FL SALES TAX HOLIDAY 2014 - COMPUTERS & TABLETS

COMPUTERS & TABLETS INCLUDED IN 2014 FL SALES TAX HOLIDAY!!!

While most Floridian's are still getting used to paying sales tax on Amazon purchases after May 1st, there is a way to purchase a lot of things sales tax free during the Florida Back to School Sales Tax Holiday. Most Florida residents and clothing retailers are familiar with that magic weekend every year when the Florida legislature and governor allow clothing and school supplies to be purchased sales tax free. But for the year in a row (August 1^st through 3^rd), it will surprise a lot of consumers and businesses to learn that 1^st $750 of personal computers can be purchase tax free as well in 2014 (the computer had to be $750 or less last year). This is a big change and will affect a lot more retailers. Parents who are thinking about buying new computers or tablets (Surface or iPad) for their kids (or even for themselves) need to know about this, so please help spread the word. For business owners, this can be a real opportunity to increase sales for a weekend, but complying with the law is a lot more complicated than meets the eye.

The purpose of this article is to educate both the consumer and the retailer (or their business advisors) on what exactly is exempt. First – let's start with the simple categories of exempt items:

clothing ($100 or less),
Footwear($100 or less) ,
clothing accessories($100 or less) ,
school supplies($15 or less) (does NOT include books), and
personal computers & certain related accessories ($750 or less).

Most interesting is the fact that a tablet, such as the Apple iPad or Microsoft Surface will qualify for exemption. A cell phone does not qualify, but arguably an iTouch might. According the Florida Department of Revenue, the following definitions apply to the exemptions:

"Clothing" means any article of wearing apparel, including all footwear (except skis, swim fins, roller blades, and skates) intended to be worn on or about the human body. However, "clothing" does not include watches, watch bands, jewelry, umbrellas, handkerchiefs, or sporting equipment. A representative list of items is included in this publication.
"School supplies" means pens, pencils, erasers, crayons, notebooks, notebook filler paper, legal pads, binders, lunch boxes, construction paper, markers, folders, poster board, composition books, poster paper, scissors, cellophane tape, glue, paste, rulers, computer disks, protractors, compasses, and calculators.
"Personal computer" means an electronic device that accepts information in digital or similar form and manipulates such information for a result based on a sequence of instructions. The term includes any electronic book reader, laptop, desktop, handheld, tablet, or tower computer but does not include cellular telephones, video game consoles, digital media receivers, or devices that are not primarily designed to process data.
"Related computer accessories" includes keyboards, mice (mouse devices), personal digital assistants, monitors, other peripheral devices, modems, routers, and nonrecreational software, regardless of whether the accessories are used in association with a personal computer base unit. Related computer accessories does not include furniture or systems, devices, software, or peripherals that are designed or intended primarily for recreational use. The term "monitor" does not include a device that includes a television tuner.

For those of you that work regularly with Sales and Use Taxes in Florida, you are likely well aware that there is an overall theme in Florida sales and use tax law to exempt residents of Florida while taxing tourists. I've rarely seen this "tax the tourists" theme more pronounced that in the fact that these exemption for clothing do not apply if the purchase is made at a "theme park or entertainment complex," "public lodging establishment," or "Airport." In other words, anywhere where there is a high probability for a tourist from out of state to shop, then exemption does not apply. The Florida Department of Revenue provides the following definitions to help businesses and consumers determine when places of business follow this interstate commerce discriminating practice:

"Theme park or entertainment complex" means a complex comprised of at least 25 adjacent acres owned and controlled by the same business entity and which contains permanent exhibitions and a variety of recreational activities and has a minimum of one million visitors annually.
"Public lodging establishment" means any unit, group of units, dwelling, building, or group of buildings within a complex of buildings, which is rented to guests more than three times in a calendar year for periods of less than 30 days or one calendar month, whichever is less, or which is advertised or offered to the public as a place regularly rented to guests.
"Airport" means an area of land or water used for, or intended to be used for, landing and takeoff of aircraft, including accessory or relative areas, buildings, facilities, or rights-of-way necessary to facilitate such use or intended use.

So your local aquarium, arcade, and most smaller entertainment businesses that are frequented by residents do qualify to sell the exempt items tax free, but tourist favorite spots like Disney World, Bush Gardens, and the new Lego-Land will not qualify. I am curious when someone will finally challenge Florida's overall interstate commerce bias. In the meantime, as Florida residents, we can enjoy the discrimination in our favor.

The Florida Department of Revenue anticipates some businesses to "play games" by splitting high priced packaged items into individual items that each fall under the exemption price thresholds noted above. The Florida DOR threatens to crack down on this behavior this year and has provided several examples of what a business cannot do to squeeze items into the sales tax exempt category:

Example 1: A gift set consisting of a wallet and key chain is sold for a single price of $35. Although the wallet would qualify for the exemption if sold separately during the exemption period, the key chain would not qualify because it is not listed as a qualifying tax-exempt item. The full selling price of the wallet and key chain gift set is taxable.

