The short answer is YES, you can go to jail for not remitting Florida sales tax that your business collected. Actually, Florida laws on sales tax fraud are some of the toughest in the country, punishable by up to 30 years in jail and $10,000 in fines. It only takes $301 of unremitted sales tax to become a felony. If you have unremitted sales tax and you have not been losing sleep over this issue already, then you have not been taking it seriously enough. Sales tax fraud is not even dischargeable in bankruptcy. This is something that will not simply go away and will likely get much worse if you don’t deal with it head on. However, there are things that you can do to help minimize the chances that this issue results in actual jail time. The purpose of this article is to discuss ways to help you avoid going to jail for failure to remit Florida sales tax.
1) FILE AND PAY YOUR CURRENT SALES TAX RETURNS TIMELY: If your business is still operating, then don’t get behind on your current taxes. The state will be much more willing to work with you if you can show your business is viable and able to remit current sales taxes collected by your business. Failure to file and pay current taxes is evidence that you are committing new crimes, which will force the state to take legal action faster. You want time on your side, not against you.
2) FILE EVERY SINGLE SALES TAX RETURN: It is a felony (with jail time) to not file sales tax returns. So even if you cannot pay, file the past due sales tax returns. Furthermore, if you do not file a return, the state will estimate what you owe and the FL DOR will always estimate high. So if you historically remitted $2,000 of sales tax a month, the state will estimate you owe $4,000 each month then tag on penalties and interest based on the estimated, higher amount. It is in your best interest to file the returns even if you cannot pay.
3) COLLECTIONS OR CRIMINAL INVESTIGATOR: Whenever you are dealing with the Florida Department of Revenue, be very, very conscious of which division you are dealing. The best way to determine this is to make note of the DOR agent’s title, whether letter notices, phone calls, or in person meetings. If the title mentions collections, then the matter likely has not turned criminal yet. Keep it that way. If the title mentions “crime” or “investigator,” then you need to take the matter extremely seriously. Remember, investigators are police officers for the DOR and their only job is to gather enough evidence to have you convicted with a crime. Investigators have the authority to just show up at your home or business and start asking questions of you, your employees, or even your family and friends. If a DOR employee unexpectedly shows up, then it is likely an investigator and you should be very careful what you say. If an investigator is involved, then it is highly advisable to get legal representation.
4) SEEK LEGAL ADVICE: You are already reading this article, which is a giant step in the right direction. Being involved with a business that has unremitted sales tax can be a mind field of complex laws, regulations, and unwritten agency policies. We often see people getting bad advice from friends, colleagues, or even professionals that do not practice in this area. Even a good criminal attorney that doesn’t deal with sales tax fraud regularly might not understand the intricacies of this area of law. There are only a few attorneys in Florida that really focus on sales tax fraud and most of them will give you a free initial consultation. We would be glad to speak with you to discuss your options.
5) AMEND FALSE RETURNS: If you know that you have a return that was “not exactly correct,” then amend the return to reflect the correct amount of gross sales, exempt sales, and tax collected. Filing fraudulent returns has its own criminal punishments on top of the failure to file and failure to remit tax. Amend the returns to hopefully remove the possibility of being charged with this crime as well.
6) PAY AS MUCH OF THE UNREMITTED TAX AS YOU CAN: Showing the collections agent or investigator that you have been paying as much of the taxes as you can does help. We usually suggest paying the most recent return first, then going back in time as your financial resources allow. This will give the state one more reason to consider not sending your case to the state attorney’s office for prosecution. It’s not guaranteed, but it helps.
7) RESPOND AND BE NICE TO THE DOR AGENT: Whether you are dealing with a DOR collection agent or investigator, do NOT be rude in any way. These people can help or make things worse. Being nice may not slow things down very much, but being rude will almost guarantee that things will progress in a bad direction. Also – respond to the letters or phone calls. Ignoring the matter increases the likelihood of escalation considerably. Finally, whatever you say you are going to do – be honest and keep your word. The collection agents do not have patients for people that don’t do what they say they are going to do.
8) BEG, BORROW, BUT DON’T STEAL: It is highly advisable to reach out to friends and family to help raise funds to pay off the liability. Even if you haven’t talked to “uncle Bob” for years, now is a good time to get back in touch. By far the most effective way to stall or stop a criminal investigation for sales tax fraud is to pay the state every penny you owe – plus penalties, interest, and fees. While not absolutely guaranteed, an agreement with the DOR can usually be reached to avoid prosecution if you can pay off the liability in full prior to charges being filed. If you can’t pay it off in full, then we can occasionally talk the investigation division into letting a taxpayer into a payment plan instead of prosecution. Either way, this is a delicate negotiation that should be taken very seriously. In rare occasions, taxpayers have seen jail time even after paying the tax liability off completely, which is all the more reason to make sure you have a good attorney on your side throughout the situation.
