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BOAT CAR PLANE DEALERS: FL SALES TAX FORMS

Jerry Donnini, Esq — Fri, 14 Jun 2013 13:00:00 GMT

FL DOR Forms: Planes, Boats, & Autos for Florida Sales Tax

Clicking around on the Florida Department of Revenue's ("FL DOR") website reminds me of the John Candy and Steve Martin movie in the late 80's entitled Planes, Trains & Automobiles. Instead of showing the struggle of a man's journey home for the holidays, the FL DOR's website outlines the struggles of plane, boat, or auto dealers to keep up with the endless rules and dozens of forms. If an auto, boat, or plane dealer is ever audited and the proper forms are not maintained, then the unassuming taxpayer risks huge liabilities. As a general rule, all 3 items are subject to Florida sales tax because they are tangible personal property. Further, for the unsuspecting dealer, the potential for not thoroughly understanding the business can create a high problem because of the high selling price of the item and the ability for the state to track the sales.

The most common type of audit we see on a regular basis is an auto dealer. Auto dealers are disadvantaged because the FL DOR has readily accessible records from the DMV. The FL DOR knows the amount of sales a car dealer makes and if the records do not match and audit notice is issued. It is also very common for an auto dealer to make tax exempt out of state sales or partially tax exempt sales to residents of other states. Further, due to the large number of transactions per car dealer, high volume of car dealers around, and the tedious amount of record keeping that must be done, car dealers are easy prey for the FL DOR.

The two most common problems faced by auto dealers are sales to customers and dealers who reside in another state. Time and time again, the auto dealer confuses the forms needed and their correct use. This makes for an unpleasant situation on audit, and the auditor will hold the auto dealer liable for the uncollected tax just for having incomplete or incorrect forms on file.

The first problem arises when sales are made to dealers in other states. Because a Florida resale certificate issued by a buyer who is a Florida dealer exempts a sale from tax, many dealers believe another state's resale certificate also exempts the sale. However, if a Florida dealer sells to another dealer in another state the correct document to have executed is a non-resident dealer form.

The more common problem arises in dealings with a non-Florida buyer who is not a dealer. If the sale is shipped outside of Florida then it is not a Florida sale and Florida sales tax does not apply. The correct way to document this transaction is for the dealer to maintain a bill of lading that clearly identifies the item sold and shipped out of state. Even if the customer arranges for delivery, the auto dealer must maintain a copy of the shipping records to legitimately treat the transaction as tax exempt. The more confusing issue is when a buyer from another state purchases a car here in Florida. In that example, a Form DR-123, Affidavit for Partial Exemption of a Motor Vehicle for Licensing in Another State, should be executed and stored. In this scenario, the buyer must pay his/her state's sales tax, not to exceed the applicable Florida tax rate. A listing of the various states sales tax can be found at the end of this article in a previous blog written by James Sutton. The dealer then collects and remits the foreign state sales tax to Florida. Although, it sounds strange it is the proper way to document the transaction. It is unfortunate that the state dings a dealer for having the incorrect form for a transaction that is truly exempt.

Perhaps the most "simplistic" of the three items and affecting the smallest number of taxpayers, are the aircraft dealers. As a general proposition, an aircraft sold in Florida is subject to 6% sales tax plus any applicable surtax (capped at $5,000) unless an exemption applies. The major exemption that applies is to a non-resident buyer who removes an aircraft shortly after the sale. Specifically, if a non-resident buyer supplies the state with a copy of the invoice for the aircraft, its bill of sale, and/or closing statement, and a signed removal affidavit the aircraft is exempt from tax. In addition, the buyer must remove the aircraft from Florida within 10 days from sale, or within 20 days from the completion of a repair at a registered repair facility. Other exemptions apply if there is a sale or lease of a fixed wing aircraft with a certified takeoff weight of more than 15,000 points and are used as a "common carrier." Effective January 1, 2013, the sales tax exemption for replacement engines, parts, equipment, and labor used in or for the maintenance or repair of fixed wing aircraft will be expanded to include aircraft that exceed 2,000 pounds in maximum certified takeoff weight. Previously, the exemption was limited to fixed wing aircraft that exceed 15,000 pounds in maximum certified takeoff weight. Dealers who make tax-exempt charges for replacement engines, parts, equipment, and labor used in or for the maintenance or repair of fixed wing aircraft over 2,000 pounds, or eligible rotary wing aircraft, are required to document the Federal Aviation Administration registration number ("N-number") and the maximum certified takeoff weight of the eligible aircraft on the bill of sale, invoice, or other tangible evidence of sale.

The majority of the airplane sales and use tax issues we encounter in our practice is the ever-looming use tax on aircrafts. A use tax applies if an aircraft is purchased in another state and then brought, stored, or hangered in Florida. As a general rule if no tax is paid in another state, then Florida will assess use tax for aircraft used in Florida. In order to escape the tax an aircraft cannot remain in Florida for more than 20 days during the 6 month period after purchase. If an aircraft is bought in another state and comes into Florida after the 6 month period, then it is generally exempt. There are also special rules that apply for flight training and repair purposes and if tax is paid elsewhere partial exemptions apply. Due to information sharing with other agencies, the FL DOR has a fairly good grasp on the aircrafts in the state at a given time and if you brought a plane into Florida without paying tax disclosing it through a Voluntary Disclosure may be a good way to save on interest and penalties before the FL DOR catches you. Another effective tool to be aware of is the inadvertent registration provisions. The inadvertent registration provisions allow a taxpayer that should have been registered, register after the fact and be subject to a maximum tax of $1,000 or $5,000 depending on the scenario. A tax publication that may be helpful to aircraft dealers and purchasers and issued by the FL DOR can be found at the end of this article.

It is no secret that the boating industry is a large portion of the economy here in Florida. Moreover, it should come as no surprise that the FL DOR has sought to strain as much tax revenue as possible from the industry. Many of the concepts that apply to planes also apply to boats. For years many boat purchases engaged in offshore transactions to save on sales tax. The game was to purchase the boat in a tax haven to save the 6% on lucrative yachts. However, effective July 1, 2010, the sales tax on boats has been capped at $18,000 so astronomical tax liability days are over. Boats are nearly identical to aircraft from the FL DOR's perspective and almost all of the rules are the same. A tax publication issued by the FL DOR can be found at the end of this article.

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 sales tax and state corporate income tax controversy. Mr. Donnini also does extensive work in the petroleum industry, both at the wholesale and retail levels. Mr. Donnini also handles matters in the areas of motor fuel tax, tobacco tax, and tourist development tax. If you are interested in any of these topics on a multi-state level please visit his blog or his multi-state nexus blogs. 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, which are available in his firm bio HERE.

AUTHORITY

Sec. 212.08(7)(ee) & (rr), Florida Statutes

ADDITIONAL RESOURCES

FLORIDA MOTOR VEHICLE SALES TAX RATES BY STATE – TIP 13A01-02, March 1, 2013, by James H Sutton, Jr., CPA, Esq.

BROWARD COUNTRY USED CAR DEALER ARRESTED FOR SALES TAX THEFT, April 24, 2013, by Jerry Donnini, Esq.

FL CAR DEALER: WHEN IS A SALE TAX EXEMPT?,March 17, 2013, by James H Sutton, CPA, Esq.

FL Form GT-800005: Florida Sales Tax for Boat Dealers

FL Form GT-800008: Florida Sales Tax for Air Plane Dealers

Florida Form DR-123: Affidavit for Partial Exemption of a Motor Vehicle for Licensing in Another State

NAPLES - JAILED FOR FAILURE TO FILE SALES TAX RETURNS

James Sutton, CPA, Esq — Fri, 24 May 2013 12:39:00 GMT

On April 25, 2013, [name omitted], owner of Tony Rosado Automotive Services, Inc. located at 1890 Elsa St., Naples, Florida was arrested by the Collier County Sheriff's Department on felony charges for allegedly FAILURE TO FILE SIX CONSEQUETIVE SALES TAX RETURNS. The Naples, Florida resident faces up to 5 years in prison and up to $5,000 in fines in addition to repayment of any taxes, interest, and investigation expenses. According to investigators, [name omitted] collected sales tax from customers in the auto repair business but during periods of 2007 through 2010, he failed to file sales tax returns as mandated by Florida law.

Florida law requires business owners that provide auto repair services to act as a sales tax collection agent to the state and they must file returns and remit all sales tax collected to state of Florida. Unfortunately, there is a lot of confusion in the industry because a pure labor service is not subject to sales tax. However, if any tangible personal property transfers to the customer, then the whole transaction is subject to sales tax – even a drop of oil. Thus, the industry faces close scrutiny from the Florida Department of Revenue. Further, Florida sales tax is required to be separately stated on the customers invoice and Florida law mandates that the taxes collected be the property of the state from the moment it is collected from the customer. Therefore, despite putting these amounts in their own checking accounts, business owners must segregate sales tax collect and remit it to the state in a timely fashion.

A link to a helpful article below spells out the various service industries that are potentially subject to sales and use tax in Florida.

Sales tax collected but not remitted is a crime under Florida law and must be taken extremely seriously. It surprises most business owners to know that the Florida Department of Revenue is dramatically more likely to arrest a business owner for tax fraud than the Internal Revenue Service ("IRS"). While both the IRS and the Florida Department of Revenue will put tax liens on the business property (called a "Tax Warrant" in Florida), the Florida Department of Revenue will also put the business owner in jail if the taxes and all associated penalties, interest, fines, and costs are not remitted.

