guide to help protect an industry that is dear to me and my family from the scrutiny of a Florida sales tax audit.

While running a gas station may seem straightforward, any owner, operator, or distributor of fuel will tell you that a "simplistic" gas station is really a combination of several complex businesses located on one property. Likewise, while Florida sales and use tax laws may also seem relatively simple, there are many unique factual scenarios that make the law much more complex than most people can ever imagine. Each distinct income source will be analyzed and discussed with regards to the various sales tax ramifications and opportunities within each aspect of a gas station business.

Distributor

Many companies in the gas and petroleum industry do business primarily as a distributor. A fuel distributor has two main components of income. The first component is fuel sales in which it buys fuel from a producer and re-sells to a dealer, presumably at a profit. The second main component relates to the rental of commercial real property.

The most prevalent savings opportunities for gas station owners, operators, and distributors occurs when the same owner or ownership group owns the property and rents it to a related entity or individual. A thorough analysis of related party rent was done in a December 2011 article by our partner, James Sutton, which can be found here FLORIDA COMERICIAL PROPERTY OWNERS GET BLINDSIDED BY SALES TAX.

Florida and Arizona are unique in the context of sales tax around the country because they make commercial rent subject to sales tax, in Florida under section 212.031, F.S. The imposition of sales tax on commercial rents catch many multistate gas station owners and operators off-guard because most states do not tax such transactions. Many distributors purchase or lease the real property and then re-rent or re-lease the gas station to an operator. Distributors or property owners often do not realize that they should be charging sales tax on rent and gas station owners or operators often do not know that they should be paying the sales tax. This can leave the issue wide open on audit of either entity, bring large assessments (potentially on both landlord and tenant) plus penalties and interest. There are prospective and postspecctive savings opportunities available in this area and at Moffa Gainor & Sutton, we have done countless planning and audit defense work for commercial real property rental scenarios. It is essential to have a Florida sales tax attorney to help plan these types of transactions in any industry and the gas station industry is no different.

GAS SALES

The first and most obvious income source of a gas station is its fuel sales. Gas sales are not reported on the DR-15, Sales and Use Tax Return, but are reported on a completely separate, DR-309632, Fuel Tax Return. As such, gas sales should be outside the scope of a sales tax audit. However, gas sales are reported as a portion of a company's gross sales on its federal tax return. It is good practice for a company in any industry to check the amount of gross sales being reported on its federal tax return compared to the gross sales reported on the company's sales and fuel tax returns and its DR-15, Sales and Use Tax Returns, to make sure the numbers are in accordance. In other words, when you add up your revenues from your fuel sales tax returns and your sales reported on your regular tax returns, this theoretically should add up to the income reported on your federal income tax return (presuming there are no other sources of income). Comparing these amounts will be one of the first things a Florida tax auditor will do, so it is better to be prepared to explain (and potentially correct) any discrepancies before the auditor brings the matter to your attention.

Equipment/Fixture Purchases

Along the same lines of gas sales, many owners or operators of gas stations also engage in the lease or purchase of equipment such as fuel pumps. For all intents and purposes, section 212.02, Florida Statutes (F.S.) and Rule 12A-1.071, Florida Administrative Code, (F.A.C.), treat a lease the same as a sale of tangible personal property and impose a tax of 6% on the sale/rental of such personal property.

In the gas station context, and many other businesses, it is often grey whether something is considered the (taxable) sale of tangible personal property or the (non-taxable) sale of real property / fixtures. For example, is a fuel pump on a gas station property that is attached to the real property treated? Is it tangible personal property or non-taxable real property fixture? In the Florida Department of Revenue's standard industry guide, you will find the Department takes the position that fuel pumps at gas stations are tangible personal property subject to sales tax (as they always seem to do).

From a legal perspective tangible personal property are items that can be seen, weighed, measured, or touched. On the other hand, rule 12A-1.051, F.A.C., defines "real property" as land, improvements to land, and fixtures and further confirms that the sale of "real property" is not subject to Florida sales or use tax. Furthermore, an "improvement to real property" includes a building or other structure on real property. A "fixture" which is generally defined as an item or accessory attached to a building or land, which retains its separate identity upon installation but cannot be easily removed without causing damage to the building or land, is also considered real property. Common examples of fixtures include items like bathroom sinks, elevators, central air conditioning units, built in cabinets, counters, and lockers, are all examples of fixtures.

Turning back to my initial inquiry, is an installed fuel pump a tangible personal property or a real property improvement? It seems a strong argument can be made that a fuel pump is real property because it is permanently attached to the realty. While it is true the pump is merely bolted the realty, it is connected to a permanent piping system which makes it more analogous to the central air or sink situation. Further, the pumps are can cause substantial damage to the realty upon its removal, it is intended to remain attached, it requires permits or licensing to install, and is customized to fit a particular space. The manner in which the item is reported for federal tax depreciation will also play a role in this dilemma.

