SHOULD YOUR BUSINESS BE COLLECTING OR PAYING SALES AND USE TAXES ON SERVICES?
We get a lot of inquiries from new companies or companies migrating into Florida about WHAT SERVICES ARE SUBJECT TO FLORIDA SALES AND USE TAX? If this is your question, then you've come to the right place. In a nutshell, below is a list of services that are specifically subject to Florida's sales tax use tax. However, even if your company (or your client's company) does not fall into one of these categories, I suggest reading the whole article as the Florida Department of Revenue never makes things simple.
- Nonresidential Cleaning Services
- Commercial Pest Control Services
- Commercial/Residential Burglary and Security Services
- Detective Services
If your company (or your client's company) provides one of the above-listed taxable services, then the company MUST file a Form DR-1 to register with the Florida Department of Revenue to collect and remit sales tax. Invoices (or receipts if no invoices) for specifically taxable services are required to have 'FLORIDA SALES TAX' as a separate line item on each customer invoice / receipt. The state of Florida imposes a tax rate of 6% plus any local discretionary sales tax rate (up to an additional 1.5%). The company must collect and remit the tax on the schedule provided by the Florida Department of Revenue for your particular company (usually monthly).
Failure to register, collect, and remit sales taxes could make your company (or your client's company) liable for every penny of sales tax that should have been collected from customers. This amount can add up to a devastating sum because the Department of Revenue can look at your company's operations as far back in time as the statute of limitations is open. Generally, the statute of limitations is 3 years from the date the return is due or filed, whichever is later. However, if you company has not been filing sales tax returns, then the statute of limitations could be wide open. (Voluntary Disclosure procedures may lessen the look back period as well as penalties.) In other words, the company should get registered and start collecting / remitting sales tax if you are selling any of these taxable services.
If your company is buying these types of services in Florida and not paying Florida sales tax, then the FL DOR will assess the tax, penalties, and interest on your company for not self-accruing use tax on the taxable services.
Just because your company does not provide one of the services above, it does not mean that your company can take a sigh of relief just yet. In addition to sales tax collection obligations on companies that sell or rent tangible personal property, repair services on tangible personal property ("TPP") can become a service subject to sales tax if any TPP is provided to the customer. The classic example is the "one drop of oil" rule. DOR auditors have been known to inquire of car repair service providers if the purely repair invoices (which generally are not subject to sales tax) included any type of TPP. When the answer is no, the follow up question is usually "not even a drop of oil?" This is because the FL DOR takes the position that even a single drop of oil placed on the customer's vehicle can make the entire repair service subject to sales tax. Contemplate whether your company's "non-taxable service" provides even the slightest amount of tangible personal property to the client (e.g. a flash drive). Furthermore, use tax is due on any TPP used when performing the service. Both sales tax and use tax can be very serious matters and incorrectly interpreting the tax laws, even unintentionally, can mean sales and use tax obligations for many years of transactions. Is this something your business could survive financially?
Does your company provide management services? Generally speaking, management services are NOT subject to Florida sales and use tax. However, management services for use of commercial or residential property fall into a unique category of Florida law. This is because commercial and residential property rentals are subject to Florida sales tax. A real estate management company is not initially liable for the tax, but is obligated to collect for the land owner client. If the management company does not collect the tax from the renter on behalf of the client, then the management company can be held liable for the tax not collected. Because of this, real estate management companies are also required to register with the Florida Department of Revenue.
Business must always be mindful of services that may not fall under the Florida sales and use tax realm, but are subject to Florida's Communication Services Tax, such as:
- Telephone Services
- Paging Services
- Faxing/Facsimile Services
- Video Conferencing Services
- Cable Services
- Direct-to-home Satellite Services
Tax rates for Florida Communication Services Tax can be significantly higher than the Florida sales and use tax rate (e.g. 9.17% state rate and up to 8.9% local rate for telecommunication services). As such, if your company provides and type of service in which communications or information is transferred electronically, then your company should strongly consider whether the FL Communication Service Tax applies.
Whether your company provides or even buys one of the designated taxable services or one of the other indirectly taxable services, you want to make sure you are aware of your obligations from a tax perspective. Proper planning could stave off devastating results when (not if) your company is audited by our good friends at the Florida Department of Revenue. If your business would like to consult with a Florida CPA / Attorney to determine how to comply with Florida's complicated sales and use tax laws or how to cost effectively start complying if your company has been incorrectly paying or charging sales tax, then we offer a FREE INITIAL CONSULTATIONto discuss you Florida tax concerns. Contact our law offices today by phone or email via either of the links on the top of this web page. Is an auditor already knocking and you need an expert to defend you? You should have the right experts on your side. Contact The Law Offices of Moffa, Gainor, & Sutton, PA for a free initial consultation on your Florida tax audit concerns.
ABOUT THE AUTHOR: MR. SUTTON IS A FLORIDA LICENSED CPA AND ATTORNEY AND A SHAREHOLDER IN THE LAW FIRM MOFFA, GAINOR, & SUTTON, PA. MR. SUTTON IS IN CHARGE OF THE TAMPA OFFICE FOR THE FIRM AND HIS PRIMARY PRACTICE IS FLORIDA TAX CONTROVERSY. MR. SUTTON WORKED FOR THE STATE AND LOCAL TAX DEPARTMENT OF A BIG FIVE ACCOUNTING FIRM FOR A NUMBER OF YEARS AND HAS BEEN AN ADJUNCT PROFESSOR OF LAW AT STETSON UNIVERSITY COLLEGE OF LAW SINCE 2002 TEACHING STATE AND LOCAL TAX, ACCOUNTING FOR LAWYERS, AND FEDERAL INCOME TAX I. YOU CAN READ MORE ABOUT MR. SUTTON IN HIS FIRM BIO.
Chapter 202, Florida Statutes (Communication Services Tax)
Rule 12A-1.006, Florida Administrative Code ("F.A.C.") (Install, Maintain, Repair Tangible Personal Property.
Rule 12A-1.009, F.A.C. (Pest Control Services)
Rule 12A-1.0091, F.A.C. (Cleaning Services)
Rule 12A-1.0092, F.A.C. (Detective, Burglar Protection, and Other Protection Services)
Rule 12A-1.051, F.A.C. (Contractors Who Repair, Alter, Improve, and Construct Real Property)
PHOTOGRAPHY IN FLORIDA - BEWARE THE SALES TAX, published June 3, 2014, by James Sutton, CPA, Esq.
FL COUNTER-TOP COMPANIES: FLORIDA SALES TAX PROBLEMS, October 13, 2013, by James Sutton, CPA, Esq. and Gerald Donnini, Esq.
FL CABINET COMPANIES WITH SALES TAX PROBLEMS, October 5, 2013, by by James Sutton, CPA, Esq. and Gerald Donnini, Esq.
TALLAHASSEE SECURITY AGNECY OWNER JAILED FOR SALES TAX, October 15, 2013, by James Sutton, CPA, Esq.
TAA 10A-027 (Cleaning Services – Separately Stated Insurance IS subject to Sales Tax)
TAA 10A-035 (Warranty Contract is NOT a non-taxable professional service)
TAA 11A-007 (Residential Pool Cleaning Service is NOT subject to Sales Tax, but IS subject to Use Tax)
© 2012 All rights reserved - James H Sutton Jr