Business owners should be aware that the Florida Department of Revenue is getting very aggressive in their approach to sales and use tax audits as well as reemployment tax audits. By using a wide variety of indicators to select entities for audit, many taxpayers are unaware that they are easy targets for a sales tax audit or a reemployment tax audit by the state. This article, written by a former Florida Department of Revenue sales tax auditor, identifies some of the industries the Florida Department of Revenue seems to be focusing on and what types of information it is using to make the determination to initiate an audit.
Convenience Stores, Liquor Stores, Bars, Restaurants, and Other Purchasers of Alcoholic Beverages
The Florida Department of Revenue has access to sales records from all alcohol and tobacco distributers from the Florida Department of Alcoholic Beverages and Tobacco (ABT Reports). If your ABT purchase reports do not line up with your sales reported, you may be flagged for an audit. These purchase reports will then be used against your business to estimate additional tax due if they determine that your sales or purchase records are inadequate. Even if you have very good records, if they do not match the ABT records (accordingly to Department of Revenue formulas) , they will deem the ABT data to be the “best source of information” and issue an assessment. Such assessments can be very high.
Car Dealers
Both new and used car dealers report their sales to the Department of Motor Vehicles (DMV). The Department of Revenue (DOR) has access to these records and if the records don’t match what was reported to the DOR, which can happen due to timing issues even if you are reporting everything correctly, this can trigger a sales and use tax audit. Some auditors are requiring you to prove that every sale during the audit period that was reported to the DMV was reported to the DOR correctly. This can be a very long and burdensome process even if you have good records. If your records are less than perfect, this can be a serious problem. Remember, under Florida law ALL sales are considered taxable unless proven otherwise. Even if you collected and remitted tax on all of the sales correctly, you could end up with a large assessment if your records are deemed inadequate.
Commercial Property
The Florida Department of Revenue searches for commercial property that owned by one entity but being used by another. These records come from the county appraiser records DOR itself, Sunbiz, or even internet records. They will then issue an audit to the entity that owns the property to determine if tax is due on any commercial rental payments. The Florida Department of Revenue considers any payments made to the owner of the property or on the owner’s behalf, mortgage payments, real estate taxes, insurance payments, etc. to be taxable as commercial rent. Florida is the only state that taxes commercial rent, so this catches many taxpayers by surprise as it common practice to have real estate owned by a separate entity for liability purposes.
Real Property Contractors
When a business registers with the Florida Department of Revenue, they must supply what type of business they are conducting. Real property contractors are automatically considered to be “high risk” as the sales and use tax rules for these entities can be confusing. Real property contractors do not charge sales tax to their customers but are supposed to pay use tax on all materials and “fabrication” costs. It is the “fabrication” costs portion that can be confusing. This primarily affects contractors who purchase materials and then do some type of work to get the materials ready for installation in their shop before installation. Some examples are air conditioning, heating, cabinets, countertops, etc. Any work that is done in the customer’s home is generally considered installation and is not taxable. Any work done off site is generally considered “fabrication” and the cost of this fabrication is considered subject to use tax.
Any Business with Employees
The Florida Department of Revenue has recently started listing as a reason for audit that the ratio of a business’s sales to employee’s wages reported, for reemployment tax purposes, is not in line with industry standards. However, they do not state exactly how this was determined, so there is no way of assessing your risk for audit. Any firm that has employees is at risk for a sales and use tax audit from the state using this criteria.
All business that operate in the state of Florida are potentially subject to a sales and use tax audit as a requirement for doing business within the state. This is true even for companies located outside of the state. The businesses listed above are only the recent trends in Florida sales tax audits. Only time will tell who the Department of Revenue will target next.
About the author: Steve Middel is a former Department of Revenue auditor and now works to defend taxpayers against the state. You can read more about Steve in his firm biography HERE.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended clients against Florida sales and use taxes for more than 25 years with over 100 years of cumulative experience working for our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We also have former Department of Revenue agents on staff who know how the tax agents think. With offices in Fort Lauderdale, Tampa, & Tallahassee, the law offices of Moffa, Sutton, & Donnini, PA represent taxpayers and business owners throughout 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.
ADDITIONAL RESOURCES
Florida Sales Tax Audit: What to Really Expect – Part 1, by Steve Middle, MBA, published October 11, 2016
Florida Sales Tax Audit: What to Really Expect – Part 2, by Steve Middle, MBA, published October 26, 2016
Florida Sales Tax Audit Help, by James Sutton, CPA, Esq., published July 14, 2013
Florida Sales Tax Audits of Car Dealers on the Rise, by James Sutton, CPA, Esq., published November 14, 2014
FL DOR Abuses Convenience Store Industry, by James Sutton, CPA, Esq., published October 4, 2015