The purpose of this article is to go over some of the requirements a Florida car dealer faces when attempting to comply with the sales and use tax collection and remitting responsibilities for the Florida Department of Revenue. Failure to comply with the rules can be devastating to a car dealer and the common "but I remitted every penny I collected" defense does not protect you from liability. While the Florida Department of Revenue may refer to a car dealership as a "business partner," the Florida Department of Revenue expects the car dealer to be responsible for every mistake and missing document and the resulting sales and use taxes. In case you have not heard, the Florida Department of Revenue has a task force out against the used car dealer industry statewide based on a comparison of DMV reports to sales tax returns (see link to a more in depth article on this topic at the end of this article).
If you have been in the car dealer business a long time, then you might remember that the Florida Department of Revenue used to offer local training classes to new businesses or new employees in old businesses, to make sure that they really knew how to comply with the sales and use tax laws. Unfortunately, these local training programs were cut when the state began running into budget problems in 2008. For your convenience, some of the forms you will need to run a car dealership are downloadable at the end of this article.
The best place start when dealing with Florida Sales and Use Taxes is to learn this basic rule: Every sale of tangible personal property in the state of Florida is subject to sales tax unless there is a specific exemption AND the administrative rules for that exemption must be followed to exempt (or partially exempt) the transaction from tax. The second thing you need to know is that you, as the dealer, are responsible for interpreting the law for each transaction to see if an exemption applies as well as collecting (and retaining) all the proper documentation.llowed to exempt (or partially exempt) the transaction from tax. tion AN If the dealer misinterprets the law or does not have the right documentation, executed properly and within the correct time frames in relation to the transaction - then the dealer becomes liable for the tax. Of course, the customer always wants to avoid paying the sales tax, but it is the dealer that has been given the responsibility of collecting the tax. No, this does not seem fair in the least, but this is the law that car dealers are forced to deal with. The Department of Revenue does not care in the least that you have collected hundreds of thousands if not millions of tax dollars for the state. If you make a mistake, then your company is liable for the tax. So complain as you might, if you want to stay in the business of car dealer (and avoid potential jail time for sales tax fraud), then you had better learn the ends and out of Florida sales and use tax. At this point, it is probably easiest to break things down into tax exempt, partially tax exempt, and fully taxable transactions.
TAX EXEMPT CAR SALES
Every customer wants to know how to exempt the transaction from sales tax completely. Your salesmen probably want to know the same thing so they can get a competitive advantage over the dealer down the street. But, as you learned above, the business owner/dealer is responsible for collecting and remitting any taxes that are due the state of Florida, so the "fully exempt" scenario is the most dangerous to the business owner. For this reason, a dealer should have a very rigid approval process for any transaction purporting to be tax exempt. Tax exempt transactions can be broken down into 3 categories:
- Sales for resale (to other car dealers)
- in state dealer: Form DR-13 Resale Exemption Certificate
- out of state dealer: follow procedures in Rule 12A-1.007(6)(b), FL Admin. Code.
- Sales to an exempt organization (tax exempt entity, e.g. County School Board)
- Form DR-14 - Consumer's Exemption Certificate
- US Government: proof of sale to US Government (Rule 12A-1.038(4)(b), FL Admin Code)
- Sales shipped out of state/country (not picked up by the customer locally)
- Must have shipping documents proving vehicle left the state before the owner took possession and control. This applies to internet sales as well.
- Preferable to have the customer sign a statement that the customer accepted delivery of the vehicle out of state (give the date and location0, with a witness and notary.
- Sale to someone from a state with no sales tax
- Fully executed Form DR-123 must be signed at the time of the sale.
BEWARE - just because you think a transaction falls into one of these categories, it does not magically become exempt. The car dealer is responsible for not only proving that the transaction fits into one of these tax exempt categories, but also must have all the forms required by the FL DOR. We briefly mention the documentation required under each category above.
PARTIALLY EXEMPT CAR SALES
- Sales to someone from a state with sales tax less than Florida
- Fully executed Form DR-123 must be signed at time of sale
- Collect the buyers home state rate up to Florida 6%
- No local surtax charged
- Sale over $5,000.00
- The local surtax only applies to the 1st $5,000. Thereafter, only 6%state tax rate applies.
- Trade-in at time of sale only
- value of trade does reduces the sales price of the new car for sales tax purposes
FULLY TAXABLE CAR SALES
- Any car sale that does not meet any of the exceptions above (including paperwork).