If you or someone you know has collected but not remitted Florida sales tax, then please contact an attorney experienced in Florida sales and use tax criminal defense for a confidential conversation to discuss his or her options. There are mechanisms in place that allow individuals or their attorney to negotiate with the state to enter into a payment plan. While the monetary sanctions can be harsh, it is better than losing one's freedom. Like any other crime, anything said by you is an admission and can be used against you at a criminal trial. Therefore, it is wise to have an attorney speak on your behalf.

At the Law Office of Moffa, Gainor, & Sutton, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended clients against criminal charges related to Florida sales and use taxes for more than 20 years. In fact, the only criminal cases we handle are related to Florida sales and use taxes. Our partners are both CPAs and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.

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 SALES AND USE TAX CONTROVERSY & CRIMINAL DEFENSE. 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.

ADDITIONAL RESOURCES

WHAT SERVICES ARE SUBJECT TO SALES TAX IN FLORIDA?, May 1, 2012, by James Sutton, CPA, Esq.

TAMPA JEWELRY STORE MANAGER ARRESTED FOR SALES TAX THEFT, August 30, 2012, by James Sutton, CPA, Esq.

MIAMI AUTO REPAIR SHOP OWNER ARRESTED FOR SALES TAX, August 25, 2012, by Jerry Donnini, Esq.

FT. MYERS BUINESS OWNER ARRESTED FOR FAILING TO REMIT ONLY $8,000 IN SALES TAX COLLECTED, August 11, 2012, by James Sutton, CPA, Esq.

FL DOR'S GREATEST WEAPON – REVOCATION OF DEALER'S SALES TAX CERTIFICATE, August 6, 2012, by Jerry Donnini, Esq.

CRIPPLING PENALTIES UNDER FLORIDA SALES AND USE TAX LAW, July 19, 2012, by James Sutton, CPA, Esq.

FL SALES & USE TAX MACHINERY & EQUIPMENT EXEMPTION SIGNED INTO LAW - FINALLY!

James Sutton, CPA, Esq. — Tue, 21 May 2013 13:03:00 GMT

On May 17, 2013 Governor Rick Scott signed into law one of the main agenda goals of his term in office. Specifically, Sec. 212.08(7)(kkk), Florida Statutes (F.S.), was enacted with an effective date of April 30, 2014 to allow a 100% exemption for machinery and equipment purchased for the use in Florida based manufacturing and processing companies. A simply exemption certificate can be supplied to the vender selling the equipment and no sales or use taxes are theoretically due. If your company or your clients are in the manufacturing industry, then this is a huge win. However, there are a few nuances of the law to which you should pay attention. For example, by the terms of the law, the exemption will expire on April 30, 2017 if not extended. We will discuss these nuances as well as provide the full text of the new law later in this article.

It should be noted this law is very, very long overdue and the opponents of this bill should be ashamed of themselves for putting up a challenge this long. Even though Manufacturing jobs provide substantially higher salaries that the medium salaries in Florida ($52,000 vs $40,000) and dramatically higher than the two largest industries in Florida Construction ($40,000) and Leisure/Hospitality ($22,000), Florida has far fewer manufacturers than most of the states in the country. And, of course, the members of the Tea Party reading this article will love the fact that the average government employee makes $51,000 a year, which more than 25% over the average salary in the state.

Florida has a lot to offer a potential manufacturing company from great roads and other forms of transportation, well educated population, vast areas of undeveloped, cheap land, and a continuously growing population. If you had to choose a place to relocate your family, then who wouldn't want to choose Florida? Potential manufacturing business owners faced with an equal cost option would seriously consider Florida for the location of their new business with the exception of one problem – the costs have not been equal. As you can see from the chart below, Florida is one of the few states in the country that did not already exempt machinery and equipment from sales tax. This simple lack of foresight on Florida's part has been keeping thousands of very high paying jobs out of Florida. Thanks to Governor Rick Scott and a handful of other business savvy politicians, the game just changed.

If you think about it, machinery and equipment used in manufacturing should not be taxed anyway. Sales and use tax is supposed to be a consumption tax. Originated by Mississippi in 1930 to battle lost state income tax revenues during the Great Depression, Sales and Use Tax is supposed to be imposed on the final consumers of goods and services. Manufacturing equipment makes the goods that will eventually be subject to sales and use tax and the cost of the manufacturing equipment is built into the cost of goods sold. So, effectively, the cost of the manufacturing equipment has always been subject to sales tax through the goods produced. This is the reasoning behind why almost every state in the deep south already exempts machinery and equipment from sales and use tax.

One of the primary reasons why it has taken this long for the sales tax exemption on machinery and equipment this long to get passed (and still only for 3 years) is the disinformation pushed into the public's eye by the state's vast liberal media industry. The problem has been that our extremely liberal news media outlets in Florida have seen exemptions granted to businesses as some type of corporate welfare. Publications like the Orlando Sentinel, the St. Pete Times (now the Tampa Bay Times), and the Miami Herald have spent vast amount of time and resources writing article after article filled with misinformation about business tax incentives that create thousands of jobs and pump hundreds of millions of dollars into the Florida economy (and not into other states). Those dollars placed into Florida manufacturing employees' hands get spent at other local businesses from restaurants, car dealers, retail stores, and other business owned by Floridians that employee Floridians. The salaries also go to pay local property taxes as well as sales and use tax. In other words, everyone benefits when we incentivize a new business to move to Florida, especially a high wage business like manufacturing. These liberal news article somehow miss the concept of money is flowing into Florida dramatically more than the business incentives used to draw the manufacturing jobs to the states. Examples of the extreme left slanted news articles are not hard to find, such as:

"Report Calls Florida Business Incentives Corporation Welfare", by Toluse Olorunnipa, Miami Herald, February 5, 2013.

"Florida Can Ill Afford Corporate Welfare," by Dana Summers, Tampa Bay Times, December 23, 2012

And let's not forget my personal favorite, "Video-Game Company Helps Write Florida Tax-Incentive Law, Saves Itself Millions," by Jason Garcia, Orlando Sentinel, December 30, 2012 in which one of the most liberal newspapers in the state published a long, harsh article about EA Games getting a little over $9 million in tax breaks (not cash, just taxes that they don't have to pay) while burying at the very, very end of the article the 6,000 Floridians employed by the company for a whopping total of over $480,000,000 in salaries. Yes – that is four hundred and eighty million dollars of salaries paid to Floridians, which makes the tax incentives less than 2% of the salaries pumped into the local economy. I'll get off my soap box now and get back to the topic at hand – the new 100% exemption on machinery and equipment purchased for use the Florida manufacturing industries.

The exact verbiage of the bill signed by the governor is provide below.

Sec. 212.08(7)(kkk) Certain machinery and equipment.–

1. Industrial machinery and equipment purchased by eligible manufacturing businesses which is used at a fixed location within this state for the manufacture, processing, compounding, or production of items of tangible personal property for sale shall be exempt from the tax imposed by this chapter. If at the time of purchase the purchaser furnishes the seller with a signed certificate certifying the purchaser's entitlement to exemption pursuant to this paragraph, the seller is relieved of the responsibility for collecting the tax on the sale of such items, and the department shall look solely to the purchaser for recovery of the tax if it determines that the purchaser was not entitled to the exemption.

2. For purposes of this paragraph, the term:

a. "Eligible manufacturing business" means any business whose primary business activity at the location where the industrial machinery and equipment is located is within the industries classified under NAICS codes 31, 32, and 33. As used in this subparagraph, "NAICS" means those classifications contained in the North American Industry Classification System, as published in 2007 by the Office of Management and Budget, Executive Office of the President.

b. "Primary business activity" means an activity representing more than fifty percent of the activities conducted at the location where the industrial machinery and equipment is located.

c. "Industrial machinery and equipment" means tangible personal property or other property that has a depreciable life of 3 years or more and that is used as an integral part in the manufacturing, processing, compounding, or production of tangible personal property for sale. A building and its structural components are not industrial machinery and equipment unless the building or structural component is so closely related to the industrial machinery and equipment that it houses or supports that the building or structural component can be expected to be replaced when the machinery and equipment are replaced. Heating and air conditioning systems are not industrial machinery and equipment unless the sole justification for their installation is to meet the requirements of the production process, even though the system may provide incidental comfort to employees or serve, to an insubstantial degree, nonproduction activities. The term includes parts and accessories for industrial machinery and equipment only to the extent that the parts and accessories are purchased prior to the date the machinery and equipment are placed in service.

3. This paragraph is repealed effective April 30, 2017.

There are a few specifics to note when reading through the new statute. First, the purchaser must fall under one of the NAICS Codes specified by the statute, specifically 31, 32, or 33. These are the general codes for most types of manufacturing and processing industries, and you can find a free listing of each of the sub-codes at the NAICS Code web site. Second, the purchaser must not only be in a manufacturing industry specified under NAICS codes 31, 32, or 33, but the qualifying business activities must also be at least 50% of the company's activities. So companies that do some processing or manufacturing but the business is primarily in some other industry will not qualify.Planning note: separating the manufacturing division of the business into a separate legal entity may achieve a more favorable tax result. Even a separate legal entity that is disregarded for Federal income tax purposes should achieve the desired results. Third, the statute seems to create some uncertainty about machinery and equipment that might be considered part of the building, which I'm sure will create a world wind of tax controversy down the road.

While it is painfully obvious that the new law is meant to make it extremely easy for manufacturing businesses to qualify for the exemption, it will be some time before the Department begins promulgating administrative rules that will no doubt muddy the waters in this area. Just ask any Florida based manufacturer that has been through a Florida sales and use tax audit in the last 5 years and they will tell you that the Florida Department of Revenue does a very good job at making manufacturers feel very unwelcome in the sunshine state. Perhaps the next job for our business friendly governor will be to toughen up the Florida Taxpayer Bill of Rights to reel in the aggressive tactics currently being utilized by our draconian¹ comrades in Tallahassee.

