For retailers in Florida, keeping up with sales tax laws and exemptions can be a daunting task. Retailers are liable to the Department of Revenue for under collecting tax and retailers can be sued by their customers for over collecting tax (class action tax law suits are become more common). One such complication that seems to cause a lot of frustration is the $5,000 discretionary surtax cap for bulk sales. Retailers and customers alike often disagree when the cap applies and there is a great deal of inconsistency in the various retail industries. This article is designed to clear up the confusion about the $5,000 discretionary surtax cap.
By law, discretionary sales surtax only applies to the first $5,000 of a transaction, but only if certain criteria are met. The “criteria” to qualify for the surtax cap seems to be the confusion and frustration. Retailers don’t want to get caught under charging the surtax and become liable for the tax. Customers don’t want to overpay the surtax, for obvious reasons. The Department of Revenue is more than happy if a retailer over collects tax, so overcollection is rarely identified during audits. Because counties have anywhere from a 0% to 2% discretionary sales surtax rate, the dollar amounts can be significant to customers on large transactions. But for a high-volume retailer, even small tax discrepancies can add up in the typical 3-year sales tax audit. So let’s discuss the specifics…
The best place to start is Florida Rule 12A-15.004(3), Florida Administrative Code (“F.A.C.”), which provides the guidance for retailers to determine when and how to apply the discretionary surtax cap. The Rule starts out by providing “the surtax does not apply to the sales amount above $5,000 on any item of tangible personal property.” This one sentence is probably the root of most of the confusion surrounding the bulk sale rule. If you gleamed how to apply the discretionary surtax cap just from this sentence, then you would, incorrectly, presume that the cap only applies to the sale of a single item. However, the Rule goes on to provide “when multiple items of tangible personal property are sold by a dealer to the same purchaser at the same time, the $5,000 limitation applies when the sale or purchase” meets the requirements as (1) a “single sale” and (2) the goods are “items normally sold in bulk or items that comprise a working unit or part of a working unit.” So, let’s explore these two requirements…
What does it mean to be a “single sale?” Rule 12A-15.004(3)(a) provides a laundry list of requirements as follows:
- You must have an invoice, sales slip, charge ticket, written purchase order/agreement, or other tangible evidence of sale that establish the items were sold in a single sale, and
- The written documentation of the single sale must:
- Provide for a specific quantity, and
- If delivery does not occur at the same time, then the documentation must provide for a specific period of time for delivery to be completed
What qualifies for “items normally sold in bulk” or “items that compromise a working unit?” Rule 12A-15.004(3)(b) provides the sale must meet ONE of the following requirements:
- Items are multiple quantities of a single item that the dealer normally sells in multiple quantities (like masonry block or 2x4’s) or the purchaser normally buys in multiple quantities in the normal course of the purchaser’s business,
- Items are normally sold as a set or a unit and the utility of each for its intended purposes is dependent on the set being complete (like a matching living room furniture set),
- Items are normally sold in a single sale by the seller to the purchaser for use in the normal business practice of the purchaser as an integral unit (like a roofing contractor buying nails, lumber, rolls of felt, roof tile, etc that will be used to complete a single roof), or
- The items are components parts that have no utility unless assembled with each other to form a working unit or part of a working unit.
The bulk sale/working unit requirements can be truly confusing to apply for both retailers and purchasers. When a retailer must figure out when a purchaser is purchasing seemly random items that will become a working unit for a purchaser, it becomes a real challenge. The retailer must document and keep proof that the sale qualifies due to the purchaser’s use of the materials. Alternatively, if the purchaser is going to fabricate tangible personal property with at least some of the purchased goods, then purchaser is entitled to extend a resale certificate to the retailer and accrue/remit the tax.
There are a separate set of discretionary surtax cap rules for manufacturers of tangible personal property that install the property into real property during a real property contract under Rule 12A-15.008(1)(c)(4-5), F.A.C. Normally, a company that manufacturers goods to be used in a real property contacts is supposed to pay use tax on the “fabricated cost,” which equals the cost of materials and fabrication labor used to manufacture the property (see link to a more detailed article on this topic below). So if cabinet company buys $15,000 of materials for cabinets and spends $10,000 on fabrication labor manufacturing the cabinets for a single project, then this rule provides that the surtax is capped on the first $5,000 of the combined $25,000 of fabricated cost as long as the other requirements are met (such as a specific contract). I wager that there are a significant number of manufacturers/real property contractors around Florida that are not aware of this rule, which likely means that there are tax refund opportunities available.
The surtax cap also applies to leases of tangible personal property under 12A-15.004(2)(b), F.A.C., but the $5,000 cap applies on each lease payment. This creates a planning opportunity for large leases to make fewer, larger payments to lessen the impact of the surtax.
Finally, it is also worth noting that the $5,000 surtax cap does not apply to the following types of transactions:
- Admissions
- Services
- Warranties
- Prepaid calling arrangements
- Leases of real property or transient accommodations
- Rental fees for parking, docking, or storage space for motor vehicles, boats, or airplanes
If you have more questions about the $5,000 cap on the discretionary sales surtax cap, then please don’t hesitate contacting the author below.
ABOUT THE AUTHOR: MR. SUTTON IS A FLORIDA LICENSED CPA AND ATTORNEY AND A SHAREHOLDER IN THE LAW FIRM MOFFA, SUTTON, & DONNINI, PA. 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. MR SUTTON IS ALSO THE STATE AND LOCAL TAX CHARMAIN FOR THE AMERICAN ACADEMY OF ATTORNEY - CPAS. YOU CAN READ MORE ABOUT MR. SUTTON IN HIS FIRM BIO.
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.
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AUTHORITY
ADDITIONAL AUTHORITY
2018 FL DISCRETIONARY SURTAX RATES, published January 11, 2018, by James Sutton, C.P.A., Esq.
FL COUNTER-TOP COMPANIES: FL SALES TAX PROBLEMS, published October 13, 2013, by James Sutton, CPA, Esq.
RESTAURANT FLORIDA SALES TAX HANDBOOK, published January 4, 2018, by James Sutton, CPA, Esq, & David Brennan, Esq.
FLORIDA DISCRETIONARY SALES SURTAX: DOR ERRORS, published May 11, 2014, by Matthew Parker, Esq.
GOING TO JAIL FOR NOT PAYING FLORIDA SALES TAX?, published November 3, 2013, by James Sutton, CPA, Esq.
WHAT SERVICES ARE SUBJECT TO SALES TAX IN FLORIDA?, published May 1, 2012, by James Sutton, CPA, Esq.
© 2018 James H Sutton, Jr, All Rights Reserved