9) PROTECT YOUR PROFESSIONAL LICENSES: A significant amount of people facing sales tax fraud charges have never been in trouble with the law before. Even if you can avoid jail time, pleading guilty to fraud charges can have dire consequences on other areas of your life. The Department of Business and Professional Regulations (DBPR) will move to revoke any professional licenses you have and getting a new professional license in Florida will be extremely difficult, if not impossible with a sales tax fraud charge following you to the grave. Opening another business that requires a sales tax registration will be difficult in most states as well. If you did not have an incentive to make sure you are handling this as effectively as possible before, perhaps protecting your livelihood going forward will be the proverbial straw.
10) CREATE A SEPARATE BANK ACCOUNT FOR SALES TAX: When your business collects sales tax, you are a trustee for the states funds. Even though you are legally allowed to put the sales tax funds into your business bank account, the funds are property of the state the moment your business collects the sales tax. With the money in your business checking account, it is all too easy to pay the light bill, employee salaries, or rent and accidently spend the sales tax. We advise our clients that it can be helpful to create a completely separate bank account for sales tax and put the sales tax in there every day or two. This will insure the sales tax is there when the tax is due to the state. Doing this also goes a long way to showing the DOR that you are going to be compliant going forward.
11) FIGURE OUT WHO IS RESPONSIBLE FOR THE PROBLEM: Determine how and why you have unremitted sales tax and fix the problem. Perhaps you handle the sales tax collection and remitting process all by yourself. If so, then you know the problems. However, if sales tax is handled by one or more people in your business, then get to the bottom of the problem. Just because you were not directly involved does not mean the state cannot come after you for the crime. All too often the employee or co-owner responsible for the sales tax theft will point the figure at someone else. Supervisors or owners can be charged with the crime as much as the employee actually filling out the sales tax returns. Furthermore, even if the owner of the business can avoid being charged with a crime for an employee’s theft, the state auditing division can legally enforce the unpaid sales tax debt on the business as welll as the owners of the business personally. So it is highly advisable for business owners to figure out and correct any sales tax underreporting problems as quickly as possible and make sure the state gets paid. If the owner wants to sue the former employee after the fact, then that is a matter to take care of AFTER getting the possibility of jail time resolved.
12) DON’T BELIEVE IT WON’T HAPPEN TO YOU: People get arrested for sales tax fraud all the time in Florida. So much so, the DOR brags about the business owners they arrest on their web site. If you or someone you know does not believe this can turn dire, then we suggest you go to the Department of Revenue’s web site. You will find a partial listing of business owners arrested for sales tax fraud since 2002. Every type of business you can imagine. Bike shop owners. Shoe repair business owners. Restaurant owners. Liquor store owners. Used car dealers. Investigators. Car repair shop owners. Dress shop owners. Convenience store owners. You can go to this listing of arrests by clicking HERE.
13) BE SCARED IF THE INVESTIGATOR SAYS “I’LL GET BACK IN TOUCH WITH YOU”: One of the most consistent things we see in sales tax fraud investigations is new client’s telling us is “The investigator said (s)he would get back in touch and the next thing we knew a sheriff was knocking on my door with an arrest warrant.” If your investigator says this, then they are likely preparing your file to send to the state attorney’s office. They will not act like a collections agent and tell you how much you owe and give you a chance to pay before escalating the matter. Once they have enough evidence to have you prosecuted, they WILL advance the case. At this point, you need an experience attorney to help talk the investigator into revealing what it would take to stop the case from being forwarded to the state attorney’s office.
14) NEGOTIATION WITH STATE ATTORNEY MIGHT BE POSSIBLE: Just because your case has already been forwarded to the state attorney’s office does not necessarily mean that charges will be filed. Some counties have a program that will allow you to get into a payment plan called Pre-Trial Intervention (PTI) or Deferment Program. The DOR usually has to recommend the program and it rarely is offered in cases with sales tax liabilities over $100,000. So paying your liability below this amount might be a viable strategy to help get you into a PTI program. In other counties, such as LEE COUNTY, they treat sales tax fraud cases like violent crimes and attempt to impose jail time even if the sales tax is paid off in full. So the course of action after the state attorney is involved can be highly dependent on the county of your business, where the crime occured.