One final note. There are groups in Florida that believe the legislature should have had a 2/3rds majority to pass this legislation, which did not happen. So there is a chance that this legislation will face legal challenges before the effective date of April 30, 2014.

If you would like to learn more about the new manufacturing sales and use tax exemption statute or have any other questions about Florida sales and use tax matters, then please feel free to contact one of our attorneys for a FREE INITIAL CONSULTATION. If we can answer your questions and concerns in a quick phone call, then we are glad to do it. If you need more help or are being harassed by the Florida Department of Revenue, then you know who to call.

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 SALES AND USE 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.

Note: The charts included herein were taken directly from "Building Up Florida Manufacturing: A Plan For Florida Jobs," by Governor Rick Scott (undated).

See, "Gov. Scott Signs Constitutionally Murky Tax Cut, Touts Jobless Rate Down to 7.2 Percent," The Florida Current, by Gray Rohrer, 05/17/2013

1 "Draconian" relates to Draco, a 7th-century B.C. Athenian statesman and lawmaker who implemented laws that prescribed extremely harsh punishment for almost every offense, quite often the death for even minor offenses.

ADDITIONAL RESOURCES

TIP 13A01-06 - Sales and Use Tax Exemption for Purchases of Industrial Machinery and Equipment

AAA-CPA OPPOSES MARKETPLACE FAIRNESS ACT

James Sutton, CPA, Esq — Thu, 02 May 2013 19:44:00 GMT

BELOW PLEASE FIND A LINK TO A FORMAL POSITION LETTER SENT TO EVERY MEMBER OF CONGRESS IN WHICH THE AMERICAN ASSOCIATION OF ATTORNEY-CERTIFIED PUBLIC ACCOUNTANTS OPPOSE THE MARKETPLACE FAIRNESS ACT OF 2013 (S. 336 / H. 684).

AAA-CPA POSITION LETTER ON MARKETPLACE FAIRNESS ACT

If you have an opinion on the subject, I strongly suggest you speak out now. You can have your opinion heard by your congress(wo)men by going to www.popvox.com.

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, with a almost exclusive focus on Florida sales and use tax. 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. Mr. Sutton is a frequent speaker on Florida sales and use taxes for the FICPA, Lorman Education, and Florida Society of Accountants. Mr. Sutton is also co-author of CCH's Sales and Use Tax Treatise. You can read more about Mr. Sutton in his firm bio.

FLORIDA MOTOR VEHICLE SALES TAX RATES BY STATE - TIP 13A01-02

James Sutton, CPA, Esq. — Wed, 01 May 2013 07:35:00 GMT

FLORIDA MOTOR VEHICLE SALES TAX RATES BY STATE – TIP 13A01-02

One of the easiest ways for a Florida car dealer to get themselves in trouble with the Florida Department of Revenue is how to handle exempt and partially exempt sales. You would think that an exemption from sales tax would help sell a car. However, as any long term car dealer will tell you, Florida sales tax is a complicated nightmare of rules and regulations with harsh results for seemingly harmless misstep or even a missing record. The outcome is usually that the car dealer becomes liable for any mistakes or miscalculation in tax rates. So please, take it from the law firm that helps defend car dealer missteps in sales tax on a regular basis, this is an area of your business that you want to take very seriously and make sure whoever in your business is handling sales taxes is well trained.

For your convenience, attached blow is a link to the Florida Department of Revenue's TIP 13A01-02, which provides the sales and use tax rates imposed on automobiles in every state. This for can be extremely useful when a customer from outside Florida wants to by a car from you. Under Florida law if an from out-of-state customer swears that they will take the car out of the state within 45 days and signs a Form DR-123, then the dealer only has to charge the customer the sales tax rate in their homes state.

Florida Department of Revenue TIP 13A01-02

If you want to read more about Florida sales and use taxes for car dealers, then below is a more in depth article on the topic.

FL CAR DEALER: WHIS IS A SALE TAX EXEMPT? March 17, 2013, by James Sutton, CPA, Esq.

KEY WEST PRIVATE INVESTIGATOR JAILED FOR SALES TAX

James Sutton, CPA, Esq — Mon, 29 Apr 2013 16:51:00 GMT

On April 22, 2013, [name omitted], owner of Jamson Private Investigations, Security, and Recovery Agency located at 819 Peakcock Plaza, Key West, Florida was arrested by the Monroe County Sheriff's Department on felony and misdemeanor charges concerning theft of over $41,000 of sales tax allegedly collected but not remitted to the state. The Key West, Florida resident faces up to 15 years in prison and up to $10,000 in fines in addition to repayment of stolen taxes, interest, and investigation expenses. According to investigators, [name omitted] collected sales tax from customers in the security business but during periods of 2009 through 2013, he failed to file sales tax returns as mandated by Florida law and he failed to remit the sales taxes to the state.

Florida law requires business owners that provide security or detective services to act as a sales tax collection agent to the state and they must remit all sales tax collected to state of Florida. The security and detective industry provides one of the few services subject to sales tax in the state of Florida and a significant source of sales tax revenue for the state. As such, the industry faces close scrutiny from the Florida Department of Revenue. Further, Florida sales tax is required to be separately stated on the customers invoice and Florida law mandates that the taxes collected be the property of the state from the moment it is collected from the customer. Therefore, despite putting these amounts in their own checking accounts, business owners must segregate sales tax collect and remit it to the state in a timely fashion.

ADDITIONAL RESOURCES

FL TAX ALERT – CONVENIENCE STORE OWNERS TARGETED!, August 16, 2012, by James Sutton, CPA, Esq., and Jerry Donnini, Esq.

WHAT SERVICES ARE SUBJECT TO SALES TAX IN FLORIDA?, May 1, 2012, by James Sutton, CPA, Esq.

TAMPA JEWELRY STORE MANAGER ARRESTED FOR SALES TAX THEFT, August 30, 2012, by James Sutton, CPA, Esq.

MIAMI AUTO REPAIR SHOP OWNER ARRESTED FOR SALES TAX, August 25, 2012, by Jerry Donnini, Esq.

FT. MYERS BUINESS OWNER ARRESTED FOR FAILING TO REMIT ONLY $8,000 IN SALES TAX COLLECTED, August 11, 2012, by James Sutton, CPA, Esq.

FL DOR'S GREATEST WEAPON – REVOCATION OF DEALER'S SALES TAX CERTIFICATE, August 6, 2012, by Jerry Donnini, Esq.

CRIPPLING PENALTIES UNDER FLORIDA SALES AND USE TAX LAW, July 19, 2012, by James Sutton, CPA, Esq.

BROWARD COUNTY AUTO DEALER ARRESTED FOR SALES TAX THEFT

Jerry Donnini, Esq — Thu, 25 Apr 2013 00:56:00 GMT

On September 24, 2012, the Florida Department of Revenue ("FDOR") announced [name omitted], was arrested by the Broward County Sheriff's Office. The charges were that he allegedly collected over $41,000 in sales tax from customers and failed to remit it to the state. The use car dealer, a Pembroke Pines resident, was charged with felony counts and faces and faces up to 15 years in prison, up to $10,000 in fines, and potential penalty and investigative payment liabilities.

According the FL DOR's press release, [name omitted], owner of B&K Motors collected tax from his customers at his Hallandale car dealership. However, from 2007 through 2011, he failed to remit the tax collected to the state. It is worth pointing out that collecting and not remitting over $20,000 is a second degree felony, and an amount over $100,000 is a first degree felony offense.

Florida law requires business owners that sell, repair, rent, or provide services to act as an agent to the state and they must remit all sales tax collected to state of Florida. Car dealers are a significant source of sales tax revenue for the state of Florida and, as such, face close scrutiny from the Florida Department of Revenue. Car dealers throughout South Florida are at risk because the FL DOR has records directly from the DMV as to exactly which vehicles are sold by a dealer. Therefore, if a dealer reports less in taxes than is reported in sales by the DMV, many car dealers in Palm Beach, Broward, and Miami-Dade counties are at risk on a daily basis.

Further, Florida sales tax is required to be separately stated on the customers invoice and Florida law mandates that the taxes collected be the property of the state from the moment it is collected from the customer. Therefore, despite putting these amounts in their own checking accounts, business owners must segregate sales tax collect and remit it to the state in a timely fashion.

Interium Executive Director gave his standard quote which says:

For those that don't, it is our job to enforce the law and ensure honest businesses are not placed at a competitive disadvantage by those who ignore the law or intentionally collect and steal taxpayer dollars

Collecting but not remitted Florida sales tax is a crime under Florida law and must be taken extremely seriously. It is shocking to many business owners to know that the Florida Department of Revenue is dramatically more likely to arrest a business owner for tax fraud than the Internal Revenue Service ("IRS"). While both the IRS and the FL DOR will put tax liens on the business property (called a "Tax Warrant" in Florida), the Florida Department of Revenue will also charge and put the business owner in jail if the taxes and all associated penalties, interest, fines, and costs are not remitted.

About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini's primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone listed on this page.

ADDITIONAL RESOURCES

FL TAX ALERT – CONVENIENCE STORE OWNERS TARGETED!, August 16, 2012, by James Sutton, CPA, Esq., and Jerry Donnini, Esq.

TAMPA JEWELRY STORE MANAGER ARRESTED FOR SALES TAX THEFT, August 30, 2012, by James Sutton, CPA, Esq.