Why does it matter whether a fuel pump is tangible personal property or real property? The distinction between the tangible vs. real nature of a fuel pump can result in significant tax savings for the purchaser and the installer. If the fuel pump is considered tangible personal property, then the gas station owner or operator must pay sales tax on the full, installed sales price of the fuel pump. Conversely, if the pump is real property, then use tax is only due on the cost of the materials (without the installation costs) and, possibly more importantly, the tax is technically owed by the installing contractor as a use tax and NOT owed by the gas station owner. The difference in sales tax savings can be substantial, especially for an owner of multiple gas stations. Did your company or your client's company pay sales tax on the installation of gas pumps? You might be able to request a refund of those sales taxes.

Consider the following example; MGS Gas Station, Inc. buys 4 installed pumps from DOR Pump and Install, Co. for its store at $10,000/each for a total of $40,000. Structured this way, MGS Gas owes $40,000 ($37,736 pump and install plus $2,264 sales tax). If the same contract is real property and DOR Pump and Install, Co. charges a lump sum for the pumps and install work, then MGS Gas owes no sales tax on its purchase. DOR Pump and Install, Co. would have to pay use tax only on its material cost, which is significantly less than the resale price. Assuming the same job (4installed pumps for $40,000) and DOR Pump and Install, Co.. has a material cost equal to $30,000), the use tax due is only $1,800 (a tax savings of $464 or 20%) and no tax is due by MGS Gas. This may provide for an opportunity for the pump installer to undercut its competition by reducing that sales tax on a contract. This is an aggressive position and would likely be challenged by the Department, but it may be worthwhile for large pump installers or large chain gas station owner or operators. Cases and ruling in other states have taken this position (See, e.g., Kum and Go, LC No. 07-30-6-0011 (IOWA DOR 2007)) and it may be a viable avenue for challenge. Furthermore, if the gas station owner paid significant amounts of sales tax on the installation of pumps during the last three years, then there may be an opportunity for the gas station owner to demand a refund of sales taxes paid to the pump installation company.

As a law firm with nothing but Florida sales and use tax attorneys, we have handled numerous cases involving real vs tangible personal property issues and we have several unique ideas as to how to structure transactions similar to the one above to save money for the Florida gas station owner, operator or distributor as well as the companies providing the equipment for the gas station. This can increase the bottom line for all the companies involved as well as provide opportunities for companies to outbid rivals in this extremely competitive industry.

About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA. Mr. Donnini's primary practice is Florida tax controversy. Mr. Donnini worked as an accountant for a public REIT prior going to law school and is currently pursuing his LL.M. in Taxation at NYU. You can read more about Mr. Donnini in his firm bio.

AUTHORITY

Sec. 212.02, F.S.

Sec. 212.031, F.S.

Rule 12A-1.051, F.A.C.

Rule 12A-1.071, F.A.C.

See aslo, TAA 99A-059 (1999) Sales Tax on Cash Wash

FLORIDA DEPT OF REV TARGETS LOW VOLTAGE INDUSTRY

James Sutton — Sat, 10 Mar 2012 10:00:00 GMT

FLORIDA LOW VOLTAGE CONTRACTORS GET BLINDED BY SALES AND USE TAX

Florida low voltage contractors comprise a very large industry in the state of Florida – ranging from small companies that install phone lines in residential households to high tech firms that engineer, install, and maintain high end data networks for big businesses and governments. Low voltage companies handle everything from vacuum cleaners to CAT 5 Ethernet connections as well as wireless routers and security systems. The low voltage industry provides a much needed service helping Florida be one of the most technologically advanced states in the country. The industry also is responsible for a great number of jobs in a state with an economy that has been struggling since 2007. Unfortunately, the Florida Department of Revenue decided to paint a bull's eye on the low voltage industry as a whole – and the scrutiny is going to put a lot of Florida based low voltage contractors out of business. The culprit is Florida Sales and Use Tax. This article is designed to help the low voltage contractor understand how the Florida Department of Revenue is finding and assessing large tax amounts your industry and how to not only improve your business practices to shield against a devastating assessment of taxes, but also to minimize the tax, penalties, and interest due to past mistakes in Florida sales and use tax practices.

Florida's sales and use tax laws seem relatively simple on the surface. A 6% state sales tax rate on the sale of tangible personal property at retail for consideration in the state of Florida. A complimentary 6% state use tax rate on the use of tangible personal property in the state of Florida that was acquired without paying Florida sales tax. There are a few services subject to Florida sales tax, but these taxable services do not affect the low voltage industry (for the most part). So how could Florida Sales and Use Tax get complicated? Unfortunately, Florida low voltage contractors find themselves in one of the most complicated areas of Florida Sales and Use Tax Law – the Real Property Improvement Contract. The question becomes, is a low voltage installation contract the sale of tangible personal property or is it an improvement to real estate? If the low voltage contract is a real property improvement, then does sales tax even apply since real property improvements are not subject to Florida sales tax? If sales tax does not apply, then are any taxes due on low voltage contracts?

The answer to these questions is that Florida low voltage contractors are usually subject to Florida's use tax instead of sales tax. Rule 12A-1.051, Florida Administrative Code ("FAC") is the authoritative rule on "Sales to or by Contractors Who Repair, Alter, Improve, and Construct Real Property." This rule breaks real property contractors into five categories:

(a) Lump Sum Contracts (materials, supplies, and services for one price)

(b) Cost Plus or Fixed Fee Contracts (cost of materials/supplies plus fix price/percentage for services)

(d) Retail Sale Plus Installation Contracts (specifically described and designated materials and supplies at an agreed price plus services at an additional price) (hard to fit into without meticulous documentation)

(e) Time and Materials Contracts (materials at a price/cost plus a fee per amount of time to complete the project).

