FL DOR - THE MAGIC BEHIND THE CURTAIN

FL DOR – THE MAGIC BEHIND THE CURTAIN

Have you ever seen a magic show on TV or been lucky enough to watch a live magic show and wondered just how each of those seemingly miraculous feats of wonder are performed? Could that rabbit really fit into a secret compartment inside that top hat? Just how did that saw not cut that girl in half? Just how much did they have to spend on a tiger that looked like it was ready to kill you, but would let you put your head in its mouth without even a tempting lick of your cheek? Today, we are going to pull back the curtain on a bit of magic that happens in Florida by our good friends at the Florida Department of Revenue.

Spoiler Alert: If you would prefer not to know the secrets behind the magic of Florida's largest taxing authority, then stop reading now! You are perfectly free to stay perplexed at how Tallahassee performs feats that leave taxpayer's heads spinning and magically leaves businesses owners with much less of their funds than before they stepped onto the Florida Department of Revenue stage. Do you really want to spoil the magic? If so, then please continue reading….

The secrets we are revealing today concern two aspects of the Florida DOR's practices. First, we will reveal how many of each type of "activity" is performed within a year. This is interesting enough in and of itself. Seriously, have you ever wondered just how many unsuspecting business owners call into the FL DOR for advice on how to treat certain taxable activities? Just how many audits are performed? Refund claims? Just how many people attend the free, interactive education sessions required to be provided by Sec. 213.015? Oh wait – the DOR does not provide those required seminars any more. So that is an easy answer – zero. Don't get me started on this travesty...

The second set of mysterious facts that we will reveal today has to do with just how much the DOR spends per activity. And let's not forget the DOR gets involved with property tax issues as well as child support issues as well. That's right … you will find out just how much the DOR is allocating in financial resources when you are audited, file a protest, or request a refund claim. When that struggling mother asks the DOR for help getting her dead beat husband to pay back child support, you will see just how much the DOR cares about struggling families by the amount of money they allocate to each case.

In all seriousness, it is truly amazing what you can find out about our state government when you take the time to look. The volume of information is truly astounding, and quite often scary when you realize the choices our elected, appointed, or even hired officials are doing with the $22 billion dollars the state of Florida will collect in sales and use tax this fiscal year. Yes – you read that right. Billion with a "B." Luckily, a good bit of that tax revenue comes from tourists staying in our hotels, eating at our restaurants, renting cars, or even spending several years' worth of savings to wander around Magic Kingdom or Sea World. However, Florida residents do all these things plus shop for clothing, go to the movies, eat out, and yes – I'll admit that we go to theme parks as well. Whether you get your news from CNN or FOX, you have to admit Floridians pay our fair share of the $22 billion dollars in sales and use tax revenues earned by Florida this year.

Now it is time to pull back the curtain on a few areas of our esteemed colleagues in Tallahassee:

