If you or your client collect Florida sales tax and do not know about the “bracket system,” then you may have a potential costly problem waiting to be discovered during your next Florida sales and use tax audit. You need to know not only about the bracket system, but also how to fix the problem associated with it. Otherwise, the business could be assessed thousands of dollars for Florida sales and use tax that customers should have be paying.
Generally, the Florida state sales tax rate is 6% on a transaction. In certain instances, counties may have a discretionary sales surtax in addition to the state sales tax rate. The county rate could be anywhere from 0.0% to 2.5%, depending on the county. The county sales surtax rate should be limited to the first $5,000 of the price of the item, but only for sales of tangible personal property.
The Florida legislature was aware that these sales tax rates would produce a fraction of a cent of Florida sales tax on transactions. For example, assume a 7% sales tax rate. A $100.00 item would have exactly $7.00 of sales tax at the 7% rate. But a $100.07 item would still only have $7.00 of sales tax. Not to be short changed, pun intended, the state did not want to lose out on tax revenue due to rounding in the cents portion of the purchase price. In comes the bracket system. According to Section 212.12(9)-(10), Florida Statutes, retailers are supposed to charge Florida sales tax in specific ranges based on the sales price. The Florida Department of Revenue determined the brackets for the other Florida sales tax rates and as you can imagine, the result is not taxpayer favorable. This bracket system inevitably produces results that cause an effective sales tax rate higher than the state plus the county sales tax rates. I would not be surprised if this doesn’t make sense yet as the concept is very counter intuitive. Here is a small sample of the bracket system:
Bracket Rate at 7% | |
Amount of Sale | Tax |
.10 - .16 | 0.01 |
.17 - .33 | 0.02 |
.34 - .50 | 0.03 |
.51 - .66 | 0.04 |
For a car dealer with sales prices in the thousands of dollars, the effect of the bracket system is almost irrelevant because rounding up a penny really doesn’t materially affect the tax amount that was already in the thousands of dollars. However, for a business with a lot of smaller dollar sales, such as a convenience store, retailer, restaurant, or liquor store, the bracket system can have a very noticeable affect on the tax rate. The cumulative effect of not charging the bracket system rate over a 3-year sales tax audit period can result in a shockingly high tax assessment.
A link to the brackets for all Florida sales tax rates can be found at the end of this article. The Florida Department of Revenue expects businesses to automatically know and keep up with any and all changes to the brackets. It is not easy to do this let alone re-program your point of sale system to calculate the rates. Therefore, the Florida Department of Revenue frequently looks for and assesses sales tax because of the bracket issue. To an auditor, it is low-hanging fruit.
If your point of sales system can’t handle the bracket system, then the Department of Revenue provides guidance for a few industries. The Department provides pre-approved effective tax rates for certain industries based on the combined state sales tax rate and the local surtax rate. The following is the pre-approved effective tax rate for the sale of alcohol:
Alcohol Sales | ||
Packaged | Mixed | |
Rate | Goods | Drinks |
6.0% | 6.35% | 6.59% |
6.5% | 6.77% | 6.97% |
7.0% | 7.30% | 7.51% |
7.5% | 7.76% | 7.95% |
8.0% | 8.22% | 8.39% |
8.5% | 8.68% | 8.83% |
While obvious, a business can mitigate exposure immediately by charging the correct amount of Florida sales tax based on the brackets. You do not want to get caught by the Florida Department of Revenue on this issue, especially if you have already been audited and assessed on the issue.
If the Florida Department of Revenue is already auditing you or your client and the bracket system has become an issue, then there may still be hope. If a seller rounded the Florida sales tax to the nearest whole cent instead of applying the bracket system, the dealer can request to be forgiven the Florida sales tax, penalties, and interest associated with the issue for a first offense. However, the auditors will not always mention this to taxpayers during an audit. Certain criteria found in Section 212.12(14), Florida Statutes, must be met to have the Florida sales tax, penalties, and interest waived. Those criteria are:
(1) the seller acted in good faith believing the rounding to the nearest whole cent was the proper method for determining the Florida sales tax due;
(2) the seller timely reported and paid all Florida sales taxes collected; and
(3) the seller agrees in writing to future compliance with the bracket system.
Just remember – bracket system forgiveness may only be requested once. The moral of the story – take the proactive step to get things right. If not, you may end up paying a lot more later.
About the author: David Brennan is an associate attorney with Moffa, Sutton, & Donnini, P.A. His primary practice area is multistate tax controversy. David received a B.S. in Accounting and Finance, with a minor in Computer Science, from Florida State University. He worked as an accountant for a CPA firm before attending law school at Regent University. He received his Juris Doctorate in 2013 and was licensed to practice law in Florida in the same year. In 2015, David earned his Masters of Laws in Taxation from Boston University. As a former senior attorney for the Florida Department of Revenue, he handled informal protest appeals, among other things. You may learn more about David on his BIO HERE.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is state and local taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within 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
Form DR-2X, Common Sales Tax Brackets
ADDITIONAL ARTICLES TO READ
FL DEPARTMENT OF REVENUE PETITION FOR ADMINISTRATIVE HEARING, published April 14, 2020, by Jeanette Moffa, Esq.
FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, CPA, Esq.
FLORIDA SALES TAX - COUPONS V. DISCOUNTS, published October 30, 2018, by David Brennan, Esq.
POST-WAYFAIR - CAN YOU AFFORD TO WAIT TO REGISTER, published August 8, 2018, by James Sutton, CPA, Esq.
FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.
FLORIDA USE TAX AUDIT LETTER?, published June 14, 2015, by James Sutton, CPA, Esq. and Jerry Donnini, Esq.
GOING TO JAIL FOR NOT PAYING FLORIDA SALES TAX?, published November 3, 2013, by James Sutton, CPA, Esq.