See, Rule 12A-1.051(3)(d)(a-d). Section 12A-1.051(4) provides that "Contractors are the ultimate consumers of materials and supplies they use to perform real property contracts and must pay tax on their costs of those materials and supplies, unless the contractor has entered a retail sale plus installation contract." Therefore, unless the contractor very specifically fits into the "(3)(d" category of the rule, the low voltage contractor will be deem the final consumer of the materials and supplies and should be remitting use tax on the contractors cost price of the materials and supplies or, better yet, simply pay sales tax when purchasing those materials/supplies.

Unfortunately, from my experience, many low voltage contractors simply charge sales taxes to their customers not realizing that sales tax is usually not due on low voltage contracts. Because a low voltage contract usually involves an improvement to the real property (installation of wires into walls or hardware permanently installed into the building), the low voltage contractor should be accruing a use tax on the cost price of materials used in the low voltage contract instead of charging a sales tax. Most customers don't realize the difference and pay the sales tax without thinking twice. Here's the part that really gets me. The Florida Department of Revenue generally does not even bring up the mistaken sales tax collection practice on audit of low voltage contractors because the sales tax collected on the retail price of the low voltage contract is higher than what the use tax would be on the lower cost price of the materials. Because the state is collecting more tax, the auditors usually do not bring up the discrepancy. This can easily result in the low voltage contractor believing that they are doing everything right and complying with the law. However, this small misperception can have devastating results.

The problem arises when the low voltage contractor starts doing work for clients that are exempt from Florida sales tax – such as a church, county government, school, or university. If the low voltage contractor has a business practice of charging sales tax and the tax exempt customer provides a tax exemption certificate, then the low voltage contractor will often mistakenly believe the entire contract is exempt from Florida sales and use tax. In fact, the low voltage contractor is subject to use tax on all real property improvement contracts, including contracts with clients that are exempt from Florida sales and use tax. The result is that low voltage contractors around the state have a lot exposure for use taxes and the Florida Department of Revenue can assess the tax, plus any applicable penalties and interest, going back three years. The bottom line amount of taxes, penalties, and interest due can be absurdly high for some contractors with tax exempt clients.

The Florida Department of Revenue became aware that this was an industry wide problem and established a task force targeting the low voltage industry. The Florida Department of Revenue is simply identifying every company in Florida with a standard industry classification code related to low voltage work, then reviewing those companies sales tax returns to reveal whether the company is accruing use tax. If there's no use tax, then this is a red flag. Low voltage contractors around the state are receiving Form DR-840 Notice of Intent to Audit Books and Records and most of them believe that they are completely compliant with the law. With this misperception, the low voltage contractor will often handle the Florida sales and use tax audit on their own and never see the problem coming until the end of the audit. When the auditor mentions "use tax" and "3d contractor" in the same sentence, then you know that there is a problem.

If your low voltage company or your client's low voltage company received a Form DR-840 – Notice of Intent to Audit Books and Records, then take the matter very seriously by contacting an attorney that specializes in Florida Sales Tax Audit Defense. The Florida Department of Revenue has its sights on the industry and if the company does even a moderate amount of work for tax exempt clients without remitted Florida sales and use tax, then the dollar amounts of taxes, penalties, and interest due can be staggering. Depending on the work you do, there may be a position to take that some of the contracts are not real property improvement contracts and, therefore, the contract should be tax exempt. This is a very facts and circumstances based argument and it takes someone that really understands Florida's sales and use tax laws as they apply to real property improvement contractors to have a change of winning an argument on this subject. If the position is not clear, then at least the taxpayer could argue to settle the taxes for a lesser amount than the entire amount of taxes proposed by the auditor.

If your company or your client's company has a problem with Florida use tax on low voltage contracts and the Department of Revenue has not made contact, then you should act very fast to participate in Florida's voluntary disclosure program. Through the voluntary disclosure process, you can substantially limit or even eliminate the penalties which might otherwise be 50% or more of the tax due. This can be a substantial savings, but is only available if you file the voluntary disclosure BEFORE the Florida Department of Revenue contacts the taxpayer about a potential audit.

Going forward, every low voltage contractor should learn the difference between the five categories of Rule 12A-1.051(3)(a-e). Make sure that your low voltage company or client's company changes the way Florida Sales and Use Taxes are handled so that either use tax is remitted for real property improvement contracts or the company clearly fits into the category of a "(3)(d)" contractor. Besides protecting your company against potentially devastation use tax assessments, your company will also be able to make lower bids on projects because there will be less overall tax burden on the low voltage real property improvement contracts.

For an article on how to fit into the category of a "3d" contractor under Rule 12A-1.051 specifically for tax exempt customers, read our article FLORIDA CONSTRUCTION ON TAX EXEMPT PROJECTS - MINIMIZING/ELIMINATING SALES AND USE TAXES.