1. Education: You should be proud to know we care about the education of our revenue employees. The Florida DOR anticipates spending over 20,000 hours training FL DOR employees at an average cost of $1,249.50 per hour. While this cost might seem high, it is cheaper per hour than Florida's most expensive university at $1,600 per hour.[1] Wait, the university statistic is per credit hour, equating to at least 15 actual class room hours. That makes the cost a little over $100 per hour at a university. Crazy thought … at almost $1,250 per training hour, perhaps Florida should enlist the state universities to teach tax classes to new DOR recruits and then the universities would probably pay experienced DOR employees to teach the students (and the students could receive college credit for the classes). Second crazy thought – how about spending money on educating business owners so that tax is collected correctly in the first place?
2. Child Support: The most troubling group of statistics has to do with the child support division. According to the FL DOR's budget, they anticipate 1,409,506 child support cases in Florida during the year. Our Revenue department anticipates processing and distributing over 10 million child support payments during the 2013/2014 fiscal year. The Department also anticipates establishing paternity in over 91,000 cases in the same year, as well as over 2.6 million compliance discrepancies, with a budget of only $23.40 per discrepancy.
3. Number of "Business Partners": If you are a business owner in Florida, then you have probably heard that the FL DOR refers to you as their "business partner." Well, you are in good company as the current year's statistics from the DOR says that they anticipate having 1,095,564 registered business partners, all collecting tax for the state.
4. Audits: Our comrades in Tallahassee anticipate knocking on the door of 16,300 businesses to perform lobotomies, I mean tax audits, of the business's compliance efforts. The revenue allocation (cost?) per audit is projected to be $3,225.73. A little simple math reveals that the FL DOR will audit almost 1.5% of the registered businesses during the year. We also happen to have the statistics of historical audit results, which reveals that between 2000 and 2012, the FL DOR assessed an average of $110 million dollars a year from businesses just from sales and use tax audits. Given a few very successful audit campaigns during 2013, I would anticipate the average assessment per audit is on a serious upward trend.
5. Unregistered Taxpayers: The FL DOR anticipates 8,940 separate businesses will be examined to see if they should have been registered to collect and remit sales tax. Many of these examination are in the form of letter audit inquiries. I would wager that a significant percentage of these inquiries will relate to finding commercial property owners that are renting their property (even to a related company) and not charging sales tax. As the only state in the country that charges sales tax on commercial rent, these audit inquiries are rather profitable for the FL DOR even with a budgeted cost of $1,119 per discovery examination.
6. Criminal Investigations: Yes, the Florida Department of Revenue does have its very own criminal investigation unit. This unit does nothing but investigate businesses for collected but not remitted tax (or unfiled returns). Florida statutes provide very serious criminal sanctions for not filing or remitting tax timely, with as little as $301 resulting in up to 5 years in jail and $5,000 in fines. With the motto, "detect and deter," the criminal investigation unit anticipates performing 1,156 investigations over the course of the year at an allocated revenue cost of $3,927 per investigation. In my experience, these are the most professional employees in the DOR, partially because they effectively answer to the state attorney's office as much as the DOR. However, let's hope you never experience the end result of this professionalism.
7. Refund of Tax Overpayments: Have you ever filed a refund claim with the FL DOR? If so, then I would wager the first response you received was a denial of the refund claim. Quite often, the second response is also a refund denial. I have long had a sneaky suspicion that this is a standard business practice of the refund claims division. I now have another fact to support my suspicion. The budget information we obtained reveals that the FL DOR anticipates 135,624 refund claims during the year, but they will only allocate $32.78 to process the claim. It costs very little to send out a form denial letter. Makes you wonder, doesn't it? One of these days I look forward to taking a refund denial to court to ask some interesting questions of the refund department employees (or even former employees) under oath about how they are trained to handle refunds. At $1,290 per hour, they should remember something about their training right?
8. Protests: Per the budget numbers we obtained, the DOR anticipates having to resolve 1,831 administrative challenges to audit assessments at an allocated revenue cost of $5,581 per challenge resolved. This is the highest per line item cost in the budget. One would think this would give the DOR a financial incentive to resolve tax disputes on audit instead of letting auditors throw everything at the wall to see what sticks then forcing taxpayers to protest the audit results for resolution. Perhaps allocating more budget hours per audit would help achieve a more cost effective end result for both the DOR and their "business partners."
9. FL DOR Tax Hotline: The last budget item addressed in this article has to do with the infamous FL DOR tax hotline. This is a call-in number provided to taxpayers so they can ask $1,290 per hour educated FL tax experts how to properly handle tax for their business. The Florida Taxpayer Bill of Rights (Sec. 213.015(1), F.S.) provides that taxpayers have "[t]he right to available information and prompt, accurate responses to questions and requests for tax assistance." I often mention the taxpayer hotline during my frequent lectures on Florida sales tax around the state. Some of my most troubling cases arose because an unsuspecting business owner called this tax hotline and got bad advice. The business owner finds out that the advice was bad years later when the state audits the business going back at least three years – assessing the tax from the taxpayer who did nothing but follow the advice of such well trained professionals in the FL DOR. Unfortunately, the advice was not binding on the DOR and our draconian comrades will not hesitate in telling you so right before they extort the tax from your business (part of the $110 million a year in tax assessments).

At the Law Office of the Law Offices of Moffa, Sutton, & Donnini, P.A., our primary practice area is Florida tax controversy. We have been defending clients against the Florida Department of Revenue since 1991. In fact, the vast majority of our practice relates to Florida sales and use tax controversy. Our partners are both CPAs and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We understand the big picture of all sides of your Florida sales tax situation because we handle not only audits, protests, and controversy but also collections, revocations, and the criminal defense sides of Florida sales tax controversy. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help.

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 AREA IS FLORIDA SALES AND USE TAX CONTROVERSY & CRIMINAL DEFENSE. 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, AND AT BOSTON UNIVERSITY COLLEGE OF LAW TEACHING SALES AND USE TAX SINCE 2014. YOU CAN READ MORE ABOUT MR. SUTTON IN HIS FIRM BIO.

AUTHORITY

Florida Department of Revenue 2013/2014 Budget by Activity

ADDITIONAL RESOURCES

FL DOR EVALUATES COLLECTION AGENTS BY WHAT?, June 10, 2014, by James Sutton, CPA, Esq.

FL DOR SCRAPS AUTOMATED COLLECTIONS AFTER 7,000 ERRONEOUS TAX WARRANTS, published May 30, 2014, by James Sutton, CPA, Esq.

TAXPAYER FORCED TO SIGN AWAY RIGHTS TO REMIT TAX?, September 2, 2013, by James Sutton, CPA, Esq.

FT. MYERS BUINESS OWNER ARRESTED FOR FAILING TO REMIT ONLY $8,000 IN SALES TAX COLLECTED, August 11, 2012, by James Sutton, CPA, Esq.

FL DOR'S GREATEST WEAPON – REVOCATION OF DEALER'S SALES TAX CERTIFICATE, August 6, 2012, by Jerry Donnini, Esq.

CRIPPLING PENALTIES UNDER FLORIDA SALES AND USE TAX LAW, July 19, 2012, by James Sutton, CPA, Esq.

WHAT SERVICES ARE SUBJECT TO SALES TAX IN FLORIDA, May 1, 2012, by James Sutton, CPA, Esq.