If you are reading this, chances are you just opened an envelope with a Form DR-840 sales tax audit notice from the Florida Department of Revenue, or you got a call out of nowhere asking if your business is still operating. Either way, you are about to go through a Florida sales tax audit, and you are probably wondering how bad this is going to get. My best answer is that a first-time sales tax audit is usually a very expensive educational lesson in everything you are doing wrong for sales tax, from keeping the wrong records to completely misunderstanding the law.
In practice, I have sat across the table from hundreds of business owners going through their first sales tax audit, and the reaction is almost always the same. First comes denial — "we run a clean operation, this will be quick." Then comes the slow realization that Florida's sales tax audit process is not designed to be quick, fair, or forgiving of bad documentation. This article is meant to give you a realistic, practical roadmap for getting through it from a simple business owner’s perspective.
The Burden of Proof Is on You, Not the Auditor
The single most important thing to understand about a Florida sales tax audit is this: the Department of Revenue does not have to prove you owe tax. You have to prove you do not. While about as un-American as it gets, you are guilty until you prove yourself innocent in a sales tax audit. Every sale is presumed taxable until you produce documentation showing otherwise, and every business expense is presumed to have been purchased tax-free until you prove you paid the tax. That presumption flips the entire dynamic of the audit. You are not waiting to be accused of something — you are already, functionally, the one who has to disprove a tax.
This matters because business owners frequently walk into an audit assuming that if the auditor cannot find anything wrong, nothing is owed. That is backwards. If you cannot produce the paperwork, the auditor is statutorily authorized to estimate your liability, and those estimates are always very high.
How the Audit Gets Started
Most audits begin with a Form DR-840, Notice of Intent to Audit Books and Records (sometimes a narrower DR-846 for a limited-scope review). This notice identifies the tax periods under review and the general categories of records the auditor wants to see. By law, the Department must wait 60 days from that notice before it begins reviewing your records or substantively discussing the audit with you, and I rarely recommend waiving that waiting period.
That 60-day window is not dead time. It is the most valuable period you will have in the entire audit, because it is the only stretch where you get to look at your own books before the auditor does. Use it to:
- Pull your sales tax returns for the audit period and compare them against your federal income tax returns, your merchant processor statements (1099-K), and your bank statements. Discrepancies between the first two numbers are one of the most common audit triggers, and the Department now routinely cross-references 1099-K data against reported sales. Bank statements may contain a lot of non-sale deposits and recognizing this before hand might be a reason to hesitate giving them to the auditor.
- Confirm whether you have valid resale or exemption certificates on file for every exempt sale – for every year under audit. A sale without a resale certificate is, for audit purposes, a taxable sale — it does not matter that the customer was, in fact, exempt.
- Review whether sales tax was charged on the full sales price, or whether discounts, deposits, financing charges, or bundled services were handled correctly. A sale is taxable when entered into, not when the customer finally pays. Now is the time to look for these types of issues in how your reported sales tax.
- Check whether you paid (and can prove you paid) sales or use tax on your own purchases — rent, equipment, supplies, contracted labor on real property improvements, and out-of-state purchases brought into Florida.
The lookback period for a standard audit is typically 36 months (3 years). If a return was never filed, or if the Department finds a substantial underreporting of sales, that period can be extended — and the statute of limitations clock itself can be tolled under section 213.345, Florida Statutes, if the Department issues certain notices or if the taxpayer requests a delay. In fact, the DR-840 audit notice itself creates a 1-year tolling of the statute of limitations for the audit period. In practice, that means the three-year number you read about online is a floor, not a guarantee.
The Audit Covers Your Expenses Too — Not Just Your Sales
Business owners are almost always braced for scrutiny of their sales. Far fewer expect the auditor to comb through every expense the company incurred during the audit period. But that is exactly what happens. The auditor wants proof that sales or use tax was paid on essentially everything the business bought — equipment, supplies, software, repairs, rent, and contracted services.
Here is the math that catches people off guard: if your company has $13 million in annual expenses and you cannot document that sales tax was properly paid on those purchases, the auditor has the authority to assess tax on the undocumented portion. At a 7% rate, that is roughly $910,000 per year of exposure, or over $2.7 million across a standard three-year audit. Most businesses do, in fact, pay tax on most of their purchases — vendors charge it automatically in the great majority of transactions. The problem is almost never that the tax wasn't paid; it's that the business cannot prove it, because a credit card or bank statement alone does not show the sales tax embedded in each purchase.
If your company has been treating commercial rent, equipment purchases, or services like landscaping, security, or cleaning casually from a documentation standpoint, the 60-day window is the time to start pulling invoices, not the day the auditor asks for them.
One of the biggest things I have seen in sales tax audits over the last 15 years is auditors using the expenses shown on your federal income tax returns to estimate use tax on all of those expenses. When that federal tax return was prepared, it was not done with sales tax audits in mind. You have a small section with a bunch of listed expenses like supplies, maintenance, auto mobile, cleaning, advertising, etc. All of these things are subject to sales tax in Florida. So, the auditor will schedule all of these expenses as taxable, then tell you to prove the wrong. With this in mind, I often look for reasons to not give the federal income tax returns to the auditor. If you give them enough information on sales, they will often just stay focused on sales.
