Things to know before starting a Florida sales and use tax audit
A Florida sales and use tax audit can be a very stressful and complicated event. I would like to go over some basic facts you should be aware of before you have any contact with the Florida Department of Revenue to begin an audit.
- The auditor is not your friend. Many taxpayers think they can stay on an auditor’s “good” side by being helpful or fear upsetting the auditor if they bring in help or are not 100% cooperative with the auditor’s requests (some of which may be unreasonable or outside the scope of the audit). The truth is the auditor is there to do a job and can use your willingness to cooperate against you if you don’t know your rights. The fact of the matter is that almost all decisions in the audit process will be decided by the auditor’s supervisor, someone you will not even see or hear from until the end of the audit if at all.
- The auditor may already have a significant amount of information about you before the audit commences and will not tell you what this information is. This can include information from your federal returns, information from your credit card merchants, information from other government agencies (ABT- Alcohol, Beverage, and Tobacco, DMV – Department of Motor Vehicles, etc.), as well as other sources.
- The auditor will try and determine your total sales from “reliable” third party data, federal returns, credit card merchants, bank statements, etc. and then will pick up the difference as taxable if you can not provide an explanation and documentation. Auditor’s will state they are picking the best information available, but this usually just means the highest number. This can be extremely frustrating when bank statements are used as auditors are taught to believe deposits equal sales and you will need to prove all deposits that are not necessarily sales, loans, transfers, etc. with documentation or risk the amounts being assessed.
- The auditor will want to confirm that all exempt sales are properly documented. This means either exempt for resale, invoice and resale certificate of customer needed, or exempt by statute, real property, labor only, etc. Sales for resale are straightforward but making sure you have the proper documentation on hand can be time consuming. Exempt by statute can be more difficult if the auditor doesn’t like the wording on an invoice or has other technical issues. A thorough understanding of the statutes may be needed to help make a taxpayer’s case.
- The auditor will want to go through your purchases, both fixed assets and general purchases, to make sure the proper sales tax has been collected. Most taxpayers don’t realize you can be held liable for any mistakes discovered on the part of your suppliers.
- The auditor will also want to go through all your commercial rental payments and again if any errors were made on the part of your landlord, you can and will be held liable for any sales tax due.
Most taxpayers do not fully understand all the statutes and rules that deal with the various aspects of a Florida sales and use tax audit. I strongly suggest that anyone who is contacted by the Florida Department of Revenue reach out to seek competent advice to identify any possible areas of risk and liability before talking with or providing documentation to an auditor.
About the author: 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. You can learn more about Mr. Middel in his BIO HERE.
About the firm: 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 150 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.
ADDITIONAL RESOURCES
GO TO JAIL FOR NOT PAYING FLORIDA SALES TAX?, published November 3, 2013, by James Sutton, CPA, Esq.
Florida Sales Tax Informal Written Protest, published November 17, 2018, by James Sutton, CPA, Esq.
Protest a FL Sales and Use Tax Audit, published August 8, 2019, by Matthew Parker, Esq.
Florida Sales Tax – Voluntary Disclosure Program, published April 9, 2019, by Jeanette Moffa, Esq.