CLOSE BUSINESS TO AVOID LARGE FL SALES TAX ASSESSMENT?
Are you facing a large Florida sales tax assessment? Are you considering shutting your doors and walking away from your business to avoid the sales tax liability? We hear many business owners facing the wrath of the Florida Department of Revenue tell us that the state should appreciate all the taxes that their business collected for the state. If the state will not understand that their business simply cannot afford the assessment, then the business owner reasons that they will teach the state a lesson by shutting down the business and the state will not see any more of the sales taxes or even the jobs provided by the business. What most small business owners do not realize is that the Florida Department of Revenue does not view a business collecting sales tax as a favor to the state. Instead, the typical Florida Department of Revenue agent considers sales tax collection as an obligation of the business for the privilege of selling goods or services in the state.
When facing a large sales and use tax assessment, many small business owners believe that shutting down the business is a viable option to avoid the assessment. The answer is often that walking away is often not possible and can make matters worse. After careful consideration, even if walking away is deemed a potential solution, the issue will not simply go away. Sales tax liabilities of a business can haunt everyone involved in the business in more ways than most people even think is possible. For example, if the taxes were collected but not remitted, then it could become criminal. No joke. Even if the owner did not take any of the money personally, only putting the sales tax back into the business trying to keep the business afloat, the law can still hold the owner and/or responsible parties in the business criminally responsible for the unremitted taxes. When we use the word criminal, we mean felony charges with real jail time. Seriously. Florida arrests hundreds of business owners every year for sales tax theft. The Florida Department of Revenue even brags about the arrests on their web site with a partial listing of the sales tax arrests going back to 2002. People are even arrested for the failure to file Florida sales tax returns. In other words, if you have a large sales tax assessment against your business and you don't believe your business can pay the tax, then you have yourself in the middle of a mine field and you need to tread very carefully to put this situation behind you. The purpose of this article is to help educate the business owner who has found himself in this situation.
On one hand, if you have collected but not remitted taxes or the Department of Revenue believes you collected but did not remit tax, then you are in the most perilous situation. This is when matters can turn criminal and the idea of walking away from the business is likely not even a remote option. If you can't borrow the money to pay these liabilities back very quickly, then you likely will need an attorney. Also be very mindful of the job title of each person you are speaking with in the Florida Department of Revenue. If anyone has the word "Criminal" or "Investigator" in their job title, then the matter has already risen to the criminal level and you should consult with an attorney immediately. The goal will be to get your business into some type of payment plan before the matter gets referred to the state attorney's office and charges are filed against you. Take this very, very seriously.
If, on the other hand, the assessment against your company is based on taxes you should have collected but did not, then the matter is a lot less likely to turn criminal as long as you have been filing your returns. Failure to file six returns in a row can be a felony, so make sure you don't give the state this type of power over you. There is a gut reaction by many business owners to think that if the tax was never collected, then the business does not owe the sales tax. This stems from the common misbelief that sales tax is a tax on the consumer. In Florida, like most states, sales tax is legally imposed on the business for the privilege of selling goods or services. The tax is calculated based on the price the customer pays and the business is expected to pass the tax on to the customer, but the legal liability originates on the business. Thus, the business is liable for the sales tax if the business does not collect the tax from the customer. So a simple misunderstanding by a business owner that a type of transaction is not taxable or somehow exempt can make a business liable for thousands and thousands of dollars of uncollected sales tax. Missing exemption paperwork can cause the same devastating result. Every year, the Florida Department of Revenue imposes millions of dollars of tax, penalties, and interest on unsuspecting business owners for taxes that should have been collected. If you are reading this article, then likely you are facing this situation. The question is, what can you do now?
If you are facing a large assessment for "gotcha taxes," as some people refer to sales tax liability arising from uncollected taxes, then the first step is to determine the tax your business really owes. You typical auditor will guess and estimate what you owe, usually very high estimate, and place the burden of proof on the business owner to prove that the proposed sales tax assessment is too high. Finding missing paper work or clearing up a misunderstanding of the facts or law are common ways of battling high assessments. Once you get the assessment as low as you can, then closing the business should be a last resort.
You have the option of requesting a compromise based on doubt of collectability. You should know from the outset that the FL DOR does not compromise taxes very often and MUCH less often than the IRS. Be very cautious if you discuss your situation with a professional that usually handles IRS controversies. You want advice on how the FL DOR handles the situation, not the IRS. However, proposing a compromise to the FL DOR is at least on the table. But if your business has assets or good revenues, then the FL DOR is not likely to compromise the tax.