What You Say and What You Hand Over Both Matter
Once the 60 day waiting period ends, the audit typically opens with a conference between you (or your representative) and the auditor, followed by a formal document request — usually a fairly broad list covering federal returns, bank statements, payroll records, and general ledgers. The instinct for most business owners is to hand over everything requested and let the chips fall where they may. I would strongly caution against that approach.
The Department's auditors are not being unreasonable when they ask for broad categories of records — that is simply how the process works. But you are under no obligation to over-produce. Providing more than what is actually needed to verify a transaction often creates new issues rather than resolving existing ones. For example, handing over both your federal tax return and your bank statements, when either one alone would establish your gross receipts, doubles your chances of an unexplained discrepancy that the auditor will treat as unreported income. In practice, I have seen audits go sideways specifically because a business owner volunteered too many documents.
This is also where it becomes important to understand the auditor's estimating tools, because they are a lot more aggressive than most business owners expect:
- Sample-period extrapolation. Auditors commonly select a few sample months, calculate an error rate from those months, and apply that error rate across the entire audit period. A relatively small discrepancy in a sample month can balloon into a six-figure assessment once extrapolated across three years.
- Income and deposit comparisons. If your federal tax return or bank deposits show more revenue than your sales tax returns reported, the difference is presumed to be unreported taxable sales — and you carry the burden of proving otherwise.
- Industry averages. If a business does not produce adequate records at all, the Department can fall back on estimating sales based on what is typical for that type of business, regardless of whether that estimate bears any resemblance to reality.
None of these tools are meant to be insurmountable. But they all share the same feature: they shift the fight from "what actually happened" to "what can you prove happened," which is a very different and much harder fight to win after the fact. No matter how perfectly you ran your business, this isn’t an honesty contest. It is a documentation as proof contest. Can you prove you did everything right. If not, then you will owe tax again.
After the Fieldwork: Notice of Intent to Make Audit Changes
Once the auditor finishes reviewing records, you will receive a Notice of Intent to Make Audit Changes (Form DR-1215). This document lays out the proposed tax, penalty, and interest, broken into exhibits covering both the sales side and the expense side of the assessment, along with the auditor's explanation for each item. My advice – be sitting down when you look at your DR-1215 for the first time. It is usually a shocking amount way higher than you could have dreamed.
You are not required to sign this notice, and in most cases you should not without independent review — signing typically waives your right to challenge the audit findings, but only at this stage. You generally have a 30 day window to respond, request a conference with the auditor's supervisor, or submit additional documentation that might revise the numbers. This is usually your only real opportunity to correct the record before the audit itself is over.
It is also realistic to set expectations here: you are unlikely to talk an auditor out of a tax assessment without solid documentary proof of an error. Penalties, however, are a different story — auditors and their supervisors have discretion to reduce or waive penalties, particularly where the underpayment appears to be an honest mistake rather than willful disregard of the law. Don't assume a large proposed assessment is final; assume it is a starting point for negotiation on the penalty side, even when the tax itself is well documented.
My practical way of handling the 30 day DR-1215 period is to determine what we can fight at this stage and what I don’t expect to get resolved at this stage of the game. From my experience, there are things that should not be taxed, but the auditors are not allowed to let the issue go at the audit level. How a business owner (or even a CPA that doesn’t handle a lot of sales tax audits) is supposed to know what an auditor is “not allowed to let go of” is beyond me. I’ve spent a lot of time on the phone over the years with business owners and their CPA’s that have been arguing with the auditor and their supervisor about an issue until they are blue in the face, when that auditor was never going to concede the issue. They weren’t allowed to. That is one of the many things that I bring to the table for my clients – not only knowing what is and isn’t taxable, but knowing where in the challenge process the Department of Revenue will most likely concede that the item isn’t taxable. Sometimes it is at protest level and sometimes you have to file litigation to get it settled. Knowing that level of challenge for success can save a lot of tax professional fees and help you sleep at night versus fighting blindly in the dark.
The Final Assessment and Your Options
If the numbers are not resolved at the DR-1215 stage, the file moves toward a formal Notice of Proposed Assessment (NOPA), at which stage you are no longer dealing with the auditor. (emails to the auditor usually go unanswered after the NOPA is issued). The NOPA will come by regular mail to your business address. It’s important to be on the lookout for this document and raise the alarms if you don’t get it within a couple of weeks of the auditor saying they are sending the file to Tallahassee. The NOPA is a time-sensitive document — it sets out the final tax, penalty, and interest figures and starts the clock on your right to protest. You generally have the option to file an informal written protest with the Department within 60 days or to bypass that process and proceed directly to litigation within 120 days, either in circuit court or before the Division of Administrative Hearings. I could talk for an hour just on the advantages and disadvantages of the informal vs formal challenge route – and invite you to take advantage of my FREE INITIAL CONSULTATION if you are at this stage of the audit.