MIAMI AUTO REPAIR SHOP OWNER ARRESTED FOR SALES TAX, August 25, 2012, by Jerry Donnini, Esq.

FT. MYERS BUINESS OWNER ARRESTED FOR FAILING TO REMIT ONLY $8,000 IN SALES TAX COLLECTED, August 11, 2012, by James Sutton, CPA, Esq.

FL DOR'S GREATEST WEAPON – REVOCATION OF DEALER'S SALES TAX CERTIFICATE, August 6, 2012, by Jerry Donnini, Esq.

CRIPPLING PENALTIES UNDER FLORIDA SALES AND USE TAX LAW, July 19, 2012, by James Sutton, CPA, Esq.

WHAT SERVICES ARE SUBJECT TO SALES TAX IN FLORIDA, May 1, 2012, by James Sutton, CPA, Esq.

FL TAX ALERT: ONLINE TRAVEL COMPANY CASE CERTIFIED TO FL SUPREME COURT

James Sutton, CPA, Esq — Thu, 18 Apr 2013 20:18:00 GMT

For the past two years, various counties in Florida have been battling the on-line travel companies for local tourist development taxes on the portion of the fee paid by hotel guests but never paid to the hotel. It has been the long standing position of the on-line travel companies like Expedia and Travelocity that only the portion of the customer's hotel payment that actually goes to the hotel is subject to state and local taxes imposed on hotel rooms. The theory is that the other portion of the fee paid by the guest and retained by the online travel company was for the travel booking service, which is arguably not subject to the tourist development tax. While this is not a fight the Florida Department of Revenue has found any interest in waging, 17 counties in Florida have decided the local tourist develop tax revenues lost on this portion of the hotel guest fees were worth litigating – and litigate they have. In the last year along, there have been at least a half dozen law suits and at least one settlement (in Palm Beach County).

In every case that has actually evolved all the way into a judicial opinion thus far in Florida, the counties have lost. In the most recent case, Alachua County, et al vs. Expedia, Inc. et al, 1^st DCA FL, Case No. 1D12-2421, Feb 28, 2013, 17 counties combined forces to wage war in the appellate court in hopes of millions of dollars in back taxes being imposed on the on-line travel company. However, once again, the counties were handed a dismal result with the court finding that the original intent of the tourist development tax was to be borne by the hotels, but could be passed on to the guest. Under this logic, the court reasoned that only the funds paid to the hotel for occupancy of a room would be subject to tax. So the portion of the hotel guest fees kept by the on-line travel companies escaped taxation all together.

In a surprise move, on April 16, 2013 the 1^st DCA certified the case to the Florida Supreme Court with the deceivingly simple question:

DOES THE "LOCAL OPTION TOURIST DEVELOPMENT ACT," CODIFIED AT SECTION 125.0104, FLORIDA STATUTES, IMPOSE A TAX ON THE TOTAL AMOUNT OF CONSIDERATION RECEIVED BY AN ON-LINE TRAVEL COMPANY FROM TOURISTS WHO RESERVE ACCOMMODATIONS USING THE ON-LINE TRAVEL COMPANY'S WEBSITE, OR ONLY ON THE AMOUNT THE PROPERTY OWNER RECEIVES FOR THE RENTAL OF THE ACCOMMODATIONS?

As of the time this article was written, the Florida Supreme Court has not even acknowledged the certified question. As soon as updates on the case are available, we will post them here. In the meantime, my bet is on the on-line traveling companies.

About the author: Mr. Sutton is a Florida licensed CPA and attorney as well as a partner in the law firm Moffa, Gainor, & Sutton, PA. Mr. Sutton is in charge of the Tampa office for the firm and his primary practice area is Florida Sales and Use 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 Taxation. Mr. Sutton is a frequent lecturer on the topic of Florida sales and use tax for the Florida Institute of Certified Public Accountants, Florida Society of Accountants, & Lorman Education. Mr. Sutton is also a co-author of CCH's Sales and Use Tax Treatise. You can learn more about Mr. Sutton at his firm bio HERE.

AUTHORITY

Alachua County, et al vs Expedia, Inc., et al, 1st DCA Case No. 1D12-2421, April 16, 2013, (Certified Question to Florida Supreme Court)

Alachua County, et al vs Expedia, Inc., et al, 1st DCA Case No. 1D12-2421, April 15, 2013 (Original Court Opinion)

List of counties involved in the law suit: Alachua, Charlotte, Escambia, Flagler, Hillsborough, Lee, Leon, Manatee, Nassau, Okaloosa, Pasco, Pinellas, Polk, Seminole, St. Johns, Wakulla, & Walton.

ADDITIONAL RESOURCES

FL TAX LITIGATION ALERT – HUGE VICTORY for Online Travel Companies, March 1, 2013, by Jerry Donnini, Esq.

LONGWOOD USED CAR DEALER JAILED - SALES TAX THEFT

James Sutton, CPA, Esq. — Tue, 16 Apr 2013 10:47:00 GMT

On April 8, 2013, [name omitted], owner of Palm Trading Group, LLC was arrested by the Seminole County Sheriff's Office on felony charges concerning theft of over $49,000 of sales tax (collecting sales tax from customers but not remitting the tax to the state). The Ocala resident faces up to 15 years in prison and up to $10,000 in fines in addition to repayment of stolen taxes, interest, penalties, and investigation expenses. According to investigators, [name omitted] collected sales tax from customers at the dealership but during periods of 2009 through 2012 but he failed to remit the sales taxes to the state.

What the used car dealer likely did not know is that the state has recently started downloading the entire DMV database. Now the state can compare all used car dealers DMVS sales per month to the used car dealer's sales tax returns. If there is a discrepancy, then the dealer is queued up for either an audit or a criminal investigation, then choice dependent solely on the available resources in the criminal division at the time. There is a link to a more in depth article on this topic at the bottom of this page.

Once a sales tax fraud matter leaves the hands of a Department of Revenue investigator and a local state attorney's office gets involved, the danger level for the taxpayer goes up exponentially. An arrest warrant will be issued shortly followed by a night in jail, a bail hearing, and, if you can afford to eventually pay the tax, a plea deal with monthly payments and some extended period of probation is likely. If you can't pay or refuse to pay the tax, then jail time is very likely. One of the other consequences that you might not consider is that the taxpayer's arrest photo is very likely to appear in one of the "mug shot photo" websites that will prominently appear in Google/Bing/Yahoo search engine results when anyone searches for the taxpayer's name. This can be extremely damaging to a business owner's reputation. In other words - if you are under investigation by the Florida Department of Revenue, then it is extremely important to handle this matter with a competent professional BEFORE the matter gets forwarded to the state's attorney's office.

Florida law requires business owners that sell, repair, rent, or provide services to act as an agent to the state and they must remit all sales tax collected to state of Florida. Further, Florida sales tax is required to be separately stated on the customers invoice. More importantly, Florida law mandates that the taxes collected is property of the state the moment it is collected from the customer. Therefore, despite putting these amounts in their own checking accounts, business owners must segregate sales tax collect and remit it to the state in a timely fashion. Business owners that sell tangible personal property must also timely file sales tax returns.

ADDITIONAL RESOURCES

FL TAX ALERT - USED CAR DEALERS TARGETED!!!, January 19, 2013, by James Sutton, CPA, Esq.

FL TAX ALERT – CONVENIENCE STORE OWNERS TARGETED!, August 16, 2012, by James Sutton, CPA, Esq., and Jerry Donnini, Esq.

TAMPA JEWELRY STORE MANAGER ARRESTED FOR SALES TAX THEFT, August 30, 2012, by James Sutton, CPA, Esq.

MIAMI AUTO REPAIR SHOP OWNER ARRESTED FOR SALES TAX, August 25, 2012, by Jerry Donnini, Esq.

FT. MYERS BUINESS OWNER ARRESTED FOR FAILING TO REMIT ONLY $8,000 IN SALES TAX COLLECTED, August 11, 2012, by James Sutton, CPA, Esq.

FL DOR'S GREATEST WEAPON – REVOCATION OF DEALER'S SALES TAX CERTIFICATE, August 6, 2012, by Jerry Donnini, Esq.

CRIPPLING PENALTIES UNDER FLORIDA SALES AND USE TAX LAW, July 19, 2012, by James Sutton, CPA, Esq.

WHAT SERVICES ARE SUBJECT TO SALES TAX IN FLORIDA, May 1, 2012, by James Sutton, CPA, Esq.

FL TAX ALERT - PUBLIC WORKS CONSTRUCTION CONTRACTS

Jerry Donnini, Esq. — Sat, 06 Apr 2013 11:01:00 GMT

A common question and a problematic situation that often arises in our practice involves public works contracts, i.e. federal, state, or local government projects, such as a school. Whether the issue surfaces during an initial consultation, a sales and use tax audit, or a Florida sales tax planning project, the so-called "public works" contract is a real and often an expensive inquiry for contractors. We have helped dozens of manufacturing companies, contractors, and state and local governments deal with this rather this rather tedious exercise. The numerous inquiries we get and rather popular topic on message boards and speaking engagements prompted the creation of this article.

Starting from the top, the general rule is that under Florida law, real property contractors and subcontractors are the ultimate consumers of materials they use in the performance of a real property construction contract and owe sales or use tax on their purchases of those items. Taking even a further step back, most real property improvement property begins as tangible personal property. All of the items such as the cement, the wood, the nails, etc are tangible. It is not until the cement is poured and the wood/bricks are erected does the tangible property become real property. Therefore, whether it is the contractor, subcontractor, or end-consumer the last person to touch or own the property in its tangible state owes the sales or use tax.

