FL BAR TAX SECTION / FL DOR LIAISON MEETING 2013

FLORIDA BAR TAX SECTION / FL DOR LIAISON MEETING 2013

On October 25, 2013, about 17 members of the Florida Bar Tax Section met with high ranking officials from the Florida Department of Revenue ("FL DOR") and the Attorney General's office to discuss current topics involving Florida tax matters. Two members of our firm had the privilege of attending and we wanted to give the public a brief update of the topics discussed. If you want to learn more details, then please do not hesitate to contact James Sutton or Joe Moffa at the number above. We would also like to thank Joel Maser, Esq. of Greenberg Traurig and Tony Hamm of the FL DOR for coordinating to make this meeting possible.

LEGISLATIVE UPDATES

After introductions of everyone in the room (35+ people), the state enlightened everyone on their current legislative concepts including the following topics as presented by Vincent Aldrige:

Confidentiality of Data Security
Corporate Income Tax Piggyback
Delinquent Taxpayers: Security Requirement for New Registration
Floating Interest Rate for Reemployment Tax
Extension of Employer Protest Period
Standard Rate for Non-Compliance with Audit Record Request
Zappers
Clerks of the Court Remittances – Conforming Amendment
Increase Compromise Authority

You can find more specific detail on each of these legislative topics HERE. There was also a brief discussion on the governor's recent inclination to lower taxes in some areas, including several proposed pieces of legislation that might reduce or fade out the tax on commercial rent and a potential rolling back of the taxes/fee on car tags and vehicle registration. The discussion mentioned that the Governor was calling for a $500 million dollar reduction in taxes.

ECONOMIC UPDATE

Bob McKee, Chief Economist, gave a 30 minute presentation on the economic effects of the past 12 years has had on the various types of tax revenue. Of little surprise, the discussion focused heavily on the "great recession" of last decade and the recovery thereafter. We were all glad to see that most areas of tax revenue have already reached pre-recession levels and that the state estimates a little over $20 billion in revenue this fiscal year. Mr. McKee also made note of several interesting nuances in the statistical data, such as the fact that even tax revenue from motor fuel went down during the recession, a concept not anticipated by anyone.

controversy UPDATE

Tammy Miller and Ben Jablow each gave a brief overview on the latest cases against the Florida Department of Revenue in the areas of sales/use tax, corporate income tax, and one case involving insurance premium tax. Rheinhart Equipment, American Airlines, and Verizon Purchasing were the most interesting discussions. There is an article on our website already concerning Rheinbart Equipment that can be found HERE. There are two articles on our website regarding the Verizon Purchasing case that can be found HERE. I personally found it interesting that the presenter was under the impression that the Verizon Purchasing case was a final decision. However, the Verizon Purchasing case has not be finalized by the judge as to liability, which is holding up the case from being appealed.

The American Airlines case, which is the only sales tax case not already on our website, is an interesting one dealing with the exemption from tax for residential room rentals exceeding 6 months. There is an often unknown quirk in Florida sales tax law that says if someone rents a residential room for more than six months, even if the original term was not more than six months, then the rent for occupancy after six months is exempt from tax. The airline industry often rents blocks of rooms from hotels to accommodate pilots and other airline personnel that need to stay overnight. The airline will reserve a minimum number of rooms at a discounted price then get additional rooms as necessary. The law in this area is a little ambiguous regarding whether the requirement to occupy needs to be (1) by the room (allow only individual rooms rented more than six months) or (2) by the rental establishments, which would allow an exemption to all rooms rents (after 6 months) as long as the airline rented some rooms continuous more than six months. The court found for the state holding that the ambiguity in the law for an exemption must be found in favor of the taxing authority. So the airline was only able to exempt the specific rooms that were rented more than six months – and only for the period that exceeded six months. Given that the rooms would also be subject to the local Tourist Development Tax – this would be a significant amount of tax for the airline or the state.

TECHINCAL ASSISTANCE AND DISPUTE RESOLUTION UPDATE

Mark Zych, Director of Technical Assistance and Dispute Resolution (TADR), spent 25 minutes going over some of the more relevant protest topics, Technical Assistance Advisements (TAA's), and proposed rule changes. Almost tongue in check, there was discussions of a never ending supply of protests on related party rent and a growing trend of protests in the convenience store industry as well as protests dealing with bank freezes. The conversation quickly evolved into a series of inquiries from practitioners over the difficulties of late in getting a TAA over what the DOR termed "proposed transactions." Mark reiterated that his department has a long standing policy of not issuing TAA's on hypothetical situations. There was about 10 minutes of discussions back and forth about how many TAA's have been turned down of late over this issue. One practitioner pointed out that the term "hypothetical" is being interpreted by the lower ranks in TADR to mean that TAA's can only be given on transactions that have already be signed by all the parties. Another practitioner pointed out that many times a taxpayer does not care if the transaction is subject to tax or not – they merely want establish whether tax is due in their contracts going forward. It was pointed out that lower level people in TADR were treating this as a "hypothetical" transaction and refusing to issue a TAA. Mr. Zych hedged a little saying that that might be something they could give a TAA on, but he would have to look into the specifics. Mr. Zych then reiterated that the department must have specific documents in their file which can be review when the taxpayer is audited to determine if the transactions being review do, in fact, follow the same facts as requested in the TAA.