A payment plan is a very common way of dealing with a large assessment. The FL Taxpayer Bill of Rights provides that the FL Dept of Revenue must consider a payment plan based on the financial viability of the company. The typical payment plan requires 25% down with 12 equal payments for the remaining balance while interest accrues the whole time at prime plus 4% (aka extortion). There is some flexibility in the payment terms, but most payment plans require the taxpayer to agree to some pretty serious terms. For example, the typical stipulated payment agreement requires the taxpayer to give up the right to challenge the tax or request a refund. We strongly believe these term exceed the FL DOR's legislative authority and will challenge these items in the right circumstances. We assist with negotiating payment plans for taxpayers on a regular basis.
If making payments just is not an option or the idea of paying your customers' sales tax liabilities is simply against your moral fiber, then you should be aware of the various tools at the Department of Revenue's disposal. For example, the Department of Revenue can freeze your business's bank accounts. The FL DOR can also initiate proceedings to remove your sales tax registration, making it illegal for you to sell anything subject to sales tax. There is a particularly nasty statute, Sec. 213.29, F.S., that allows the our draconian comrades in Tallahassee to impose a 200% of unpaid tax penalty personally on each and every responsible party in the business, which includes owners, directors, and employees. This type of statute completely ignores the legal liability protection of your business entity (corporation, LLC, or partnership). Besides criminal liability, this is the nastiest weapon in FL DOR's arsenal. The 200% penalty is usually imposed in tax collected but not remitted situations, but there is no limit in the statute to prevent the FL DOR from imposing the penalty in a "gotcha" situation with uncollected taxes. If you are thinking about walking away from your business to avoid a large sales tax assessment, then you at least need to be aware of this penalty.
Even if you are able to successfully walk away from the business without an army of DOR zombies raining down on you, there are looming repercussions of which you need to be aware. If you are an owner, officer, or responsible party of a business that has delinquent sales and use tax liabilities, then the DOR will place a flag perpetually on your name in the state's regulatory system. Any time you try to start a new business, apply as a new employer, become an officer of a business, apply for a professional license, apply for alcohol beverage and tobacco license, and (the list goes on) in Florida, then the DOR is going to step in to stop you from doing whatever it is that you are trying to do. Denial of a sales tax registration is the most common repercussion we see in our practice. The FL DOR refuses to issue a new sales tax registration or re-employment tax registration unless the prior taxes are paid in full, with interest. We don't believe the FL DOR has the authority impose the liabilities of one business on another like this (without transferee liability) and we get brought in often to challenge this draconian practice.
Hopefully this article has helped to bring to light at least some of various issues that need to be addressed when a company is facing an assessment that seems to be more than the company can stomach. Our law firm is at your disposal to discuss your situation further in a free consultation. We do almost nothing in our practice but battle the Florida Department of Revenue on behalf of businesses just like yours. We understand what you are going through and, more importantly, can help provide well educated options on how to navigate your way through the minefield of a large Florida sales and use tax assessment. Even if the FL DOR agent tells you that all your administrative options have been exhausted, we likely can uncover ways to get your tax matter opened back up for administrative review. You can also find links to additional articles at the end of the article that may provide additional insight.
ABOUT THE AUTHOR: MR. SUTTON IS A FLORIDA LICENSED CPA AND ATTORNEY AND A SHAREHOLDER IN THE LAW FIRM the Law Offices of Moffa, Sutton, & Donnini, P.A. MR. SUTTON IS IN CHARGE OF THE TAMPA OFFICE FOR THE FIRM AND HIS PRIMARY PRACTICE IS FLORIDA SALES AND USE TAX CONTROVERSY. MR. SUTTON WORKED FOR THE STATE AND LOCAL TAX DEPARTMENT OF A BIG FIVE ACCOUNTING FIRM FOR A NUMBER OF YEARS AND HAS BEEN AN ADJUNCT PROFESSOR OF LAW AT STETSON UNIVERSITY COLLEGE OF LAW SINCE 2002 TEACHING STATE AND LOCAL TAX, ACCOUNTING FOR LAWYERS, AND FEDERAL INCOME TAX I. YOU CAN READ MORE ABOUT MR. SUTTON IN HIS FIRM BIO.
ADDITIONAL RESOURCES
FL TAX ALERT – 200% PENALTY STINGS BUSINESS OWNER, March 24, 2013, by Jerry Donnini, Esq., & James Sutton, CPA, Esq.
TAMPA CAR DEALER FACES 15+ YEARS FOR SALES TAX THEFT, January 26, 2013, by James Sutton, CPA, Esq.
FL TAX ALERT – CONENIENCE STORE OWERS TARGETED, August 16, 2012, by Jerry Donnini, Esq. & James Sutton, CPA, Esq.
FL DOR'S GREATEST WEAPON – REVOCATION OF DEALER'S SALES TAX CERTIFICATE, August 6, 2013, by Jerry Donnini, Esq.
© 2013 All rights reserved – James H Sutton Jr CPA Esq