Technology and Florida’s sales and use tax laws have been playing a game of cat and mouse for decades. As new technology enters the market, Florida tries to capture that new technology under its current tax scheme or pass new laws to ensure such sales are within its grasp. However, the obvious problem is that the Florida Department of Revenue and the Florida Legislature simply can’t keep up with the rapid evolution of technology, and specifically software, that has changed not only the way we do business but the way we live our lives.
Businesses operating in multiple states may be familiar with this cat and mouse game in other states as well. However, the results, and “winner” of the game, vary dramatically from state to state. Because most states have jumped on the bandwagon of taxing new technologies and software, it is easy for a multistate business to treat all their sales or purchases of software the same. However, sales to and purchases made in Florida may provide a unique opportunity for businesses to obtain a refund of tax not available in other parts of the country.
Generally, software for tax purposes is divided into two categories: canned or custom. Canned is software that is prewritten. In short, all customers purchase the same program. Meanwhile, custom software is software developed specifically for a customer. In other words, the customer purchased the development of a unique software for their use. The taxability of software generally hinges on whether software is canned or custom, the latter often being exempt while the former taxable. However, in Florida, ALL software is exempt as long as it is not transferred on a tangible medium such as a CD-ROM.
Furthermore, SaaS (software as a service), IaaS (infrastructure as a service) and PaaS (platform as a service) as all currently nontaxable in Florida. The recent trend for a while now has been to tax SaaS, which would generally be any software you access remotely but do not need to download. However, increasingly, states are also taxing IaaS and PaaS as well. Those businesses paying tax on these software services are doing so in error in Florida and may be entitled to a sales and use tax refund. Remember, this applies not only to the sales of these services, but also the purchases of them.
Unfortunately, it is not all good news for Florida taxpayers when it comes to the technology and software industries. Florida uniquely and broadly imposes sales tax on service warranties. So while the software and other new technologies and services may be exempt, the maintenance of them, regardless of whether such contracts include parts, is taxable in the state of Florida.
Florida lags behind many other states in regards to its sales and use tax imposition on software and emerging technologies like SaaS, IaaS, and PaaS. Taxpayers unsure of the taxability of their products should consult a sales and use tax professional. A sales tax lawyer can help identify any refund opportunities or defend an audit of improperly assessed taxes. Most options require quick action, so make sure to contact your sales tax attorney prior to any deadlines on the notices you receive or as soon as you realize tax has been paid in error to maximize savings.
Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is an executive council member of the American Bar Association Tax Section State and Local Tax Committee and the Florida Bar Tax Section. Ms. Moffa is an author of both the CCH’s Expert Treatise Library: Sales and Use Tax as well the ABA’s Sales and Use Tax Deskbook. In addition, her regular columns on state and local tax issues can be found in State Tax Notes and Actionline, a publication from the Florida Bar’s Real Property, Probate, and Trust Law Section. She also serves as assistant editor to the Sales and Use Tax Deskbook and Actionline. Ms. Moffa is a regular speaker at the American Bar Association Tax Section conferences, the Institute of Professionals in Taxation, the Florida Bar Tax Section, the Florida Bar Real Property, Probate, and Trust Law Section, and the FICPA. In her free time, she teaches as an adjunct professor at Broward College.
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 Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within 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 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.
AUTHORITY
Section 212.05(1)(a)(1)(a.), Florida Statutes
ADDITIONAL AUTHORITY
BAD DEBTS - AN OVERLOOKED SALES TAX EXEMPTION, published August 27, 2019, by Jeanette Moffa, Esq.
MANUFACTURING - AN OVERLOOKED SALES AND USE TAX EXEMPTION, published August 20, 2019, by Jeanette Moffa, Esq.
Overlooked Exemptions – Technology, published September 10, 2019, by Jeanette Moffa, Esq.