If you have any questions about Florida Sales and Use Taxes on Florida low voltage contracts or other real property improvement contracts, then contact The Law Offices of Moffa, Gainor, & Sutton, PA today. At Moffa Gainor & Sutton PA, we cumulatively have decades of experience focusing almost exclusively on Florida sales and use tax controversy as well as the voluntary disclosure process.

ABOUT THE AUTHOR: JAMES H SUTTON IS A FLORIDA LICENSED CPA AND ATTORNEY AND A SHAREHOLDER IN THE LAW FIRM MOFFA, GAINOR, & SUTTON, PA. MR. SUTTON IS IN CHARGE OF THE TAMPA OFFICE FOR THE FIRM AND HIS PRIMARY PRACTICE IS FLORIDA TAX CONTROVERSY. MR. SUTTON WORKED FOR THE STATE AND LOCAL TAX DEPARTMENT OF A BIG FIVE ACCOUNTING FIRM FOR A NUMBER OF YEARS AND HAS BEEN AN ADJUNCT PROFESSOR OF LAW AT STETSON UNIVERSITY COLLEGE OF LAW SINCE 2002 TEACHING STATE AND LOCAL TAX, ACCOUNTING FOR LAWYERS, AND FEDERAL INCOME TAX I. YOU CAN READ MORE ABOUT MR. SUTTON IN HIS FIRM BIO.

AUTHORITY

RULE 12A-1.051, FLORIDA ADMINISTRATIVE CODE

Technical Assistance Advisement 08A-019 (whether contractor meets requirements of 12A-1.051(d)(3) for a tax exempt customer)

FL DOR TO USE "COLLECTION ANALYTICS" TO LEVY FUNDS FASTER

James Sutton — Tue, 06 Mar 2012 21:54:00 GMT

IF YOU DON'T PAY ATTENTION TO THE NOTICES, THEN THE DOR WILL FIND AND LEVY YOUR FUNDS

Starting March 1, 2012, the Florida Department of Revenue began using a new "predictive behavioral model" called "COLLECTION ANALYTICS" to much more quickly track down and seize funds of taxpayers who are delinquent in filing returns or paying taxes. The new system, recommended by Accenture, will analyze data from various federal and state resources to better predict where a company has or will have funds. The Florida Department of Revenue will then move in automatically to levy/seize the funds with no additional warning.

Historically, the Florida Department of Revenue would automatically send out notices for delinquent returns, followed by more (not quite as nice) notices, followed by a couple of threating notices, then a Florida tax warrant with an estimate of the taxes due, plus penalties and interest. Eventually, the matter would be taken over by a collection agent at the local level who might initiate a lien on the bank account normally used to pay the unpaid tax. If that account proved fruitless, then the local collection agent would begin searching for other accounts or assets as time allowed. This lackadaisical way of collecting allegedly due taxes is no more. Now the system is automated and without hesitation or sympathy for the taxpayer - usually after 90 days of deliquincy.

The data used by the new Collection Analytics system can come from a variety of sources. For example, the state unemployment tax returns could signal not only that there is an additional company bank account used for payroll, but also the frequency and timing of the funds flowing through the payroll account. The DOR's new system could use this data to effectuate a lien to be placed on the payroll account on the same day funds normally come into the account to meet a weekly or bi-weekly pay schedule. Imagine how quickly a company can be brought to its knees when the employee automatic deposits fail to happen on time.

Below is an announcement made in late 2011 by the Florida Department of Revenue regarding the new Collection Analytics system:

Revenue to Use New Tax Collection System

The Department will switch to a collection analytics system in early March. It will allow us to better focus our tax collection efforts to determine positive future tax payment outcomes, based on predictive behavioral models.

We will maximize collection outcomes by routing accounts to the collection step most likely to result in payment in the least amount of time, which will mean fewer follow-up notices and shorter time frames between collection and enforcement actions.

It is extremely important for taxpayers to respond promptly to bills and delinquency notices from the Department. Collection analytics should have no impact on taxpayers who file and remit their full amount of taxes on time.

The moral of this article is DO NOT IGNORE NOTICES FROM THE FLORIDA DEPARTMENT OF REVENUE for the collection/levy efforts will be swift and accurate like never before. If your company or your client's company receives any type of delinquent return or delinquent payment notice from the Florida Department of Revenue, you should take the matter very seriously. If you are not well versed in Florida tax law, then discuss the matter with a tax professional that is seasoned in Florida tax matters. If you do not have someone that qualifies as an experienced Florida state and local tax professional on your speed dial, then contact an attorney from The Law Offices of Moffa, Gainor, & Sutton, PA, which has more than 50 years of cumulative experience defending Florida tax payers against the Florida Department of Revenue.

If you company's bank account(s) have already been frozen by the Florida Department of Revenue, then the first thing you should know is that the funds are still there. The DOR has merely filed a lien against the account and requested your bank to "freeze" the funds making them not accessable by you. This is a strong arm tactic to get your company to pay moneys that the FL DOR believes you owe. Another thing you should know is that the FL DOR does NOT know how much money is in the account, a fact that might be used to your advantage. You should also know that any bank account with the same FEIN number as you business is susceptable to a lien. What you need to do now is to have someone negotiate with the FL DOR collection agent in charge of your account to help release some or all the funds. Our law firm assists many clients every month in negotiating the release of holds on the business bank accounts. A company's bank account is the lifeblood of any business and the FL DOR knows this. We can help negotiate with the FL DOR to help get part or all of the lien released. Then we can also help to determine whether the FL DOR's claim that you owe money is just. Even if the period of time to protest an assessment has long past, we still might be able to help.

