Gas Station Industry – Sales and Use Tax Issues and Savings Opportunities – Part II Miscellaneous Issues
On March 23, 2012, I wrote an article about the Florida gas station industry, which specifically discussed sales and use tax issues relating to distributors, such as fuel sales and equipment purchases. Since that article, I have already discussed some interesting planning opportunities with clients regarding creative ways to reduce sales tax on related party rent within the gas station industry. In addition, I have also been working on some interesting audit and refund issues with a few of the large distributors here in Florida. As I mentioned in my last article, doing work in this industry has been an extremely rewarding endeavor, as I have grown up with and been around this industry my entire life. Due to favorable feedback on the first article, I have written this article to discuss the Florida sales and use tax implications of some of the ancillary businesses that go along with running a successful gas station.
C-Store
Another major source of income and potential sales and use tax issues relate to the convenience store (C-store) located within a gas station. While the convenience store may purchase inventory as a tax exempt sale for resale, the majority of the sales are taxable to the customer. However, the majority of the problems we see in convenience store audits occur from the non-taxable sales and various breakdowns of the accounting systems that account for taxable and non-taxable transactions. Another problem is Zapper software that was discussed in detail by our partner James Sutton in a November, 2011 article that can be found here http://www.floridasalestax.com/Florida-Tax-Law-Blog/2011/November/New-Legislation-to Battle-High-Tech-Sales-Tax-Fr.aspx. Basically, the Zapper software is a computer program that reduces or eliminates cash sales transactions from the accounting system. This can be a major problem for gas station owners that collect a percentage of C-store sales from their tenants.
Some unique arrangements may arise in certain gas stations, such as delis, pizza shops, or other prepared food sales. Under rule 12A-1.011, Florida Administrative Code ("F.A.C."), sales of prepared foods are taxable. However, in Albertson's Inc. v. DOR, the court held that the deli sales of wrapped meats and cheeses for off-premises consumption are not taxable. Sales such as these may be difficult to track, but may present planning and savings opportunities for taxpayers in the gas station industry for both owner and operators alike.
CAR WASH
Another major income source for a gas station owner or operator is an on-site car wash. The car wash may be automated, and/or self-service, or it may be full service. On one hand, in the gas station car wash context, a wash job with only detergent or water softener added to the water is exempt under rule 12A-1.006, F.A.C. However, the purchases of these items used in the car wash are subject to use tax to the gas station owner. On the other hand, if other substances such as wax or silicone are added, the entire wash is taxable to the customer and the gas station owner my purchase the materials used in the car wash tax free by presenting a valid resale certificate to its vendor in lieu of paying tax.
In my experience, an item that often catches the gas station owner or operator off guard is that sales tax is due on the purchase of the machinery and equipment, parts, and supplies in connection with a car wash. Often times the gas station owner or operator presents a valid resale certificate to its vendor, purchases these items tax free, and does not accrue a use tax on such items. This would be the proper procedure if the owner was reselling the items it purchased. However, if the item purchased is used by the owner or operator in the car wash, the owner or operator is considered the end-user and use tax is due from the owner or operator on the transaction. Consequently, the gas station owner or operator can incur a large tax bill on such purchases if it is audited. The concept of use tax leaves many tax attorneys perplexed, so if you are not well versed in Florida sales and use tax law, then discuss the matter with a seasoned Florida sales and use tax professional.
A thorough analysis of the taxability of car washes from the Department's perspective can be found in Technical Assistance Advisement (TAA) 99A-059, TAA 92A-037, and TAA 90A-052, downloadable as a pdf below.
Repair Garage
It is common for a gas station to also include a repair or service garage on its premises. In the repair garage setting, materials and supplies purchased by the garage or gas station that are used in the repair, but do not become part of the repaired property are subject to the elusive use tax. Examples of such items include tools, sandpaper, steel wool, detergents, and rags, used by the service station are taxable when purchased. Conversely, items that are purchased and become part of the repaired property are allowed to be purchased tax free (assuming resale certificate procedures are correctly followed) and sales tax should be collected from the car owner—the customer. If the gas station repair shop or garage furnishes parts and services in the same repair, then the entire charge to the customer is subject to sales tax, even if the charges are presented as separate line items on the customer's invoice. As an experienced Florida sales and use tax law firm, we believe there are some creative planning opportunities within this context and we would be enthusiastic to discuss those with your or your client if he/she is in the gas station industry.
Sales Tax Remitting Process
Gas stations, like any other type of retail business in Florida, are required to account for and timely remit sales taxes collected from customers. While this might not seem terribly complicated, issues arise when a business falls short of cash during a slow period and "borrows" the sales taxes collected for operational cash flow needs. The business owner rarely is intends to be "stealing" the state's funds, but when the "down period" continues longer than expected and the business does not make enough profits to pay back the sales taxes when they are legally due, then the business owner is committing a crime. The Florida Department of Revenue takes sales tax collected but not remitted very seriously, arresting dozens of business owners every month throughout the state. Amounts which are collected and not remitted as low as $6,000 can turn into a Felony criminal charge in Florida. If your company or your client has found themselves in a situation where sales taxes have been collected but the funds are not available when the sales tax is due, then you should contact an attorney well versed in Florida sales tax criminal law matters. Take this advice very seriously because your liberty could be at stake. At the Law Offices of Moffa, Gainor, & Sutton, we are one of the only firms in the state experience with criminal defense work in the sales and use tax context.
ADDITIONAL RESOURCES
TAA 90A-052 - Sales and Use Tax on Self Serve Cash Wash
TAA 99A-059 - Sales and Use Tax on Car Wash