But what if the state or federal government is the entity receiving the real property improvement? What if the government is having a school, courthouse, or airport built? These governmental entities are tax exempt, right? Does the contractor still have to pay the sales or use tax on tangible personal property used in a tax exempt project? Generally, the answer is yes unless all the parties to the contract plan ahead, but it has always been a very tedious process with expensive consequences for mistakes. Florida law has thought of this situation and allows the state or federal government to buy the goods and services sales tax-free if the government purchases the taxable item directly from the vendor if certain procedures are followed. This direct purchase by the government is referred to in the industry as an owner-direct purchase ("ODP"). However, Florida does not allow the government to buy the materials from the same contractor that is installing the materials. The materials MUST be bought directly from a non-installing vendor, which is catching a lot of contractors off guard.

To clarify the situation, consider the following examples:

Example 1. XYZ County needs a school built. XYZ County purchases materials for the construction of the school from ABC Construction Supply, Inc., its vendor. Simultaneously XYZ County hires BuildCo to install and build the school using the materials now owned by XYZ County. The purchases of the materials by XYZ County are tax free because the governmental entity purchased the materials directly.

Example 2. XYZ County needs a school built. XYZ hires BuildCo to construct the school. BuildCo purchases materials for the construction of the school from ABC Construction Supply, Inc., its vendor. The purchases of the materials by XYZ County are taxable because someone other than governmental entity purchased the materials directly from the vendor.

For all practical purposes other than sales and use tax, the end result is still the same. XYZ County has its school constructed by BuildCo using materials purchased from ABC Construction Supply Inc. However, the tax implications are very different based on the Florida Department of Revenue's draconian¹ interpretation of the law. Despite the fact that the state clearly intends these types of projects to be sales and use tax free, if the procedures are not followed to a T, the Florida Department of Revenue now collects sales or use tax on the materials used, which can be quite substantial in a large project. Even worse, the contractor, who may have believed the whole project was tax-exempt now owes use tax on its purchases, which can be enough to wipe out any profit the contract hoped to make.

In an effort to encourage business and promote growth in the state, the Florida Legislature passed a sales tax exemption for the above described scenario. Specifically, section 212.08(6), Florida Statutes ("F.S.") succinctly states the exemption as follows:

(a) There are also exempt from the tax imposed by this chapter sales made to the United States Government, a state, or any county, municipality, or political subdivision of a state when payment is made directly to the dealer by the governmental entity . . . .

(b) The exemption provided under this subsection does not include sales of tangible personal property made to contractors employed directly to or as agents of any such government or political subdivision when such tangible personal property goes into or becomes a part of public works owned by such government or political subdivision. A determination of whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based upon the substance of the transaction rather than the form in which the transaction is cast. However, for sales of tangible personal property that go into or become a part of public works owned by a governmental entity, other than the Federal Government, a governmental entity claiming the exemption provided under this subsection shall certify to the dealer and the contractor the entity's claim to the exemption by providing the dealer and the contractor a certificate of entitlement to the exemption for such sales. If the department later determines that such sales, in which the governmental entity provided the dealer and the contractor with a certificate of entitlement to the exemption, were not exempt sales to the governmental entity, the governmental entity shall be liable for any tax, penalty, and interest determined to be owed on such transactions. Possession by a dealer or contractor of a certificate of entitlement to the exemption from the governmental entity relieves the dealer from the responsibility of collecting tax on the sale and the contractor for any liability for tax, penalty, or interest related to the sale, and the department shall look solely to the governmental entity for recovery of tax, penalty, and interest if the department determines that the transaction was not an exempt sale to the governmental entity. The governmental entity may not transfer liability for such tax, penalty, and interest to another party by contract or agreement.

Even in its abridged version, one can easily see that the statute is quite a mouth full. In order to clarify the statute, the Florida Department of Revenue enacted rules 12A-1.038 and 12A-1.094, Florida Administrative Code ("F.A.C.") which outlines how a company can go about claiming the exemption. At its core, the Department takes the position that the government, rather than the contractor is the one purchasing the materials directly if 1) the government issues a direct purchase order to the vendor along with its Exemption Certificate, 2) the vendor's invoice must be issued to the government, 3) the government must pay for the materials directly from public funds, 4) the government must take title at the time of purchase or delivery, 5) the government bears the risk of loss, and 6) if the government is any government other than the United States government, a certificate of entitlement must be issued. For convenience, I have included a certificate of entitlement at the end of this article.

From a logical perspective, if the contractor gets the government to sign the certificate of entitlement, the contract theoretically should be off the hook. One would expect the Department of Revenue's recourse at that point would likely be against the government according to the statute. While it is unlikely that the Florida Department of Revenue would assess tax against a state or local government, I wouldn't put anything past them. This was made apparent in 2012 when the Florida Department of Revenue ("DOR") issued a tax warrant against the Florida Supreme Court. [an article on this debacle can be found at the bottom of this article] We have heard that if any mistakes in the process occur, such as the contractor accidentally took title to the materials via a mislabeled invoice or somehow can be considered an agent for the governmental entity, then the Florida Department of Revenue is going to come after the contractor.

Echoing what our firm has seen over the past year, the Florida DOR has also seen this as ongoing problem. In 2012, the Florida DOR issued two Technical Assistance Advisements ("TAA"), which is the equivalent to an IRS private letter ruling. TAA 12A-002 and TAA 12A-024, were based on essentially the same facts. Each scenario, a county asked whether its contracts with a contractor met the requirements of the public works exemption. Both contracts provided that the County will prepare its own orders of materials, the County will pay the suppliers, the vendor will invoice the County directly, the County will take title upon delivery, and payment will be made directly by the County. The main differences are that in one TAA no certificate of entitlement will be issued and the county will not assume the risk of loss. Conversely, the other TAA stated that the County will issue a certificate of entitled with each purchase order and it will County will be liable for risk of loss and purchase insurance to cover such loss. Based on these seemingly small discrepancies, the Florida Department of Revenue gave its blessing in TAA 12A-024 and did not in TAA 12A-002.

As evidenced by a recent issuance of a Taxpayer Information Publication, the Florida DOR believes this is still an ongoing problem for taxpayers. On March 11, 2013, the Florida DOR issued TIP 13A01-01 to reiterate its position regarding public works contracts. Further, the Florida DOR reiterated its position that if the contractor doing the install is the same entity selling the property, then even the Certificate of Entitlement will not work. In its typical draconian fashion, the Florida Department of Revenue's TIP took the opportunity to expand beyond the law to claim that governmental entities are all of a sudden not allowed to purchase construction materials tax free from apparently anyone without a Certificate of Entitlement. The Florida Department of Revenue is going to get a rude awakening when they try to enforce this concept.

What is really frustrating is the legislature tried to clarify and simply how public works contracts could be completed without sales or use tax implications. However, in our experience, contractors seldom meet the technical nit-picky requirements set for by the Florida Department of Revenue to qualify for a public works exemption. Even worse, the contractors often believe they have met the rule and do not discover their lack of documentation until slapped with a hefty Florida tax assessment, plus penalties and interest as a result of a Florida sales and use tax audit. If a company does several of these big, public works projects in the 3 years before an audit, then the resulting tax assessment could easily wipe out the financial viability of most contractors. If your company or your client's company is in or considering to be in this industry, then it is strongly advisable to get a review of your transactions from an experienced Florida sales and use tax attorney to minimize the chance of disaster down the road. There are also some other creative planning opportunities that may be taken to avoid the extremely burdensome record keeping requirements of the public works exemption. If you have any questions about these topics, then our firm offers free initial consultations.

AUTHORITY

§ 212.08(6), F.S.

Rule 12A-1.038, F.A.C.

Rule 12A-1.094, F.A.C.

TAA 12A-024

TAA 12A-002

TIP 13A01-01 - Owner-Direct Purchase Programs (March 11, 2013)

ADDITIONAL RESOURCES

FLORIDA CONSTRUCTION ON TAX EXEMPT PROJECTS - MINIMIZING/ELIMINATING SALES AND USE TAXES, by James Sutton, CPA, Esq., Dec. 4, 2011.

FL LITIGATION ALERT - MST CONSTRUCTION - THE DOR TOLD ME TO DO IT THIS WAY, by Jerry Donnini, Esq., January, 17, 2013.

FL TAX WARRANT ISSUED AGAINST THE FL SUPREME COURT, by James Sutton, CPA, Esq., Feb. 10, 2012

¹"Draconian" relates to Draco, a 7th-century B.C. Athenian statesman and lawmaker who implemented laws that prescribed extremely harsh punishment for almost every offense, quite often the death for even minor offenses.

FL TAX ALERT - 200% PENALTY STINGS BUSINESS OWNER

James Sutton, CPA, Esq. & Jerry Donnini, Esq. — Sun, 24 Mar 2013 23:50:00 GMT

As the case below will illustrate, making an agreement with the Florida Department of Revenue is about as dangerous as trying to hold an angry scorpion in the palm of your hand, which reminds me of a very old story.

A scorpion desperately needed to cross a river. The problem was, scorpions cannot swim. Just then a frog came hopping up and was about to jump into the river. The scorpion said "wait please, I need to cross the river, but I cannot swim. Can you help me?" The frog looked skeptically at the scorpion and said, "If I help you, then you will just sting me." The scorpion argues that if he stung the frog, then the frog and the scorpion would both drown. The frog could not find a hole in the scorpion's logic, so the frog reluctantly agreed to take the scorpion across the river. Halfway across the river, the frog felt a sharp pain in the back of his head. As the frog was about to drown, he croaked a final word ... "why?" The scorpion responded simply that it was in his nature and drowned as well.