Call or email our law offices today (top of this page) for a FREE INITIAL CONSULTATION if your company's bank accounts have been frozen by the Florida Department of Revenue.

FLORIDA SILENT AS OTHER STATES OFFER RULINGS ON GROUPON & SALES TAX

Jerry Donnini — Mon, 05 Mar 2012 17:37:00 GMT

Florida Still a No Show as Other States Offer Rulings on Groupon Sales Tax

In January 2012, I blogged about the sales tax and escheat risks associated with Groupon, Living Social, and similar online vouchers (for convenience, collectively "Groupon"). As I stated in January, the issue is whether sales tax should be calculated on the full value of the goods purchased or on the face value of the Groupon. Although the state has not taken an official position, Forbes reported in an October 11, 2007 that Florida takes the position that tax is due on the full non-discounted price. Audits of various merchants throughout the state have also seemed to verify that this is indeed Florida's current position. With the recent online travel litigation and the trend towards more aggressive tax enforcement tactics, it should come as no surprise that the State is seeking tax based on the higher tax base. Since January, 2012, several states have provided some guidance to its taxpayers, while Florida has done nothing. This article is intended to show the more recent developments among several other states to help show taxpayers in Florida how it has been handled and help provide at least some level of predictability.

For example, Sylvia Dion, a Massachusetts based CPA and SALT consultant, authored an article as to how several states besides Massachusetts failed to provide guidance. If you are interested please click on the link to her well written and very informative article THE STATE AND LOCAL TAX BUZZ - GROUPON ARTICLE. As she anxiously awaits the finalization of a Draft Directive in Massachusetts, we are left with little to no guidance in Florida.

As Ms. Dion also reported, at least eight states have provided guidance for their taxpayers in the Groupon scenario. Two of the major states, namely, California and New York issued guidance in late 2011.

California's position is that tax is due on the amount paid for the coupon. Specifically, California stated:

Retailers often engage in marketing and sales programs in which they issue coupons that entitle their customers to a discounted price for products sold by the retailer. Deal-of-the-day instruments (coupons) fall within this category. In general, tax applies to the amount paid by the customer for the deal-of the day instrument plus any additional cash, credit, or other consideration required to be paid when the product is purchased.

For example: An Internet-based company advertises a deal-of-the-day offer for a $100 tennis racquet for $50. A customer pays $50 for the coupon. The customer then redeems the coupon for the tennis racket and pays no additional amount for the tennis racquet other than the amount for sales tax. The amount subject to tax is $50, which equals the amount paid for the coupon. See http://www.boe.ca.gov/news/pdf/sep11TIB.pdf

New York has taken the position as follows depending on the type of voucher involved:

A stated face value voucher is generally treated in the same manner as a gift card. That is, it is treated as cash up to the stated face value of the voucher. Therefore, when this type of voucher is redeemed for taxable products or services sales tax is computed on the selling price of the items before the value of the voucher is applied against the purchase price. If a stated face value voucher is redeemed for products and services with a value equal to or more than the face value of the voucher, any sales tax due must be collected from the customer at the time the sale occurs. However, if the voucher is redeemed for products and services valued at less than the face value of the voucher, the business can handle the collection and remittance of any sales tax due in one of two ways. A business may choose to collect the sales tax from the customer on the total value of the taxable products and services at the time of the sale. For example, if a $100 stated face value voucher is used to purchase books with a value of $90, before application of the voucher, the seller could collect the tax on the $90 from the purchaser at the time that the voucher is used to make the purchase (e.g., in an 8% taxing jurisdiction the vendor would collect $7.20 in cash from the purchaser at the time of the sale). http://www.tax.ny.gov/pdf/memos/sales/m11_16s.pdf

In December, 2011, Kentucky followed suit and issued guidance and proclaimed that tax was due on the purchase price of the Groupon, and the amount the voucher company retains is an expense of the seller. Kentucky's guidance can be found here http://revenue.ky.gov/NR/rdonlyres/3AE1FCEB-309A-438E-82E2-E1DAEA004DE7/0/SalesTaxFactsDec2011.pdf and it states:

When a consumer redeems the voucher at the local business for a taxable product, the tax is due on the total price the customer paid for the voucher rather than the total value of the voucher if the voucher indicates the discounted price or if the local retailer knows and retains documentation of the discounted price. Otherwise, the tax is due on the total face value as with the traditional gift card example.

Iowa has apparently taken the position in most situations sales tax is due on the full price of the item purchased. See http://www.iowa.gov/tax/business/groupons.html. Ms. Dion has indicated that while not final, Massachusetts has also taken the position that sales tax is due on the full amount of the goods.

