Part 1 – The Initial Contact
The Florida department of revenue has a publication titled “What to expect from a Florida tax audit” (GT-800042 – if you are that interested), that states an audit “should not be a frustrating, time-consuming experience”. As a former auditor for the department of revenue and now someone who deals extensively with Florida sales tax auditors, and the department of revenue as a whole, on a daily basis, I can tell you that unless you are very prepared or extremely lucky you probably will find the audit process experience frustrating, time-consuming and quite possibly painful, both financially and emotionally.
In this article I would like to give a brief overview of the initial phase of the Florida sales tax audit process and how the department of revenue uses these procedures to its advantage.
Your first contact from the department of revenue on any Florida sales tax audit is a form called a DR-840, the Notice of Intent to Audit Books and Records. This document outlines the audit period, defines the taxes being audited, and sets the statute for the audit. There will usually be a letter included along with a questionnaire about your business and its practices and what documentation they want to be made available and where it is stored. They may also include many publications that can confuse and intimidate a taxpayer. I have seen this initial request top 30 pages. Most auditors are now requesting these items be returned and an interview be held within a week or two. Florida Statutes requires the department to give you 60 days to prepare for any Florida sales tax audit. Auditors will not stress this to you and anything thing you give them “voluntarily” they see as you having waived this right and commences the audit officially, which is important because, again by statute, they must commence any Florida sales tax audit within 120 days of the issuance of the DR-840 and the audit process must be complete within one year.
I would like to point out that, just like with the police, anything and everything you say or provide to the auditor can be used against you. The difference is the department won’t stress your rights to you beforehand as the police are required to do. You are not required to personally answer any questions presented to you during a Florida sales tax audit nor provide documentation just because it is requested. They are only entitled to documentation and information that is relevant to the audit. I would strongly suggest you consider hiring competent council before having any contact with the department of revenue on any Florida sales tax audit. Even small, well meant, answers to misunderstood questions have caused significant problems down the road in many a Florida sales tax audit. It is much harder to deal with an auditor who has already made unjust determinations and assumptions based on misunderstood information they have observed and or collected then it is to identify areas or risk ahead of time and take the appropriate actions.
If you decide to handle you own Florida sales tax audit there are some things you should be made aware of. Florida sales tax auditors are trained that under Florida law all transactions in Florida are taxable unless proven otherwise and that both parties to any transaction are liable for tax due. This means that even if all your sales are being taxed correctly, if you do not have the proper documentation on hand, you can still be assessed on any sales during the audit period. Also if your suppliers of cost of goods sold, general expenses, fixed assets and even commercial property rental are not taxing you correctly or you don’t have the proper documentation, you can and probably will be held liable for tax due from these transactions under the audit as well. The Florida sales tax statutes are very complex and most industries have their own very specific statutes that affect that industry. Many people working within any given industry find they are completely unaware of the statutes that may affect them under Florida law.
At the beginning of the Florid sales tax audit, along with the questionnaires and a list of documents they wish for you to provide (many of which they have no right to see as they are outside the scope of the audit as defined by the DR-840) one of the first things they will want to do is set up a tour and schedule a place and time to work at your place of business. Under Florida statutes they have a right to conduct a tour of your facilities (something I personally believe is unconstitutional, but that is another issue), but their real purpose is to get their foot in the door and then have unlimited access to your personal and records. The presences of the auditor at your place of business can sometimes be very disruptive for your workforce and many find the auditor to be very intimidating in their demands for access to records and documents. You do not have to let the auditor work at your place of business. You can make records available at a convenient 3rd party’s location and or provide the documents to the auditor’s office. Given the electronic age in which we live, I try and do most of my audits via fax, emails, and PDF files. There is no reason you should have to put up an auditor, or 2 or 3 as sometimes they like to work in packs, in your office for days or possibly weeks on end and then deal with the disruptions it can cause to your business.
Many at the department of revenue seems to be under the impression that because you are allowed to do business in Florida, your main, and really only, objective is a function of collection and remittance of Florida sales tax and you have waived any rights you may have had in order to fulfill this mission for the state. I strongly disagree and believe that just because you have an obligation to collect and remit Florida sales tax correctly this does not take away any of your rights as a citizen.
I hope this gives you a better understanding of how a Florida sales tax audit commences and the procedures used by the Florida department of revenue in the initial stage of a Florida sales tax audit.
I will continue to provide an overview of the procedures used in a Florida sales tax audit in my next article which will cover the four main areas of exposure in a Florida sales tax audit; Sales, Expenses, Fixed Assets, and Rental Consideration.
Moffa, Sutton, & Donnini, PA is a law firm with more than 90% of its practice dedicated to defending Florida Businesses against the Florida Department of Revenue in Florida sales and use tax matters. With 10 attorneys and 4 former Department of Revenue agents on staff, we are here to answer your questions and help fight back. We offer free initial consultations, so why not call the number at the top of this page now!
Steven C. Middel is a senior auditor who joined the Law Offices of Moffa, Sutton, &
Donnini, P.A. in 2015. Mr. Middel concentrates in the following areas
of Florida sales and use tax: Audit, protest, collections, and criminal
defense. Mr. Middel joined the firm after spending almost 5 years as a
multi tax auditor for the Florida Department of Revenue. Before joining
the firm, Mr. Middel has worked in many fields and has held many positions
including computerized accounting system creation and consulting, commercial
services, construction, financial services, retail sales, and most recently
with the federal and state government. He has held a wide variety of titles
including; consultant, comptroller, CFO, COO, president, loan officer,
sales manager and of course auditor.
Ready Part 2 of the article series HERE.
ADDITIONAL RESOURCES
What Services Are Subject to Sales Tax in Florida?, published May 1, 2012, by James Sutton, CPA, Esq.
Is Rent Subject to Florida Sales Tax?, published January 26, 2015, by Jerry, Donnini, Esq.
FL DOR Abuses Convenience Store Industry, published October 4, 2015, by James Sutton, CPA, Esq.
FL Reemployment Tax Audit: Independent Contractor vs Employee, published August 23, 2015, by James Sutton, CPA, Esq. & Paula Savchenko