The story dating back to the 3rd century B.C. has been used for over 2,000 years to illustrate that the behavior of some creatures, or some people, is irrepressible no matter how they are treated and no matter what the consequences. When dealing with the Florida Department of Revenue, remember that no matter how much a taxpayer tries to do the right thing, it is in the Florida Department of Revenue's nature to sting taxpayers. A recent case before the Division of Administrative Hearings ("DOAH") is a perfect example of just such unavoidable tendencies of the Florida Department of Revenue ("DOR").

In a court opinion finalized on March 7, 2013, the honorable Cathy M. Sellers, Administrative Law Judge for the Division of Administrative Hearings, held that a 200% penalty imposed on a taxpayer for violating a stipulated payment plan was valid. The egregious nature of the case revolves around the fact that the taxpayer paid all but $1,388 of the tax before the penalty was assessed. Then the penalty of over $18,000 was upheld through strong arming the president of the company into signing away his personal rights then legal trickery to torture a business owner that was doing everything she could to pay back the funds owed - while paying 12% interest in the process. Below is a discussion of the facts of the case, to add more context to this appalling true story.

Astrid Sarmentero was the president of Bella Donna Couture, Inc., a clothing store Miami-Dade County, Florida. At some point, the company got behind in remitting sales taxes due to several factors including the down economy and an employee inadvertently using sales tax trust funds to pay for company inventory. The local office of the DOR issued a tax warrant against the business in January 2007 claiming that $11,471 of tax and $3,702 in fees, penalties, and interest were due, totaling $15,174. During March 2007, an employee of the local DOR office called the company threatening to close the business within 48 hours if the taxes were not paid. The taxpayer approached the Department of Revenue to request a payment plan for the taxes due. The parties agreed that the FL DOR's tax amounts due in the warrant were erroneous and the amounts for the agreement were corrected to be $9,078 of tax and $4,448 of fees, penalties and interest.

As a condition for allowing the taxpayer to pay over time and not close the business down, the company had to sacrifice its rights to challenge any amounts due and the president of the company had to agree to be personally subject to a 200% penalty if the agreement was violated. You read that right. Even though section 213.21, Florida statutes ("F.S."), gives taxpayers the right to procedures for retirement of tax obligations by installment payment agreements which recognize the taxpayer's financial condition, the president of the company was still required to agree to completely unreasonable 200% penalty on her personally in order to receive a payment plan. To make the situation even more egregious, the company told the DOR during the stipulation agreement negotiations that the fixed monthly payments would be very hard to make due to the seasonal nature of the business. Finally, the FL DOR employees apparently agreed to apply the payments first to tax and then to penalties/interest, then ignored the agreement.

After paying $2,000 down and $1,350 in monthly payments, the taxpayer subsequently missed a payment because of the already mentioned seasonal nature of the business. The DOR then froze the taxpayer's bank account twice, taking $4,000 the first time and $434 the second time. At this point, the taxpayer paid what it was led to believe was $7,784 towards the tax obligations, leaving $1,388 in tax plus penalties, interest, and fees. Ignoring the agreements made by the DOR employees to apply the payments first to tax, the $7,784 previously paid was conveniently allocated in the DOR's favor towards recording costs, collection fees, interest, penalty, as well as a new warrant based on over estimated amounts. Therefore, the taxpayer still owed the full $9,172 in tax, which was burdened by a "reasonable" 12% interest rate instead of only $1,388 plus interest and fees.

If this is not enough to turn your stomach, then imagine you are the owner of this business and you receive a letter at your home with the title:

FLORIDA DEPARTMENT OF REVENUE

NOTICE OF ASSESSMENT

OFFICER/DIRECTOR PERSONAL LIABILITY

So, by failing to meet all the terms the payment plan, the president of the company subjected herself to a penalty equal to 200% of the alleged tax due, $18,345. Can this be fair? Instead of owing approximately $13,000 in tax penalties and interest, the taxpayer, by entering into an agreement the taxpayer now owes $9,000 in tax and $18,000 in penalties after paying more than $7,000 in other costs. It seems egregious by the Florida Department of Revenue, to say the least.

It is worthy to take a minute to understand that the FL DOR did not merely pull a 200% penalty out of thin air to use against this taxpayer. There is statutory authority to impose such a penalty even if the taxpayer did not agree in the stipulated time payment agreement. Section 213.29, F.S., provides as follows:

Failure to collect and pay over tax or attempt to evade or defeat tax.—Any person who is required to collect, truthfully account for, and pay over any tax enumerated in chapter 201, chapter 206, or chapter 212 and who willfully fails to collect such tax or truthfully account for and pay over such tax or willfully attempts in any manner to evade or defeat such tax or the payment thereof; or any officer or director of a corporation who has administrative control over the collection and payment of such tax and who willfully directs any employee of the corporation to fail to collect or pay over, evade, defeat, or truthfully account for such tax shall, in addition to other penalties provided by law, be liable to a penalty equal to twice the total amount of the tax evaded or not accounted for or paid over. The filing of a protest based upon doubt as to liability or collection of a tax shall not be determined to be an attempt to evade tax under this section. The penalty imposed hereunder shall be in addition to any other penalty imposed or that should have been imposed under the revenue laws of this state, but shall be abated to the extent that the tax is paid. Any penalty may be compromised by the executive director of the Department of Revenue as set forth in s. 213.21. An assessment of penalty made pursuant to this section shall be deemed prima facie correct in any judicial or quasi-judicial proceeding brought to collect this penalty.

So the penalty imposed by section 213.29, F.S., is like a giant hammer that they can slam down on the taxpayer to get owners, director, and any other responsible party to cough up the money so the business can pay back the tax liability. Pursuant the statute, every dollar of tax remitted reduces the penalty two dollars. Therefore, if the company pays the tax, then the penalty on the owner is becomes non-enforceable. However, if the DOR extorts money for the penalty out of the business owner before the company pays the tax liability, then there is very serious questionable authority whether the business owner can ever get the penalty back even after the company pays the tax. So you can see why the order of how the payments are allocated can make a big difference in the amount of penalty imposed under this statute.

After having no success with the Department in an administrative protest, the Taxpayer exercised its right to challenge the assessment in the administrative court, known as the Division of Administrative Hearings, under Chapter 120, F.S. Represented by the company's outside CPA firm, they took the issue to court presumably in an attempt to get a more rational audience and a much more fair result.

The DOAH court set forth its conclusions of law and fact (copies of the original company and finding opinion can be downloaded at the end of this article). It then cited to rule 12-17.008, Florida Administrative Code ("F.A.C."), which sets forth how payments in a stipulated time payment agreement ("STPA") are to be applied. According to the Department, the STPA must adhere to rule 12-17.008, F.A.C. and allocate payments to reduce the amount of interest, penalties, fees, then tax as provided in section 213.75, F.S. It is true that the statute provides that the payments are allocated in the order described above, which makes allocation to tax last in time. However, unfortunately the taxpayer did not point out that Section 213.75(1), F.S., provides:

Except . . . as otherwise specified by the taxpayer at the time he or she makes a payment, if payment is made to the department with respect to any of the revenue laws of this state, such payment shall be applied in priority order as follows...[interest, penalty, fees, then tax]

Furthermore, rule 12-17.008(1)(e), FAC, provides that the STPA agreement shall provide:

How the Department will allocate each payment to reduce the outstanding debt of tax, penalty, or interest as provided by Section 213.75, F.S.

So, unlike what was argued by the attorney general's office on behalf of the FL DOR, neither the statute nor administrative rule require all payments under a stipulated agreement be applied to interest, penalties, and fees before being applied to the tax. The statute and rule merely provide that this will be the order of the payments IF the parties do not agree otherwise. In this case, the taxpayer is claiming that the parties agreed otherwise at the time the STPA was negotiated, but the fact that this alters the allocation of the payments was apparently not argued to the court. Without having the a viable argument presented in favor of the taxpayer, the DOAH court was forced to uphold the 200% penalty of over $18,000 as imposed personally on the president of the company.

What is almost unforgivable to me is that the state would "go for the jugular" of the president of the company personally instead of pointing out that the payment could have been applied to the tax first, as agreed. Given that the state was already making 12% on the money, does the state really need to make another 200%? Perhaps the local DOR office was just fed up with the taxpayer missing payments and decided to teach it a lesson? Either way, the temperament of a local office or official should not determine whether an agreed upon payment allocation method is ignored.

What is by far the most outrageous part in this case is that the statute imposing the 200% penalty, as discussed above, is merely the legislature's means to get the responsible parties back to the table so the company can pay the tax liabilities of the company. Under section 213.29, F.S., when the company pays back the tax, the penalty is reduced $2 for every $1 of tax paid. The Florida Department of Revenue, showing its true scorpion like nature, is trying to apply all payments to the penalties first before the tax can be paid, effectively thwarting the legislative intent of section 213.29, F.S., to merely force the owners to pay the company's liabilities. Let's hope the taxpayer appeals this case before the precedence of this trial court opinion begins to affect other taxpayers. The taxpayer only has 30 days from when the DOAH opinion becomes final. The clock is ticking.

It is noteworthy to point out that if you or your client is presented with a STPA and the company has no choice but to make payments over time, then you really, really need to be sure what you are getting yourself into. No matter how cooperative the individual agent you are dealing with might be, you are still dealing with the totality of the Florida Department of Revenue, whose nature is to "sting" taxpayers. It is advisable to seek the help of a state and local tax professional to review your overall situation to help keep your company and its owners from getting into more trouble down the road.

About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini's primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone listed on this page.