Like Massachusetts, I am not aware of any position Florida has taken on the Groupon issue. Similar to the online travel companies, it has left taxpayers and their advisors in a bind as to what to do. For now, it still seems to be a reasonable approach that the Groupon concept is essentially equivalent to a cash discount described in Rule 12A-1.018, Florida Administrative Code (F.A.C.). The more conservative approach would in advising merchant clients, such as restaurants, to collect and remit tax on the full non-discounted price of the goods sold.

We will continue to wait to see if and when the Legislature and/or the State decide to act on this issue. Until the Legislature acts, Florida's lack of position will lead to increased litigation and unclear guidance for all taxpayers. However, who knows when or if that will happen . . .

Additional Resources - "24 States Moving Towards Decision on Taxing Groupon, LivingSocial Deals," Forbes, Janet Novack (March 26, 2012)

FLORIDA DOR NEXUS QUESTIONNAIRE - A TRAP FOR THE UNWARY!!!

James Sutton — Wed, 22 Feb 2012 22:31:00 GMT

Has Your Company or Your Client Received a Florida Nexus Questionnaire?

If you are an out-of-state company and you receive a letter from our good friends at the Florida Department of Revenue that includes a FLORIDA NEXUS QUESTIONNAIRE, then we hope that you will not simply respond without at least speaking with your tax professional. Although the Florida Department of Revenue's motto is "We Are Here to Help," you should be keenly aware that any state's nexus questionnaire is a wolf in sheep's clothing. The questions are specifically designed to trap the unwary or uninformed out-of-state taxpayer into admitting something that will initiate a battle cry from a team of Florida Department of Revenue auditors who will charge in and audit your books. You may not have an ounce of liability, but you will be paying considerable sums to simply defend the audit that will take months, if not years to complete

And just in case this needs to be said, not responding will likely bring the auditors to your doorstep also. The old adage "put your best foot forward" has never been more applicable than when drafting your response to a Nexus Questionnaire. My humble advice, if you receive a nexus questionnaire like the one downloadable below from the Florida Department of Revenue, the please contact your CPA or Tax Attorney to help you draft your answers.

If you don't have a CPA or Attorney knowledgeable specifically about Florida taxes and Florida's attempt to assert nexus on out-of-state companies, then please contact us by either phone or email with the links above.

FLORIDA NEXUS QUESTIONNAIRE R.10/07 from the Atlanta Service Center

About the author: Mr. Sutton is a Florida licensed CPA and Attorney and a shareholder in the law firm Moffa, Gainor, & Sutton, PA. Mr. Sutton's primary practice is Florida tax controversy. Mr. Sutton worked for in the State and Local Tax department of one of the Big Five accounting firms for a number of years and has been an adjunct professor of law at Stetson University College of Law since 2002 teaching State and Local Tax, Accounting for Lawyers, and Federal Income Tax I. You can read more about Mr. Sutton in his firm bio.

FL TAX LITIGATION ALERT - VERIZON - FL DOR MISSES SOL WITH PROPOSED ASSESSMENT

James Sutton — Fri, 17 Feb 2012 18:19:00 GMT

VERIZON CHALLENGES WHETHER A NOTICE OF 'PROPOSED' ASSESSMENT IS REALLY AN ASSESSMENT UNDER FLORIDA STATUTE OF LIMITATIONS

[Foreword: The original article published by our firm in March 2011 is available for download at then end of this article. The article immediately below is a new, layman term's article on the topic meant to educate as well as discuss the specifics of the Verizon case.]

[UPDATE March 2012: We have receieved word that there is an in chambers hearing scheduled April 24th to hear arguments for and against Verizon's motion for summary judgement.]

[UPDATE April 23, 2102 - The state's Cross Motion for Summary Judgement and Verizon's response are both available for download below.]

Almost everyone in the business world is at least familiar with the tax concept of a statute of limitations, which imposes a time limit on when a taxing authority can come after a taxpayer for allegedly underpaid taxes. For federal income tax purposes, the rule is usually 3 years from the date the return is due or filed, whichever is later, and certain circumstances can lengthen or "toll" the running of the statute of limitations. However, the concept of a time limit for a taxing authority to come after the taxpayer is firmly rooted in our taxing system. Taxpayers have a similar time limit to request a refund of overpaid taxes. This limitation imposed on both the taxpayer and the taxing authority is meant to balance the scales for fairness in our taxing system while providing a degree of closure.

Florida also has a statute of limitations imposed on both the Florida Department of Revenue ("FL DOR") and the taxpayer for disputed under or over paid taxes. Specifically, under § 95.091, Florida Statutes ("F.S."), the Florida Department of Revenue must "assess" a taxpayer within three years of when the tax return is due or when it is filed, whichever occurs later. [Note – a return must actually be filed for the statute of limitations to begin running] Several things can toll the 3 year limit including, § 213.23, F.S., which allows the taxpayer and the FL DOR to enter written agreements extending the statute of limitations. However, taking into account any extensions, if either the taxpayer or the FL DOR neglects to take the required steps before the statute of limitations runs out, then the negligent party is literally and legally "SOL," if you will pardon the pun.