15) MAIL BOX FULL OF BAIL BONDSMAN LETTERS: If you have been investigated by the DOR and you find your home mail box has multiple bail bondsman letters, then it likely means that the state attorney filed charges against you and an arrest warrant has been issued. Strangely enough, the bail bond companies track the warrants filed with the court and their marketing efforts are usually faster than the sheriff’s office. You can quickly go to the county court’s web site or sheriff’s office web site and see if an arrest warrant has been issued against you. If so, then you need to do two things. First – hire an attorney immediately if you have not already. Your attorney will likely tell you that you should turn yourself in at the local sheriff’s office. Second – contact a bail bond company (you have a stack of potentials in the mail) to provide you with a bond so you can possibly avoid spending a night in jail. The amount of your bail can vary greatly. Once you are out of jail, then you will be scheduled for an arraignment hearing within a couple of weeks and the negotiations to keep you from getting real jail time begin.
16) IF THE STATE HAS NOT CONTACTED YOU, THEN - VOLUNTARY DISCLOSURE: If the state has not contacted you about your under remitted sales tax, then the Voluntary Disclosure program is by far the best choice you can make. The Voluntary Disclosure program is created by statute to allow taxpayers with "mistakes" in their sales tax collecting and remitting process to come forth and disclose what they owe. By statute, the state will waive all but 5% of the penalties (they waive all penalities if no tax was collected) and presume that their was no criminal intent. Depending on the facts, they may even limit the look back period to three years. The Voluntary Disclosure program is by far the least painfull way to resolve under remitted sales tax liabilities in Florida. Our firm handles several Voluntary Disclosures a month and would be glad to help you through the process as well. However, the most important thing about a Voluntary Disclosure is that you MUST apply for the Voluntary Disclosure program BEFORE the state contacts you. One the state initates an audit, collections, or criminal investigation, you no longer qualify for the Voluntary Disclosure program. The good news is that you can apply for the program, but take 30 days or more to get all the specifics together for disclosure.
SUMMARY
Facing the prospect of a Florida sales tax fraud prosecution can be one of the worst nightmares a typical business owner has ever gone through. Sleepless nights worrying about what might happen and feeling helpless is very common. We hope this article has helped to shed some light on the situation. We would be glad to speak with you directly to discuss the specifics of your situation. Many clients tell us that they can sleep better after we’ve explained each step of the situation. Often, we’ve dealt with the specific investigator or state attorney before. If you, a client of yours, or someone you know is facing the overwhelming situation of collected but not remitted Florida sales tax, then please call our offices today for a free consultation with one of our attorneys.
ABOUT THE AUTHOR: Mr. Sutton is a Florida licensed CPA and Attorney and a shareholder in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Sutton is in charge of the Tampa office of the firm and his primary practice area is Florida sales and use tax controversy. Mr. Sutton worked in the State and Local Tax department of a "big five" accounting firm for a number of years and has been an adjunct professor at Stetson University College of Law since 2002 teaching State and Local Taxation, Accounting for Lawyers, and Federal Income Tax I. You can read more about Mr. Sutton in his
firm BIO.
ADDITIOINAL RESOURCES
TALLAHASSEE SECURITY AGENCY OWNER JAILED FOR SALES TAX, October 15, 2013, by James Sutton, CPA, Esq.
OFFICER OF FL CHECKERS CHAIN FACING 30 YEARS IN PRISON FOR SALES TAX THEFT, September 18, 2013, by James Sutton, CPA, Esq.
TAXPAYER FORCED TO SIGN AWAY RIGHTS TO REMIT TAX?, September 2, 2013, by James Sutton, CPA, Esq.
FL DOR USES "CALLZILLA" TO HARRASS TAXPAYERS, July 28, 2013, by James Sutton, CPA, Esq.
CLOSE BUSINESS TO AVOID LARGE FL SALES TAX ASSESSMENT?, July 7, 2013, by James Sutton, CPA, Esq.
KEY WEST PRIVATE INVESTIGATOR JAILED FOR SALES TAX, April 29, 2013, by James Sutton, CPA, Esq.
FL TAX ALERT - USED CAR DEALERS TARGETED!!!!, January 19, 2013, by James Sutton, CPA, Esq.
FL TAX - VOLUNTARY DISCLOSURE CAN BE THE PERFECT SOLUTION, October 5, 2012, by Jerry Donnini, Esq.
© 2013 - ALL RIGHTS RESERVED - JAMES H SUTTON JR