AUTHORITY

§ 213.75, F.S. (Stipulated time payment agreement)

§ 213.29, F.S. (200% Penalty on owners)

Rule 12-17.008, FAC, (Stipulated time payment agreement)

ADDITIONAL RESOURCES

Astrid Sarmentero, President of Bella Donna Couture, Inc. vs. Florida Deparment of Revenue, FL DOAH Case # 11-4681, March 7, 2013 (Original complaint filed by taxpayer)

Astrid Sarmentero, President of Bella Donna Couture, Inc. vs. Florida Departmetn of Revenue, FL DOAH Case # 11-4981, March 7, 2013 (Final Decision of the Court, as adopted by the DOR)

GAS STATION OWNERS AND DISTRIBUTORS: TIME TO GO GET YOUR REFUNDS

Jerry Donnini, Esq. — Sat, 23 Mar 2013 12:36:00 GMT

In my daily endeavor of readings state and local tax cases across the country and in Florida, I recently came across companion Florida cases in which I wrote about in the summer of 2012. The cases dealt with an innovative sales tax concept unique to the gasoline and petroleum industry. As many of you know, I have had the pleasure of growing up and assisting in my family's petroleum business that has owned, operated, and distributed petroleum and gasoline in South Florida for over 30 years. Therefore, cases like Gate Fuel Services & Gate Petroleum, catch my attention and cause me to really cheer for innovative and aggressive taxpayers.

I brought up the Gate cases to several of the group members at the 2012 Florida Petroleum Marketers Association ("FPMA") and many met my suggestion with criticism or disbelief. It is still difficult for me to understand how many of the FPMA members would rather discuss the latest developments with their beer vendors over a tall cold one, rather than sit and listen to me rant about Florida sales tax. For all of the naysayers out there, I have recently received word from the State of Florida, that this case was recently settled.

Many of you may recall, the cases, Gate Petroleum Co. v. DOR, Case No. 12-CA-381 (2d Cir. Ct. 2012), and Gate Fuel Serv. Inc. v. DOR, 12-CA-379 (2d Cir. Ct. 2012),were filed in Leon County, home of the Florida Department of Revenue in 2012. The Gate cases centered around a refund denial for sales and use tax in the amounts of $160,935 and $ $45,071, respectively. In both cases, the Florida Department of Revenue ("DOR") admittedly opposed the refund claims based essentially the same innovative theory of recovery.

For those of you who do not recall, the gas station taxpayers in the cases alleged that they made certain equipment purchases that were exempt from Florida sales and use tax. Specifically, the Taxpayers argued that fuel storage equipment which holds regular and premium-grade fuel in underground tanks, mixes the two at the dispenser, and creates a mid-grade gasoline for sale at its retail locations. Being that this is the pump system at most modern gas stations, how come every gas station that has purchased taxable equipment in the last three years is not going for the refund?

Under Florida law, section 212.051, Florida Statutes ("F.S.") provides for an exemption for equipment 1) used primarily for the control or abatement of pollution or contaminants and 2) in the manufacturing, processing, compounding, or producing for sale items of tangible personal property.

In order to satisfy the requirements in Florida, the gas station operators argued the first prong of the statute was satisfied because the gas stations are subject to regulation by the Florida Department of Environmental Protection's ("DEP") "Storage Tank Program." Therefore, the taxpayers' allege that the tanks are used primarily for the control of pollution/contaminants—the gasoline. Further, the equipment is used for manufacturing, processing, or producing tangible personal property (the fuel) because the equipment is producing a new and distinct fuel grade for sale at the gas station. Therefore, both prongs of the statute are met.

Despite the Department's argument that the primary purpose of the storage tanks and pumps is for the storage and delivery of gasoline, not for the control of pollution, the case was settled. It remains a mystery as to the amount of the settlement and whether Gate believes this case to be a victory. However, a settlement seems to suggest that the taxpayer was given at least something in order to drop the case.

From the state and local tax professional's perspective, it seems obvious that more refund claims should be filed. Most states have a three year statute of limitations for sales and use tax. Therefore, if you or your client has purchased new tanks or fuel dispensers that arguably "manufactures" fuel, there is no downside to filing a refund claim. Unlike a tax assessment, interest does not run and the tax at issue does not have to paid in order to file suit if and when the refund claim is denied. From a professional fees perspective, there are many tax professionals that will handle a case on a contingency basis, which eliminates any cost hurdle for the taxpayer. In tough economic times, like we are in, I urge everyone to be innovative and get back sales taxes paid if the state is not entitled to it!

FL CAR DEALER: WHEN IS A SALE TAX EXEMPT?

James Sutton, CPA, Esq. — Sun, 17 Mar 2013 18:12:00 GMT

The purpose of this article is to go over some of the requirements a Florida car dealer faces when attempting to comply with the sales and use tax collection and remitting responsibilities for the Florida Department of Revenue. Failure to comply with the rules can be devastating to a car dealer and the common "but I remitted every penny I collected" defense does not protect you from liability. While the Florida Department of Revenue may refer to a car dealership as a "business partner," the Florida Department of Revenue expects the car dealer to be responsible for every mistake and missing document and the resulting sales and use taxes. In case you have not heard, the Florida Department of Revenue has a task force out against the used car dealer industry statewide based on a comparison of DMV reports to sales tax returns (see link to a more in depth article on this topic at the end of this article).

If you have been in the car dealer business a long time, then you might remember that the Florida Department of Revenue used to offer local training classes to new businesses or new employees in old businesses, to make sure that they really knew how to comply with the sales and use tax laws. Unfortunately, these local training programs were cut when the state began running into budget problems in 2008. For your convenience, some of the forms you will need to run a car dealership are downloadable at the end of this article.

The best place start when dealing with Florida Sales and Use Taxes is to learn this basic rule: Every sale of tangible personal property in the state of Florida is subject to sales tax unless there is a specific exemption AND the administrative rules for that exemption must be followed to exempt (or partially exempt) the transaction from tax. The second thing you need to know is that you, as the dealer, are responsible for interpreting the law for each transaction to see if an exemption applies as well as collecting (and retaining) all the proper documentation.llowed to exempt (or partially exempt) the transaction from tax. tion AN If the dealer misinterprets the law or does not have the right documentation, executed properly and within the correct time frames in relation to the transaction - then the dealer becomes liable for the tax. Of course, the customer always wants to avoid paying the sales tax, but it is the dealer that has been given the responsibility of collecting the tax. No, this does not seem fair in the least, but this is the law that car dealers are forced to deal with. The Department of Revenue does not care in the least that you have collected hundreds of thousands if not millions of tax dollars for the state. If you make a mistake, then your company is liable for the tax. So complain as you might, if you want to stay in the business of car dealer (and avoid potential jail time for sales tax fraud), then you had better learn the ends and out of Florida sales and use tax. At this point, it is probably easiest to break things down into tax exempt, partially tax exempt, and fully taxable transactions.

TAX EXEMPT CAR SALES

Every customer wants to know how to exempt the transaction from sales tax completely. Your salesmen probably want to know the same thing so they can get a competitive advantage over the dealer down the street. But, as you learned above, the business owner/dealer is responsible for collecting and remitting any taxes that are due the state of Florida, so the "fully exempt" scenario is the most dangerous to the business owner. For this reason, a dealer should have a very rigid approval process for any transaction purporting to be tax exempt. Tax exempt transactions can be broken down into 3 categories:

Sales for resale (to other car dealers)
- in state dealer: Form DR-13 Resale Exemption Certificate
- out of state dealer: follow procedures in Rule 12A-1.007(6)(b), FL Admin. Code.
Sales to an exempt organization (tax exempt entity, e.g. County School Board)
- Form DR-14 - Consumer's Exemption Certificate
- US Government: proof of sale to US Government (Rule 12A-1.038(4)(b), FL Admin Code)
Sales shipped out of state/country (not picked up by the customer locally)
- Must have shipping documents proving vehicle left the state before the owner took possession and control. This applies to internet sales as well.
- Preferable to have the customer sign a statement that the customer accepted delivery of the vehicle out of state (give the date and location0, with a witness and notary.
Sale to someone from a state with no sales tax
- Fully executed Form DR-123 must be signed at the time of the sale.

BEWARE - just because you think a transaction falls into one of these categories, it does not magically become exempt. The car dealer is responsible for not only proving that the transaction fits into one of these tax exempt categories, but also must have all the forms required by the FL DOR. We briefly mention the documentation required under each category above.

PARTIALLY EXEMPT CAR SALES

Sales to someone from a state with sales tax less than Florida
- Fully executed Form DR-123 must be signed at time of sale
- Collect the buyers home state rate up to Florida 6%
- No local surtax charged
Sale over $5,000.00
- The local surtax only applies to the 1st $5,000. Thereafter, only 6%state tax rate applies.
Trade-in at time of sale only
- value of trade does reduces the sales price of the new car for sales tax purposes

FULLY TAXABLE CAR SALES

Any car sale that does not meet any of the exceptions above (including paperwork).

Even if the taxpayer tells you that they will take the car out of the state the same day (s)he buys it, the tax is due on the full price if the buyer take position of the car in Florida (presuming no other exemptions apply). Protect yourself and your company, make sure you do everything you can to educate yourself and train your employees about the rules and dangers of sales tax collection responsibilities.

REVEW YOUR RECORDS FOR MISTAKES

Whether you are under a Florida sales and use tax audit or not, it is a good idea to periodically have someone review your deal jackets for sales and use tax compliance. If you don't have time to go through your records for the last three years, then pick one month from each year for review. Note what documents are missing and how you can correct your procedures to make sure this doesn't happen in the future. We also recommend that you contact the DMV for a report of all the cars registered in Florida that someone indicated you sold them the car. If this seems like over kill, then you should know that each and every Florida sales and use tax auditor are trained to pull your DMV records. If you have missing transactions, then don't you want to know it now and possibly correct whatever is causing these transactions to slip through the cracks?

