In our state, many counties have a discretionary sales surtax which is charged on most of the goods or services for which sales or use tax applies. These rates commonly go from .25% to 1.5% and only apply to the first $5,000 of the sales price. We recently ran into a question about how the DOR estimates the discretionary sales surtax for a business to determine whether additional taxes, penalties, and interest are due. So I posed the dilemma to the Department of Revenue. Get ready for this. The Florida Department of Revenue is neither willing, nor apparently able to give a decisive answer. I know it shocks the world, but it is a situation that I think warrants (pun intended) attention.
I posed the question about the discretionary sales surtax to a Florida Department of Revenue collections supervisor, specifically addressing the issue of system generated estimated tax "errors" and penalties. Not even going into the issue of whether that taxpayer had received the proper form noticing them of the change for 2014, I was told that the system had generated the penalties from a self-generated check based on surtax. I was told the system checks the surtax amount to verify the proper tax had been reported. If not, based on the system's calculation, then the correct amount was determined from the surtax and the underreported amount was determined along with a system generated penalty.
This immediately caused me to pause as the taxpayer I was representing had two locations in different surtax counties. Naturally, I asked how the system could determine the correct sales if it didn't know the two surtax rates. As we know, there is the line on the Form DR-15s to enter the amounts subject to sales surtax at a rate different than your county sales surtax rate. Given the tax collected, and the sales for a different surtax county, you can determine the rate(s). But, would the computer factor in sales amounts at various surtax rates to find the calculations as filed fell into an "acceptable" range. I naturally had to ask. But, the answer was that it was addressed by programmers in Tallahassee and I would have to ask them.
Dealing with what I thought was a nebulous situation, I had to provide a hypothetical. So, I proposed this scenario to the supervisor. I asked if a taxpayer filed the correct aggregate amounts on the front, but made an error on the surtax calculation, would that lead to the system concluding more tax was due and then generate penalties? I was told yes. I spent a little more time trying to find out about the system from the supervisor because I didn't expect much guidance from Tallahassee. I didn't get anywhere.
This conversation made me pause. I thought of a large company I had audited who told me during their audit that they received estimated tax payments each month after they filed. I thought of them because they sold to over 40 Florida counties. I looked through their calculations which used the correct surtax rates. Other than an occasional oversight with the surtax cap, they had made correct calculations. I told them then, as I would bet all auditors would in that same situation (and as the collections supervisor told me), that I had no idea how the estimated tax assessments were made. I think about them now because they had invested in expensive accounting software that purported to address multiple surtax county sales. I'd love to know if they are still getting estimated tax assessments each month.
I have not found a contact in Tallahassee who can (or will) address the system's design and how it addresses different surtax rates on sales and accuracy verification. I guess it simply highlights the importance of the calculation. In most audits (and with most taxpayers I have dealt with), they simply back out the surtax from the total tax collected. In a 1% surtax county, you can take out the 1/7th tax and be close, if not spot on. But, that isn't going to work if you have sales to differing surtax counties (or have locations from other surtax counties that roll under one business partner number for reporting).
Though I don't have an answer on how the system does its accuracy verification, I can tell you it is important to have a system that accurately determines the amount of sales surtax collected for your monthly sales tax returns. But, it appears that you can even be completely correct in your surtax calculation and still have the system tell that you still owe tax (and penalties). But that is not exactly uncommon with your friendly neighborhood DOR. If you feel your company or client's company is facing additional tax, penalties, and interest bases on this miscalculation by the Florida Department of Revenue, then please don't hesitate to contact me to discuss how to fight back.
ABOUT THE AUTHOR: Mr. Parker is a sales and use tax attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice includes state tax audits and controversies involving sales and use tax and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Parker received his law degree and L.L.M. in Taxation from the University of Florida. If you have any questions please do not hesitate to contact him via phone as listed on his bio on the firm's website or via email at MatthewParker@FloridaSalesTax.com.
ADDITIONAL RESOURCES
FLORIDA 2014 DISCRETIONARY SALES SURTAX RATES, published February 19, 2014, by James Sutton, CPA, Esq.
FLORIDA 2014 DESCRETIONARY SALES SURTAX RATES, published January 5, 2013, by James Sutton, CPA, Esq.