There was also a question on how quickly TADR will respond to a TAA request. Mr. Zyck said their goal is a 35 day turn around, but it could depend greatly on a lot of factors. For example, the taxpayer may request a conference that takes additional time to coordinate or additional records would need to be provided. There are also certain times of the years when TADR gets pulled into tight deadlines regarding pending legislation. There were several comments from both taxpayers and the DOR that essentially established a timeline of 60 to 90 days as a reasonable expectation for a TAA request turn around if the practitioner needed to communicate a time frame to the taxpayer. Mr. Zych also responded to a practitioner question that TADR would try to accommodate a tighter time schedule if the practitioner communicates that need at the time of initial request.

PRACTITIONER REQUESTED TOPICS FOR DISCUSSION

The final 45 minutes of the liaison meeting was allocated to addressing topics submitted by the Florida Bar Tax Section. The prior discussion went a little over their allocated times, so this discussion was but to about 30 minutes. The topics discussed are as follows:

Need for transfers of encumbered property between spouses and family trusts to be exempted from tax. It was pointed out that transfers between spouses during a divorce are specifically exempt, but that happily married couples cannot transfer property into and out of family trusts without documentary stamp tax implications. Marshall Stranburg, Executive Director, addressed the issue saying that this would need to be a legislative change that would have a financial impact on the state. Essentially, this is a matter to take up with your legislatures for a change. However, Mr. Stranburg did mention that the state was predicting a surplus this fiscal year and the governor was suggesting tax breaks. The implication is that this could be one of them.
A practitioner brought up the topic of potentially updating Florida law to recognize same sex marriages consistent with US Supreme Court decisions. There was provided a list of potential statutes that would need to be updated to allow couples legally married in other states to enjoy equal tax treatment as other married couples in Florida. Mr. Stranburg addressed this discussion directly stating that it was his understanding that the recent U.S. Supreme Court decision addressing this issue left open the right of states to make their own decision of recognizing same-sex marriages. Mr. Stranburg said that the state legislature recently addressed this issue. The implication of the conversation was that it did not appear that the legislature was going to be accommodating to this issue at this moment in time.
A practitioner brought up the suggestion that the DOR publish a list of pending/recently concluded tax cases in both Circuit Court and DOAH. Marshal Stranburg addressed this question stating that he would look into it, but that it would require dedicated bandwidth resources that might disrupt other materials provided by the DOR's web site. Reading between the lines, the implication seemed to be that the state did not want to publish each of the taxpayer legal challenges lest it would encourage more challenges. For anyone that spends much time on the DOR website, it is rare for the DOR to publish anything other than very DOR favorable holdings on the state's web site. One DOR official joked that the Moffa, Gainor, & Sutton website was doing a pretty good job of publishing most of the cases already. Joe Moffa pointed out that our firm requests copies of all suits against the DOR each month. The practitioner that original raised the question correctly pointed out that this doesn't really make the information readily available to the public.
A practitioner raised a very good request that the DOR publish guidelines for bond waiver requests for Circuit Court cases. At this point, only seasoned practitioners in this area know the ins and outs of when and how to request a bond waiver. It would be helpful if the DOR could provide something to assist educating the public on this topic. Tony Ham and Marshall Stranburg addressed the question saying that they would look into this, but the issuance of formal rules would be difficult and might hinder flexibility.
A practitioner raised the issue of how it is required for a taxpayer to waive all rights and agree to be personally responsible to enter into a stipulated payment plan. It was questioned whether the Department had the statutory authority to force taxpayers into such one sided agreements. It was pointed out that in many cases, the taxes due were not under-collected taxes and that it was fundamentally unfair for taxpayers to be forced to sign such agreements. It was also pointed out that compliance agreements, entered into during revocation proceeding, were much more flexible and could be tailored to the specific fact pattern. It was also pointed out that the local DOR offices repeatedly believe that they do not have the authority to modify these stipulated payment agreements. Mr. Strangburg asked which DOR offices were doing this – and several were mentioned. In retrospect, I'm not aware of a DOR office that believe they can modify these agreements, including Tallahassee. Another practitioner chimed in saying this was his experience as well. Maria Johnson, Program Director General Tax Administration, said that this sounded unfair and she would look into the issue herself.
A practitioner brought up the issue of the reasonableness of payment plans. The initial offer is 25% down with 12 equal payments, but the plans are often modified to have lower monthly payments with a gigantic balloon payment. The overall concept is that payment plans need to be more reasonable for business owners much like the payment plans provided by the IRS. Mark Zych noted that there was a proposed rule hearing on November 6^th that everyone was welcome to participate in to address this issue.

The meeting adjourned slightly after 12:00 noon with many handshakes, an exchange of business cards, and side bar conversations about particular issues. Overall, the liaison meeting was very productive. Personally getting to know the individual on the other side of a tax controversy breeds better resolutions for both taxpayers and the state. Hopefully the FL Bar Tax Section will make this an annual event as the FICPA State Tax Section does. Speaking of which, the FICPA liaison meeting will be held on November 14^th 2013 at the FICPA headquarters in Tallahassee and two members of our firm will be in attendance there as well. So look for a similar summary of the FICPA / FL DOR liaison meeting coming in a few weeks.

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 of the firm and his primary practice area is Florida sales and use tax controversy. Mr. Sutton worked in the State and Local Tax department of a "big five" accounting firm for a number of years and has been an adjunct professor at Stetson University College of Law since 2002 teaching State and Local Taxation, Accounting for Lawyers, and Federal Income Tax I. You can read more about Mr. Sutton in his firm BIO.

ADDITIONAL RESOURCES

FL controversy ALERT – RHINEHART EQUIPMENT – SOL, NEXUS, & A TIPSTER, posted October, 15, 2012, by James Sutton, CPA, Esq.

FL tax controversy ALERT – NOPA – VERIZON VS FL DOR-STATE WINS AT TRIAL, posted June 7, 2012, by James Sutton, CPA, Esq.