If you find problems with your records and possibly under reported sales, then there is a way to come clean that turns the table very much in your favor. We can help you go through a process called a Voluntary Disclosure in which you notify the Florida Department of Revenue that you have some accounting errors. We tell the DOR what was wrong and how much sales tax we need to pay. The Voluntary Disclosure has several advantages over going through an audit.

First, most, if not all penalties are waived when you go through a Voluntary Disclosure.
Second, there is a statutory presumption of no criminal intent when you come through a Voluntary Disclosure. Yes, there are people that get arrested for as low as $4,000 of collected but not remitted sales tax in Florida and many of them seem to be used car dealers. Going through the Voluntary Disclosure and paying any collected but unremitted tax all be guarantees that the matter will not turn criminal.
Third, the state rarely will conduct a full audit of your records in a Voluntary Disclosure. They usually accept the amounts that you disclosure unless they have alternative information that disputes your disclosed amounts. This means the cost of going through a Voluntary Disclosure can be much cheaper than a full audit.
Forth, there is an unwritten rule that a company that just went through a Voluntary Disclosure usually does not get selected for a full audit for a couple of years after the Voluntary Disclosure. If a company just came clean, then it would likely be a waste of the state's resources to audit your company. This is not a guaranteed, but it is the likely result.

The Law Offices of Moffa, Gainor, & Sutton, PA is a firm with a dedicated focus on tax controversy work against the Florida Department of Revenue. Since 1991, our firm has been assisting company in virtually all industries, including car dealers from all parts of Florida, to get a just and fair result when dealing with the Florida Department of Revenue. Whether your company has already received an audit notice or and you need to your policies and procedures to minimize the tax impact on your company, please contact our attorneys today by phone or email (see top of this page) for a free initial consultation.

STATE FORMS & INSTRUCTIONS FOR CAR DEALERS

FORM DR-123
FORM DR-13 (Informational packet with instructions)
FL DOR Instructional Information for Car Dealers

ADDITIONAL RESOURCES

FL TAX ALERT - USED CAR DEALERS TARGETTED!!!!, by James Sutton, CPA, Esq., January 19, 2013
TAMPA CAR DEALER FACES 15+ YEARS FOR SALES TAX THEFT, by James Sutton, CPA, Esq., January 7, 2013
BROWARD COUNTY CAR DEALER FACES 15+ YEARS FOR SALES TAX THEFT, by James Sutton, CPA, Esq., December, 17, 2012
FL TAX - VOLUNTARY DISCLOSURE CAN BE THE PERFECT SOLUTION, by Jerry Donnini, Esq., October 5, 2012.
CRIPPLING PENALTIES UNDER FLORIDA SALES AND USE TAX LAW, by James Sutton, CPA, Esq., July 19, 2012

FL TAX ALERT - POMPANO BEACH USED CAR DEALER ARRESTED

James Sutton, CPA, Esq. — Sat, 16 Mar 2013 13:20:00 GMT

POMPANO BEACH USED CAR DEALER ARRESTED IN SALES TAX THEFT CASE

On February 1, 2013, [name omitted], owner of A 2 Zach's Auto Sales, Inc. was arrested by the Plantation Police Department on felony and misdemeanor charges concerning theft of over $8,000 of sales tax, failure to file six consecutive returns, and refusal to file returns, and pay taxes due. The Ocala resident faces up to 5 years in prison and up to $5,000 in fines in addition to repayment of stolen taxes, interest, penalties, and investigation expenses. According to investigators, [name omitted] collected sales tax from customers at the dealership but during periods of 2007 through 2011, he failed to file sales tax returns as mandated by Florida law and he failed to remit the sales taxes to the state.

ADDITIONAL RESOURCES

FL TAX ALERT - USED CAR DEALERS TARGETED!!!, January 19, 2013, by James Sutton, CPA, Esq.

FL TAX ALERT – CONVENIENCE STORE OWNERS TARGETED!, August 16, 2012, by James Sutton, CPA, Esq., and Jerry Donnini, Esq.

TAMPA JEWELRY STORE MANAGER ARRESTED FOR SALES TAX THEFT, August 30, 2012, by James Sutton, CPA, Esq.

MIAMI AUTO REPAIR SHOP OWNER ARRESTED FOR SALES TAX, August 25, 2012, by Jerry Donnini, Esq.

FT. MYERS BUINESS OWNER ARRESTED FOR FAILING TO REMIT ONLY $8,000 IN SALES TAX COLLECTED, August 11, 2012, by James Sutton, CPA, Esq.

FL DOR'S GREATEST WEAPON – REVOCATION OF DEALER'S SALES TAX CERTIFICATE, August 6, 2012, by Jerry Donnini, Esq.

CRIPPLING PENALTIES UNDER FLORIDA SALES AND USE TAX LAW, July 19, 2012, by James Sutton, CPA, Esq.

WHAT SERVICES ARE SUBJECT TO SALES TAX IN FLORIDA, May 1, 2012, by James Sutton, CPA, Esq.

FL Tax Alert - R&D Corp Inc Tax Credit Deadling - March 20, 2013

James Sutton, CPA, Esq. — Wed, 13 Mar 2013 20:15:00 GMT

TIP # 13C01-01
DATE ISSUED: March 7, 2013

Research and Development Tax Credit
For Florida Corporate Income Tax

A research and development tax credit against Florida corporate income tax is provided in section 220.196, Florida Statutes (F.S.), to a target industry business that claims and is allowed a research credit against federal corporate income tax for qualified research expenses as provided in section 41 of the Internal Revenue Code (26 U.S.C.). The combined total amount of tax credits which may be granted to all business enterprises during any calendar year is $9 million.

Tax credit applications approved for the 2012 calendar year (application date beginning on March 20, 2013, 8:00 a.m., ET), will be based on qualified research expenses incurred during calendar year 2012 for tax years that begin in 2012.

The target business enterprise must be a corporation, as defined in s. 220.03, F.S., and a target industry business, as defined in s. 288.106, F.S. A target industry business is a corporate headquarters business or any business that is engaged in one of the target industries identified by the Department of Economic Opportunity in consultation with Enterprise Florida. A list of target industry businesses is provided by Enterprise Florida, Inc., athttp://www.eflorida.com/IntelligenceCenter/download/PSR/SI_Targeted_Industries.pdf. For more information on target industry businesses, contact Enterprise Florida, Inc., at 407-956-5600.

To receive an annual allocation of the annual funds available for this tax credit, a business must apply online for an Allocation for Research and Development Tax Credit for Corporate Income Tax on or after March 20 of each year. The application will be available on the Department of Revenue's Internet site at www.myflorida.com/dor/ through the Tax Incentives page. When the completed application is submitted online, the Department will provide a confirmation number.

Taxpayers applying for the research and development tax credit will be required to supply the following information:

Tax year
Federal Employer Identification Number (FEIN)
Corporation name and date of incorporation
Mailing address
Contact person's name, telephone number, and email address
Parent corporation's name and FEIN (if filing a consolidated Florida income tax return)
Indication of corporation's target industry and list of corporation's activities, products, and services in Florida
Indication of corporation's intent to claim a federal research credit and amount of corporation's total (including Florida and non-Florida) research expenses qualifying for the federal research credit under section 41, Internal Revenue Code (IRC), incurred during calendar year 2012
Research expenses incurred in Florida during the base years that qualified for the federal research credit under section 41, IRC
Qualified research expenses incurred in Florida during the 2012 calendar year

Credits will be allocated by the Department in the order in which completed applications are received. Beginning April 1 of each year, the Department will notify eligible taxpayers by letter of the amount of credit that is allocated to them and the tax year in which the target industry business may claim the credit on its Florida corporate income tax return.

A federal research credit must be taken on the federal return filed by the target industry business for the same tax year in which the Florida research and development credit is taken. The amount taken as a Florida research and development credit must be added to taxable income prior to computing the Florida corporate income tax due.

The tentative allowable amount of credit is equal to ten percent (10%) of the amount of qualified research expenses incurred in Florida and allowed under section 41, IRC, that exceeds the base amount, defined as the average of the qualified research expenses incurred in Florida for the four tax years preceding the tax year for which the credit is determined.

Example: A calendar year taxpayer applies for the Florida research and development credit for its tax year beginning January 1, 2012. Its Florida qualified research expenses for calendar year 2012 equal $275,000. The taxpayer's Florida qualified research expenses for its base amount are as follows:

Tax year 2008: $100,000
Tax year 2009: $150,000
Tax year 2010: $200,000
Tax year 2011: $250,000

The base amount average equals $175,000 ([$100,000 + $150,000 + $200,000 + $250,000] ÷ 4). The excess Florida qualified research expenses over the base amount equal $100,000 ($275,000 - $175,000). The tentative allowable amount of credit is $10,000 ($100,000 x .10).

For more information, see Emergency Rule 12CER13-02, available in the Revenue Law Library at https://revenuelaw.state.fl.us/LawLibraryDocuments/2013/03/TM-116824_TM13-09%20CIT%20ER.pdf.

Reference: Section 17, Chapter 2011-76, Laws of Florida; Section 220.196, Florida Statutes (2012); Rule 12CER13-02, Florida Administrative Code

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Research and Development Tax CreditFor Florida Corporate Income Tax

Research and Development Tax Credit
For Florida Corporate Income Tax