FL Sales Tax Audit: By Tax Lawyer and Former Auditor

Au·dit: /ˈôdət/ A word designed to strike fear into the heart of business owners.

It is a taxable privilege to sell items of tangible personal property in Florida[1]. This privilege is bestowed on business owners by Florida Department of Revenue. Sales tax applies to sales of tangible personal property, and certain taxable services. Additionally, many businesses have to accrue use tax on purchases of items consumed by the business. When a business receives an audit notice, these are some of the issues that will be reviewed by a Department of Revenue auditor.

The audit process involves several steps, which are uniform across all audits. Although the process is consistent for all audits in Florida, the results of the audit, and the experience of being audited, can vary wildly depending on the Taxpayer and their industry. Contact with Department of Revenue, regardless of the Taxpayer’s industry, can generally be broken into a 3-step process.

Step 1: DR-840 Notice of Intent to Audit Books and Records:

This is the initial contact between a Taxpayer and Department of Revenue, and serves to put the Taxpayer on notice that “[t]he Department has selected your account for tax compliance audit…” From this point, the Taxpayer has 60 days to gather books and records, prior to the start of the audit. The auditor should not contact the Taxpayer during this 60 days.

Tips from a former auditor: Auditors are trained to have inquiring minds, it is their job. Be very careful that the way the business is explained is an accurate depiction of how the business operated for the full 36 months of the audit period. People sometimes explain how a business works at the point they are speaking with the auditor, rather than how it operated four years prior, during the months under audit. This can cause confusion to the auditor reviewing the records, and transactions can be misinterpreted. Because many audits are done using sample periods, a single anomaly transaction can be extrapolated over 36 months, which can be a costly mistake.

Step 2: DR-1215 Notice of Intent to Make Audit Changes:

60 days from the DR-840, the Department will reach out to the Taxpayer and request documentation. The documentation provided will be reviewed, along with any data the Department gathered prior to the audit. At that point, the Department will issue the Notice of Intent to Make Audit Changes. This notice comes with the Department of Revenue’s preliminary set of workpapers. The Taxpayer has a few options at this point. 1) agree to the assessment, sign the DR-1215, and pay the outstanding balance; 2) request a conference within 30 days of the date of the notice, as Florida Statutes guarantee a right to a conference; 3) wait for the next notice.

Tip from a former auditor: Think outside the box! Audits are very document-drive. If a Taxpayer does not have the records to show a transaction should be removed from the assessment, they should get creative! Contact the customer, the vendors, and the banks to try and get more details on transactions that require more data. The records exist, just be diligent.

Step 3: Notice of Proposed Assessment (NOPA):

The Notice of Proposed Assessment is, as the name suggests, a proposed assessment. The assessment does not become final until 60 days from the date it is issued. The Taxpayer can continue to fight this assessment, by either 1) filing with the Department’s Compliance Standards Process within 60 days or 2) filing in court within 120 days. If filing in court, the Taxpayer has the right to go to the Division of Administrative Hearings, or Circuit Court. There are different jurisdictional requirements for each.

Step 4: Informal Protest

Once a Protest is filed, or the Taxpayer has filed in Court, the process shifts from audit level review to review by a Department Conferee or the Department’s attorney. An audit is tailored to laying out the factual basis for the assessment. This next level of review is where questions of law will be sorted out, and any documentation that may have been unclear can be explained. This higher-level review is the perfect time to clarify any errors that may have ended up in the audit report.

Tip from a former auditor: The Department of Revenue has been targeting a few industries for Florida Sales Tax audits. Car dealers and convenience stores, specifically, have been the caught in the cross hairs of the Department’s auditors for the past few years. The reason for this is simple: The Department of Revenue has data on these types of businesses prior to the start of the audit and can easily target those assumed to be out of compliance. Click through to read more on the Department of Revenue’s audits of car dealers and convenience stores.

About the Author: Amanda Levine is an associate attorney at The Law Offices of Moffa, Sutton, & Donnini, P.A. Ms. Levine joined the firm in 2013, and focuses her practice on state and local taxation issues including property taxation, and criminal proceedings. Ms. Levine received a bachelor's degree in Accounting from University of Central Florida. She spent several years working in public accounting before attending Nova Southeastern University Law School. She received her J.D. in 2014. During her time at Nova Law, Ms. Levine was the Executive Justice of Academics for the Moot Court Honor Society, as well as the Finance Chair. She was awarded by the National Order of the Barrister, a national honor society which acknowledges excellence in oral advocacy and brief writing skills. You can read more about Amanda in here FIRM BIO.

These audits are time consuming and can be very stressful for a business owner trying to juggle auditor expectations while running their business. Knowing your rights, and understanding the process, accurately depicting the business, and providing documentation is crucial to come out unscathed. At Moffa, Sutton, & Donnini, PA our primary practice area is Florida Sales and Use Tax Controversy. We have a staff of tax lawyers, CPAs, and former Department of Revenue agents, to manage the audit process every step of the way. Contact us today for a FREE INITIAL CONSULTATION.

Authority

212.05, Florida Statutes – Sales Storage and Use Tax

Additional Resources

FLORIDA SALES AND USE TAX – AUDIT TIMELINE FROM THE DOR'S PERSPECTIVE, dated April 6, 2014, by James Sutton, CPA, Esq.

FLORIDA SALES TAX AUDIT HELP, dated July 14, 2013, by James Sutton, CPA, Esq.

WHAT SERVICES ARE TAXABLE IN FLORIDA, dated May 1, 2012 by James Sutton, CPA, Esq.