Even if the taxpayer tells you that they will take the car out of the state the same day (s)he buys it, the tax is due on the full price if the buyer take position of the car in Florida (presuming no other exemptions apply). Protect yourself and your company, make sure you do everything you can to educate yourself and train your employees about the rules and dangers of sales tax collection responsibilities.
REVEW YOUR RECORDS FOR MISTAKES
Whether you are under a Florida sales and use tax audit or not, it is a good idea to periodically have someone review your deal jackets for sales and use tax compliance. If you don't have time to go through your records for the last three years, then pick one month from each year for review. Note what documents are missing and how you can correct your procedures to make sure this doesn't happen in the future. We also recommend that you contact the DMV for a report of all the cars registered in Florida that someone indicated you sold them the car. If this seems like over kill, then you should know that each and every Florida sales and use tax auditor are trained to pull your DMV records. If you have missing transactions, then don't you want to know it now and possibly correct whatever is causing these transactions to slip through the cracks?
If you find problems with your records and possibly under reported sales, then there is a way to come clean that turns the table very much in your favor. We can help you go through a process called a Voluntary Disclosure in which you notify the Florida Department of Revenue that you have some accounting errors. We tell the DOR what was wrong and how much sales tax we need to pay. The Voluntary Disclosure has several advantages over going through an audit.
- First, most, if not all penalties are waived when you go through a Voluntary Disclosure.
- Second, there is a statutory presumption of no criminal intent when you come through a Voluntary Disclosure. Yes, there are people that get arrested for as low as $4,000 of collected but not remitted sales tax in Florida and many of them seem to be used car dealers. Going through the Voluntary Disclosure and paying any collected but unremitted tax all be guarantees that the matter will not turn criminal.
- Third, the state rarely will conduct a full audit of your records in a Voluntary Disclosure. They usually accept the amounts that you disclosure unless they have alternative information that disputes your disclosed amounts. This means the cost of going through a Voluntary Disclosure can be much cheaper than a full audit.
- Forth, there is an unwritten rule that a company that just went through a Voluntary Disclosure usually does not get selected for a full audit for a couple of years after the Voluntary Disclosure. If a company just came clean, then it would likely be a waste of the state's resources to audit your company. This is not a guaranteed, but it is the likely result.
The Law Offices of the Law Offices of Moffa, Sutton, & Donnini, P.A. is a firm with a dedicated focus on tax controversy work against the Florida Department of Revenue. Since 1991, our firm has been assisting company in virtually all industries, including car dealers from all parts of Florida, to get a just and fair result when dealing with the Florida Department of Revenue. Whether your company has already received an audit notice or and you need to your policies and procedures to minimize the tax impact on your company, please contact our attorneys today by phone or email (see top of this page) for a free initial consultation.
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's primary practice is Florida tax controversy, with a almost exclusive focus on Florida sales and use tax. Mr. Sutton worked for in the State and Local Tax department of one of the Big Five accounting firms 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. Mr. Sutton is a frequent speaker on Florida sales and use taxes for the FICPA, Lorman Education, and Florida Society of Accountants. Mr. Sutton is also co-author of CCH's Sales and Use Tax Treatise. You can read more about Mr. Sutton in his firm bio.
STATE FORMS & INSTRUCTIONS FOR CAR DEALERS
- FORM DR-123
- FORM DR-13 (Informational packet with instructions)
- FL DOR Instructional Information for Car Dealers
ADDITIONAL RESOURCES
- FL TAX ALERT - USED CAR DEALERS TARGETTED!!!!, by James Sutton, CPA, Esq., January 19, 2013
- TAMPA CAR DEALER FACES 15+ YEARS FOR SALES TAX THEFT, by James Sutton, CPA, Esq., January 7, 2013
- BROWARD COUNTY CAR DEALER FACES 15+ YEARS FOR SALES TAX THEFT, by James Sutton, CPA, Esq., December, 17, 2012
- FL TAX - VOLUNTARY DISCLOSURE CAN BE THE PERFECT SOLUTION, by Jerry Donnini, Esq., October 5, 2012.
- CRIPPLING PENALTIES UNDER FLORIDA SALES AND USE TAX LAW, by James Sutton, CPA, Esq., July 19, 2012
© 2013 All rights reserved - James H Sutton Jr