Missing the informal and formal protest deadlines is one of the costliest mistakes a business owner can make in the sales tax audit process. The Florida sales tax auditors are notorious for over assessing tax at the audit level. You have the right to fight back, but only if you fight back timely. Even if you think the tax amount of the assessment is correct, I know ways to challenge the penalties and interest that are usually successful. Need a payment plan, I can help with that as well. Bottom line, I can usually step into a sales tax audit and save my client more money than they pay me. Usually multiples of what they pay me. In our initial consultation, which is free, I use my experience helping thousands of businesses to get a good feel for how much I can help you. In fact, I’m famous for talking prospects out of hiring me if I really don’t think I can save them more than I would cost them. The concept of an honest attorney is not always an oxymoron.
A Few Practical Truths Worth Remembering
A handful of things tend to surprise business owners going through this for the first time, so it's worth stating them plainly:
- The average Florida sales tax audit assessment is over $100,000. Very few audits close with no tax due, even for businesses that believe they have been doing everything correctly.
- Sales tax is generally not dischargeable in bankruptcy, and shutting down a business does not make an assessment disappear. Florida has substantial transferee liability and responsible-person penalty provisions specifically aimed at owners who try to walk away from a liability rather than resolve it.
- If your records were damaged or destroyed — not uncommon in a hurricane-prone state — you are not automatically at the mercy of an industry-average estimate. Records can often be reconstructed from bank statements, vendor records, and customer confirmations, but that reconstruction needs to happen early and carefully.
- If you blindly give records to the auditor without knowing the impact, it will cost you. Sometimes it is better to not give specific documents in an audit that will be used to over estimate tax on you. You have to know the impact of records to know whether to give them. If you don’t know, then ask someone who does. Experience matters.
Bottom Line
A Florida sales tax audit is not something most business owners can navigate well on instinct, even if they run an honest, well-organized company. The rules governing burden of proof, documentation, and estimation techniques are specific to this area of law, and small missteps early in the process — oversharing records, signing the wrong notice, missing a deadline — tend to compound rather than resolve themselves. If you have received a DR-840 or a phone call from the Department, the most valuable thing you can do in the first 60 days is talk to someone who handles these audits regularly, before you decide what to hand over and what to say. I offer a FREE INITIAL CONSULTATION to discuss how you do business, what you tax, what you don’t tax, and your understanding of sales tax law for your industry. Why not take advantage of my time and experience?
About the Author: James H. Sutton, Jr., CPA, Esq. is a Florida licensed CPA and attorney, and a shareholder in the Law Offices of Moffa, Sutton, & Donnini, P.A. He is a State and Local Tax (SALT) attorney who heads the firm's Tampa office and practices almost exclusively in the area of Florida Sales & Use Tax Controversy, handling audits, protests, litigation, criminal cases, revocations, collections, and consulting engagements. You can learn more about Mr. Sutton on his firm bio page, by phone at 813-775-2131, or by email at JamesSutton@FloridaSalesTax.com.
About the Firm: The Law Offices of Moffa, Sutton, & Donnini, P.A. have defended Florida businesses against the Florida Department of Revenue since 1991, with over 200 years of cumulative sales tax experience across the firm. Our partners are both CPAs/Accountants and Attorneys, giving us insight into both the accounting and legal sides of a sales tax controversy. We have more than a dozen attorneys and former Department auditors on staff that do nothing but sales tax controversy. We represent business owners throughout the state of Florida. Contact us for a free initial consultation to confidentially discuss your situation.
What to learn more about Florida sales tax for your specific industry? Go to our FLORIDA SALES TAX INDUSTRY GUIDES page to look for your industry.
ADDITIONAL RESOURCES
Do I Have to Charge Florida Sales Tax on a Wholesale Sale? — June 7, 2026, by James H. Sutton, Jr., CPA, Esq.
Can I Trust AI for Florida Sales Tax Advice? — June 6, 2026, by James H. Sutton, Jr., CPA, Esq.
Do I Need A Lawyer for a Sales Tax Audit? – June 9, 2026, by James H Sutton, Jr., CPA, Esq.
Florida Sales Tax Protest Lawyer – January 14, 2026, by James H Sutton, Jr, CPA, Esq.
Florida Sales Tax – Inadvertent Registration: What It Is and How It Can Save Your Business — June 5, 2026, by James Sutton, CPA, Esq.
Florida Sales Tax Voluntary Disclosure: The Best Way to Clean Up a Florida Sales Tax Problem — May 26, 2026, by James H. Sutton, Jr., CPA, Esq.
Florida Sales Tax Audit: Construction Contractors — November 8, 2025, by James Sutton, CPA, Esq.
Florida Sales Tax Audits Process and Traps — March 4, 2023, by David Brennan, Esq.
© Copyright 2026. James H Sutton, Jr. All rights reserved.