After nearly 10 years in limbo, the Florida Department of Revenue (“Department”) issued a Final Order resolving a taxpayer’s litigated tax liability issuing a final order in March 2017 finally establishing that no tax was due. 10 years… seriously.
The year is 2007. The first iPhone has come out. The housing bubble is just about to pop, leading to the Great Recession. And Motion Computing (“Motion”), a Delaware Corporation, receives a glowing victory against the Department of Revenue in a Chapter 120 Division of Administrative Hearings (DOAH) case with a recommended order saying the taxpayer was not required to collect sales tax on drop shipments into Florida. Unfortunately, the DOAH recommended order must go reviewed by the Department of Revenue to decide whether the DOR agrees or disagrees before a Final Order will be issued.
Motion had its principle place of business in Texas. Motion made sales to Advantec Computer Systems, Inc. (“Advantec”), a Massachusetts company, but would drop-ship these goods directly to Advantec’s customers in Florida. Motion would bill Advantec for the goods ordered by Advantec, and Advantec would independently bill its Florida customers. This is the typical “dropship” scenario.
What makes the facts of this case a little unusual is that Motion was a registered dealer for sales tax in Florida at the time of the sale but Advantec did not have nexus with Florida. So Motion shiped goods into Florida and the customer (Advantec) could not give Motion a resale certificate to exempt the goods. Motion was audited and both the auditor and Tax Assistance and Dispute Resolution adamantly believed that Motion should have collected tax on the shipments into Florida. Thus, the Department took the position that because Motion was registered with the Department, it was the selling dealer of the goods shipped into Florida. Therefore, the goods shipped into Florida were taxable unless Motion could prove the goods were exempt.
Motion filed a Chapter 120 petition challenging the assessment. The Administrative Law Judge (ALJ) concluded the sale between Motion and Advantec was not a Florida sale; rather, the sale between Advantec and Advantec’s customer in Florida would be taxable, if Advantec had nexus in Florida. Alternatively, the customer would owe a use tax.
The ALJ went on to state that even if Motion did have nexus, because of its Florida employee, Motion’s nexus determination is not relevant to the transaction between Motion and Advantec, as that is the transaction the Department was attempting to tax. Should the transaction remain taxable, the tax would violate the Federal Commerce Clause. Accordingly, the ALJ recommended the entire assessment be removed. The Department, in its final order, adopted the ALJ’s recommended order.
The morals of the story…
(1) don’t expect the Florida Department of Revenue to give you quick answers and
(2) just because an auditor says something is taxable doesn’t mean that it is taxable.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended clients against Florida sales and use taxes for more than 25 years with over 100 years of cumulative experience working for our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. 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 put this nightmare behind you.
AUTHORITY
Motion Computing v. Department of Revenue, DOAH Case No. 07-2667
ADDITIONAL RESOURCES
FLORIDA SALES TAX - THEFT OF STATE FUNDS, published March 16, 2017, by Amanda Levine, Esq.
FLORIDA USE TAX AUDIT LETTER?, published June 14, 2015, by James Sutton, CPA, Esq. and Jerry Donnini, Esq.
GO TO JAIL FOR NOT PAYING FLORIDA SALES TAX?, published November 3, 2013, by James Sutton, CPA, Esq.
FL TAX – VOLUNTARY DISCLOSURE CAN BE THE PERFECT SOLUTION, published October, 5, 2012, by Jerry Donnini, Esq.
PS. The author would not have put it past the Department of Revenue to hold off on issuing this Final Order in this case until the America Business USA vs Florida Department of Revenue case was finally decided because the holding herein directly contradicts and argument that the DOR made in American Business USA. Specifically, the DOR argued that nexus over the taxpayer is enough to have nexus over all transactions by the taxpayer. The holding directly contradicts that case.
© 2017 James Sutton, CPA, Esq.