Example 2: A computer and a separately packaged game accessory are sold for a single price of $500. Although the computer would qualify for the exemption if sold separately during the exemption period, the game accessory would not qualify because it is not listed as a qualifying tax-exempt item. The full selling price of the computer and the game accessory package is taxable.

Another example that defies logic is the Florida DOR's limitations on "buy one, get one free" sales. Business owners and their advisors should pay close attention to the following two examples because the business will become liable for the tax if the rules are not followed properly.

Example 1: A retailer advertises pants as "buy one, get one free." The first pair of pants is priced at $80; the second pair of pants is free. Tax is due on $80. The store cannot sell each pair of pants for $40 for the items to qualify for the exemption. However, the retailer may advertise and sell the items for 50% off, selling each pair of $80 pants for $40, making each pair eligible for the exemption.

Example 2: A retailer advertises shoes as "buy one pair at the regular price, get a second pair for half price." The first pair of shoes is sold for $80; the second pair is sold for $40 (half price). Tax is due on the $80 shoes, but not on the $40 shoes. The store cannot sell each pair of shoes for $60 for the items to qualify for the exemption. However, a retailer may advertise each pair for 25% off, thereby selling each pair of $80 shoes for $60, making each pair eligible for the exemption.

Several other strange rules that are worth noting:

Gift Certificates: The purchase gift certificate is in Florida is not subject to sales or use tax in Florida. However, redeeming a gift certificate for tangible personal property is the same as using cash or a credit card for the purchase and the sales tax rules apply at the time of the purchase. So if a gift card is used to purchase an otherwise exempt item during the magical sales tax free weekend, then no sales tax is due. Furthermore, purchasing a gift card during the sales tax free weekend does not entitle tax free purchases outside the tax free weekend

Exchanges & Return: When a resident purchases an item tax free (or a tourist seeks into a regular retailer to make a similar tax free purchase), then the concept of returning or exchanging the good at a date after the tax free weekend can create questions. If the good originally purchased tax free is exchanged for another good after the tax free weekend, then no sales taxes are due. If the good originally purchased is returned for store credit, then use of that store credit outside the tax free weekend will not qualify for tax exempt status. If the customer has to pay for even a slightly higher priced item during the exchange, then the transaction is to be treated as a store credit return and sales tax is due on the whole price of the newly purchased item. Also a tricky note for business owners is how to get the Point of Sales (POS) system to know when sales taxes should be refunded during exchanges. If the POS systems is not designed to account for this, then the business owner might find herself refunding sales taxes on transactions in which the customer never paid sales tax in the first place.

Manufacture's Coupons: The Florida Department of Revenue has a long standing, albeit unfair police of treating manufacturer coupons as not a reduction in the selling price of an item. This is a tricky situation for business owner. So if a customer brings in a manufacturer's coupon that effectively reduces the purchase to the customer below the sales tax exemption threshold, the store much still charge sales tax because the manufacturer's coupon is treated as the equivalent of cash. Like I said… it's not fair, but the business will become liable for the tax if the item is sold without charging sales tax.

Rentals: Only purchases qualify for the sales tax exemption, not rentals.

Internet & Mail Order: I know this what everyone really wanted to know and the answer is YES, internet and mail order purchases (even from out of state vendors) can qualify for the exemption. The interesting thing is whether the mail order or internet company has the ability in their system to make the transaction tax free for only one weekend. For the internet or mail order purchase to qualify for the exemption, the order must be accepted during the sales tax free weekend for immediate shipment. It does not matter if delivery occurs outside the exemption weekend. Also worth noting is that "immediate shipment" appears to only be voided if the customer requests delayed shipment. Backorders or unavailable item status does not affect the exemption.

Shipping & Handling: You have to be very careful when dealing with shipping/handling charges in the realm of Florida Sales and Use Tax. The Department of Revenue has a very bad habit of giving taxpayers and business false information about this topic. A great example is the Tax Information Publication about this holiday specifically sales that "[b]y law, shipping and handling charges are part of the sales price of an item, even if separately stated." This statement is not correct. The law in Florida is that "non-optional shipping and handling charges" are included in the selling price for Florida sales and use tax purposes. However, if the customer has the option to avoid the shipping charges either by using their own shipper or picking up the product, then the shipping charge is NOT included in the sales price for sales and use tax purposes. Misleading customers and businesses on this topic results in a ton of extra sales tax for the state, but this is one of those practices done by the DOR should be ashamed of doing as it violates the Florida Taxpayer Bill of Rights.

Repairs and Alterations: Neither repairs nor alterations qualify for the exemption even if performed on otherwise tax exempt goods.

I hope this article has been informative and somewhat entertaining (as much as tax can be). For a specific list of tax exempt items and a partial list of questionably taxable items, I encourage you to download the TIP 14A01-04 at the end of this article.

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

Tax Information Publication TIP 14A01-04 – 2014 SALES TAX HOLIDAY