FL DOR Denying Your Sales Tax Registration?
As a Florida sales and use tax attorney, it never ceases to amaze me the number of shocking stories I hear on a regular basis. Some stories are brought on by interesting decisions made by taxpayers, but even more stories are rooted by the creative application of the laws, or lack thereof, by our friends at the Florida Department of Revenue ("FL DOR"). A common situation that arises is the FL DOR attempts to deny a sales tax registration or a license transfer. In some situations the denial is warranted but in many the FL DOR simply has no grounds to deny the registration or license transfer. It is important to know, help is out there for you and your client's business.
Consider a company that receives an audit notice from the FL DOR. Even if the process is expedited, it is not uncommon for even a simple audit to last anywhere between 6 and 12 months. Assuming there are not even any statute extensions, the audit is protested with Tallahassee and 6 to 12 months from then the FL DOR decides to review the case and renders its decision. Further assuming the case is not even litigated, an audit could easily last 12-24 month. If there is a contentious issue that warrants controversy an audit can go on much, much longer than even 2 years.
Most business owners know those 2 years is an eternity for the life of a business. Business can go from great to bad or from bad to great and any number of contingencies can arise in a 2 year period. Whether for good or bad, many business owners look to sell or transfer a business, often times during the pendency of an audit. Many of our clients often ask whether it is advisable to sell or transfer a business during the pendency of an audit, protest, or controversy. It is often my view that an audit should not dictate an owner's plan with his/her business and the decision should be evaluated purely from a business decision perspective.
If a business is sold or transferred, then it often requires a sales and use tax registration certificate and/or a business license of some sort. Often times, upon transfer or sale, the new owner attempts to secure a sales tax certificate or transfer its license to the new business. In either case, a blessing is often required by the FL DOR. For a reason unbeknownst to us, the FL DOR does not grant the new business a sales tax certificate or license transfer due to the pendency of an audit or protest by the old company. Are they allowed to do this?
In order to make it more clear consider the following example. ABC Co receives an audit notice and 10 months later it receives a DR-1215, notice of intent to make audit changes, which is also known as the audit report. From there it issues its notice of intent to make an assessment 2 months later and 2 months later a protest is filed to contest the proposed assessment. Some 6 months later, for an unrelated reason (which is now 20 months from the initial notice), ABC decides to sell to DEF Inc. DEF Inc attempts to register for a sales tax certificate but because the business is located at the same address as ABC Co, the FL DOR refuses to issue a sales tax certificate. DEF sells beer and liquor at its location so it needs an ABT license. The FL DOR is required to sign the license transfer but refuses to sign that as well because of the ongoing protest of ABC Co. Is this fair?
It is our opinion that both the license transfer or registration denial by the FL DOR is wrongful. I am unaware of any law that allows the FL DOR to behave in this manner. Backing away from the law, it does not seem right that a state agency can prevent a new business from effectively engaging in business because a former business is challenging an assessment. In other words, how could the challenge of a tax that may or may not be due prevent a company from buying the business?
If you or your client's business finds itself in this predicament, then it is worth fighting. As a state and local tax attorney I see this scenario play out on a regular basis and I am of the belief that this action by the FL DOR is just wrong. It is also worth pointing out that the state waives its right to be sued (sovereign immunity) for wrongful or negligent acts by the FL DOR. Does the denial of a registration certificate or the transfer of a license rise to the level of a wrongful or negligent act that would entitle a business to damages? It is certainly arguable that it does and companies may have the right to recover damages from the FL DOR if this procedure continues.
About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., in Fort Lauderdale, Florida. Mr. Donnini's primary practice is Florida tax controversy. Mr. Donnini worked as an accountant for a public REIT prior going to law school and has since earned an LL.M. in Taxation from NYU. If you have any questions please do not hesitate to contact the firm by phone or email via the links at the top of the page.
ADDITIONAL RESOURCES
FL DOR'S GREATEST WEAPON – REVOCATION OF DEALER'S SALES TAX CERTIFICATE, published August 6, 2012, by Jerry Donnini, Esq.