This brings us to an interesting administrative policy procedure followed by the FL DOR that entails the issuance of a Form DR-831 "Notice of Proposed Assessment," which is at the heart of the Verizon case discussed below. During an Florida tax audit, when the FL DOR and the taxpayer cannot agree on a tax matter, the FL DOR will eventually issue a Notice of Proposed Assessment ("NOPA"), which informs the taxpayer of the specifics of what the FL DOR intends to impose on the taxpayer. The Notice of Proposed Assessment becomes a final assessment within 60 days of the date of the Notice. This 60 day time period gives the taxpayer and the FL DOR time to negotiate a settlement, but (often to the surprise of taxpayers) does not limit the FL DOR from increasing the proposed assessment if something else comes to light during the 60 day period. The Form DR-831, Notice of Proposed Assessment, is purely an administrative creation not based in statute, except under the broad authority granted to the FL DOR in administrating taxes. One could argue that the Notice of Proposed Assessment is really the last threat in the FL DOR's bag of tricks to convince the taxpayer to comply before an assessment is actually issued. But neither the taxpayer, nor the FL DOR, may begin a legal action concerning the matter until the NOPA becomes an actual 'assessment.'

Historically, the FL DOR issued the Notice of Proposed Assessment more than sixty days prior to the end of the 3 year statute of limitations period (plus any periods of time the statute of limitations period is tolled or extended). The reason obviously being that the FL DOR wanted to make sure the NOPA became a final assessment prior to the running of the statute of limitations. Other states, such as California, have very similar proposed assessment procedures and California issues the proposed assessment with enough leeway to become a final assessment before the statute of limitations period expires. In Florida, apparently there was no formal, written rule to issue the NOPA more than sixty day prior to the running of the statute of limitations and, somehow, the reason behind the concept was lost in time. At some point, the FL DOR began issuing the Notice of PROPOSED Assessment shortly before the running of the state of limitations, as if the NOPA were the final assessment. When this happens, there is a real risk that the FL DOR missed the statute of limitations period because the "proposed assessment" is arguably not an actual, legal assessment being issued within the required statute of limitations time period. In the words of the great legal scholar Homer Simpson, one could say the Florida Department of Revenue had a "DOOOOOH!" moment.

Our firm wrote an article on this technical administrative mistake in March 2011 in the CPA Today Magazine pointing out that when the FL DOR issues the Notice of Proposed Assessment less than sixty days prior to the running of the statute of limitations period, the FL DOR has legally lost the ability to assess the tax payer for any period not still open. Based on Florida's normal audit process of reviewing three years of tax records at once, it may be that only the farthest back in time tax year falls outside the reach of being taxed. However, when the audit involves a big company or there are a lot of technical, disputed tax matters at play, the taxpayer and FL DOR often agree to extend the statute of limitations under § 213.23, F.S., such that all three tax years in question have their statute of limitations period running out on the same date. When this happens and the FL DOR issues a Notice of Proposed Assessment less than sixty days prior to the end of the statute of limitation period, then the FL DOR may have technically missed the ability to assess the taxpayer for any of the allegedly unpaid taxes. This brings us to the Verizon case, which is the first taxpayer to make it into a Florida court challenging that the Notice of Proposed Assessment is NOT a final assessment within the meaning of § 95.091, F.S.

Our firm has multiple clients for which we have asserted this argument. However, on June 8, 2011, Verizon Business Purchasing, LLC ("Verizon") became the first Florida taxpayer to formally file suit against the Florida Department of Revenue on this issue, challenging the validity of an assessment of more than $3.1 million dollars of allegedly unpaid Florida Sales and Use Tax. See, Verizon Business Purchasing, LLC v. Florida Department of Revenue, Case No. 2001 CA 1498, (FL 2d DCA, Jun. 8, 2011). The underlying details of the alleged tax liability are not at issue in the case. The issue boils down to the simple argument that the Notice of Proposed Assessment is not a (Final) Assessment under § 95.091, F.S., and, therefore, the failure of the FL DOR file a final assessment before the running of the statute of limitations period bars the FL DOR from any attempts to claim the tax is now due. It is our position that a Notice of PROPOSED Assessment, by its very terms, is merely an intent, plan, or proposal of an assessment at some future date (60 days) and not the critical 'assessment' of which the statute speak.

On February 15, 2012, Verizon filed a very well crafted Motion for Summary Judgement requesting the trial court to rule in Verizon's favor as a matter of law. In the Motion for Summary Judgement, Verizon throws everything but the kitchen sink at the FL DOR and leaves little room for doubt that the plain statutory meaning of Florida's requirement that an assessment must be filed before the § 95.091, F.S., statute of limitations period runs out and that Florida's Form DR-831 Notice of PROPOSED Assessment does not meet this requirement. Both the AMENDED COMPLAINT and MOTION FOR SUMMARY JUDGEMENT are downloadable in PDF format below.

If your company or a client's company has been facing a tax dispute with the Florida Department of Revenue and a Notice of Proposed Assessment has already been issued (whether it has become final or not), then you should immediately check the date of the NOPA to determine if it was issue less than 60 days prior to the end of the statute of limitations period. If so, then you have a strong argument that some or all of the taxes the FL DOR alleges you owe are barred under the statute of limitations. Call our offices today to for a free initial consultation to discuss how you can challenge the Florida Department of Revenue on this issue.

AUTHORITY

§ 213.23, Florida Statutes

§ 95.091, Florida Statutes

COURT DOCUMENTS

Verizon Business Purchasing, LLC v. Florida Department of Revenue, Case No. 2011 CA 1498, (Fla. 2d Cir. Ct., Jun. 8, 2011) [Download the AMENDED COMPLAINT HERE] [Download the MOTION FOR SUMMARY JUDGEMENT HERE] [Download the CROSS MOTION FOR SUMMARY JUDGEMENT HERE] [Download the RESPONSE TO THE CROSS MOTION FOR SUMMARY JUDGEMENT HERE]

RELEVANT ARTICLES/CASES

FLORIDA SALES TAX AUDITS – When is an Assessment an Assessment, CPA Today Magazine, March/April 2011, by Joseph C. Moffa, CPA, Esq. and Gerald J. Donnini II

FL Tax Alert - ALCOHOL & TOBACCO RETAILERS BEWARE!

James Sutton — Fri, 10 Feb 2012 21:59:00 GMT

FL LEGISLATIVE ALERT - ALCHOHOL & TOBACCO RETAILERS BEWARE!

A little noticed new law went into effect on May 31, 2011 that requires manufacturers, wholesalers, and distributors who sell alcohol beverages or tobacco products to retailers to provide annual sales information to the Florida Department of Revenue. I originally reported this legislative change on the Florida Tax Matters group on Linkedin last summer. While the law specifically applies to wholesalers, it is the Retailers of alcohol and tobacco who should be paying attention to the details of the new law.

The details of the new law, § 212.133, Florida Statutes ("F.S."), provide that wholesalers of alcoholic beverages or tobacco products are not only supposed to report "annual sales" to the Florida Department of Revenue ("FL DOR"), but also the following DETAILS ON EACH RETAILER:

Retailer's name
Retailer's beverage license or tobacco permit number
Retailer's address
General type (or types) of items sold to each retailer (e.g. cigarettes, cigars, beer, wine, etc)
Net monthly sales total to each retailer

The report is due electronically on September 30^th of each year for sales of the previous year ending June 30^th. What does this mean to the retailers? This means that the Florida Department of Revenue already has detailed information on what each retailer of alcoholic beverages and tobacco purchased in the state of Florida from July 1, 2010 to June 30, 2011. If you or your clients are in the business of selling alcoholic beverages or tobacco in Florida, then you are well aware that the FL DOR receives details on retail sales of alcohol beverages and tobacco already with sales and use tax returns. Therefore, you can expect the FL DOR to use this information to compare reported retail sales with reported purchases from wholesalers – creating, for the first time, very clear, easily generated reports of companies with discrepancies between purchases and sales. Depending on the discrepancy, the retailers are looking at either FL DOR audits or, before long, visits from the criminal investigation department of the FL DOR.

If your company or a client's company is in the business of selling alcohol or tobacco, then you really need to review your company's records to see if there is a discrepancy. If there is a discrepancy, then you need to plan for it now. Restaurants, bars, liquor stores, grocery stores, tobacco shops, etc. all need to be aware of this impending scrutiny.

If your company or a client's company has already been contacted by the Florida Department of Revenue or Division of Alcohol Beverages & Tobacco, then I hope this article makes it clear that this is most likely not a normal audit. Take it very seriously. Discrepancies in sales taxes can lead to possible collected but not remitted taxes – that can easily turn into criminal felony charges under Florida law very, very quickly. Furthermore, both the Florida Department of Revenue and the Division of Alcohol Beverage & Tobacco also have the authority to request the Florida Department of Business & Professional Regulation to suspend or revoke a business or professional license as a means of pressuring a company to pay the tax – whether the tax is just or not. If this happens, then you need legal representation immediately to challenge the assessment (potentially putting a hold on the license suspension).

Retailers in this industry should also be aware that the Florida Department of Revenue / Division of Alcohol Beverage & Tobacco very recently lost a case very relevant to this subject. The details of the case, Mojco, Inc., are discussed in detail in an article that can be downloaded below.

If your company or your client's company is facing a Florida DOR Tax Audit or Criminal Tax investigation, then you need to bring in a law firm experienced in both Florida Sales and Use Tax and Florida Criminal Sales Tax Defense. At the Law Firm of Moffa, Gainor, & Sutton, P.A., our main focus is Florida Sales and Use Tax – both Civil and Criminal. Our firm also handles legal actions when a Florida agency initiates an action to suspend or revoke a business or professional license for Florida tax matters. If you or your client finds themselves in need of an attorney for any of these Florida tax matters, then call our offices today for a free initial consultation.

AUTHORITY

§ 212.133, Florida Statutes

OTHER RELEVANT CASES/ARTICLES

MICJO, INC. v. DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION, DIVISION OF ALCOHOLIC BEVERAGES AND TABACCO, Case No. 2D11-254 (2d DCA, Feb. 1, 2012)

FL Tax Litigation Alert - FL 2nd DCA AB&T's Rules on Wholesale Sales Price Definition, by Jerry Donnini, www.FloridaSalesTax.com, Feb. 8, 2012. (discussing the Micjo, Inc. case)