For several years, the Florida Department of Revenue has had access to Amazon’s client list, aka the list of remote sellers that use Amazon to help market their products in Florida. These sellers may use Amazon FBA or they may go through the grueling process of packing and mailing all the products themselves. With Florida’s new economic nexus legislation enacted July 1, 2021, Florida has been on the hunt for Amazon remote sellers who might have past sales tax liabilities by sending out sales tax audit notices. Our law firm has been getting calls from around the country from companies who received audit letters from Florida. If you are still reading this article, then I am guessing you received an audit notice too and you are in the right place to learn what you should and should not be worried about. Let’s discuss possible facts that you should not be worried about first (aka the proverbial good news first).
Sales Made Through Amazon After July 1, 2021
For sales made into Florida through Amazon after July 1, 2021, you probably don’t have much to worry about because Amazon will be collecting and remitting the sales tax for your company (as long as you have the taxability correctly identified with Amazon) due to the Marketplace Provider legislation also enacted in 2021. This law, similar to the Marketplace Facilitator statutes in many states, provides that Amazon will be the retailer for all sales made through the Amazon online marketplace regardless of whether or not the remote seller is using Amazon FBA. There will be a link to other articles at the end to give you more details on the ins and outs of Florida new Economic Nexus and Marketplace Provider laws. Suffice it to say, your Florida sales tax should be covered for online sales into Florida made through Amazon after July 1, 2021.
Sales Made Through Amazon (not FBA) prior to July 1, 2021
If your company used Amazon for sales into Florida prior to July 1, 2021, but never used Amazon FBA and didn’t have any other substantial connection with Florida, then you have a really good defense that Florida did not have jurisdiction to force Florida sales tax responsibilities on your company prior to July 1, 2021. This doesn’t mean you can ignore the Florida sales tax audit letter. Just like ignoring phone calls from your significant other, the consequences of ignoring the Florida Department of Revenue audit notice can be exponentially bad as time goes on. The Department will estimate a liability on your company that will be outrageously high then, if you don’t respond to their estimates, then estimates will become final and legally enforceable on your company. You must timely and sufficiently defend against Florida’s jurisdictional reach for your company in a timely manner. But if you defend properly, then you should be able to stave off any tax assessment with the assumption you didn’t have any substantial connection with Florida. But what “substantial connection” mean? Here is a short list of the primary things that would be considered substantial nexus:
- Holding inventory in Florida (such as through Amazon FBA)
- Salespeople in Florida
- Hiring subcontractors to do warranty work
- Remote employees working in Florida
- Delivering products into Florida with your company vehicles/employees
- Company owners or officers owning property in Florida
- Subsidiary or affiliated company having nexus with Florida
So, if you company didn’t have any of these activities in Florida prior to July 1, 2021 and your company timely defends the audit notice, then you should be able to avoid any Florida sales tax liability for the past.
What if your company did have one or more of those dreaded nexus creating activities prior to July 1, 2021? There is no way to say this gently, but you have exposure to past Florida sales tax liabilities along with penalties and interest. The instinct to put off the problem until the state contacts you is really not a good idea. Your biggest risk is that since your company was never registered to collect sales tax in Florida prior to July 1, 2021, there is no statute of limitations stopping the Florida Department of Revenue from going back to the first year your company created nexus with Florida. Worse yet, knowing how aggressive the FL DOR can be, the agency will likely try to go back to the beginning of your company, then force your company to defend itself. If you simply try to register for sales tax, then the registration form (a sworn affidavit) is inundated with questions about how, when, where, and how often you had nexus creating activity with Florida. Saying your online retail company started operations in 2015, but didn’t have any connect with Florida until 2021 is going to look very suspicious and draw scrutiny. Your website alone is probably going to give you away.
Your safest best to minimize the damage in Florida (and help you sleep at night) is to come forward with a Voluntary Disclosure. The program will allow you cut off the look back period to 3 years, remove penalties, and complete the process in a straightforward and friendly way. Our firm handles at least 10 Voluntary Disclosures with the state of Florida a month. So if you need help, then we can help walk you through the process as painlessly as possible. We can even get you into a payment plan if you need it. But the most painful way to handle the past exposure is by simply registering as a dealer for Florida sales tax. The state will send you past sales tax return late notices, with estimates of liability and penalties. To defend against their estimated taxes, you’ll practically be in an audit already. There was a small window of opportunity to register and get amnesty for past liabilities, but that window ended October 1, 2021.
Sales Made Through Amazon FBA prior to July 1, 2021
If your company made Amazon FBA sales into Florida prior to July 1, 2021, then you should know the Florida Department of Revenue not only considers your company to have had taxable nexus, but they also likely have your company information from Amazon. We get a lot of calls from non-Florida based companies that sell through Amazon FBA. The state can be very aggressive about chasing your company down and maximizing the assessment. I strongly suggest you talk to someone with significant sales tax controversy experience with your questions. When you get your exposure with Florida (and any other state) cleared up, then your company will go up in value because the contingent liabilities for sales tax are reduced, if not completely eliminated.
$100,000 Economic Nexus versus Amazon FBA after July 1, 2021
Now that every state has economic nexus thresholds in place, there is common misconception in the remote seller’s world that if you don’t cross a state’s economic nexus threshold, then you have nothing to worry about. This is really not true and ignoring the truth in sales tax can become an extremely costly mistake. The misconception is to believe that economic nexus is the only way to have nexus with a remote state. Sure, Florida has a $100,000 economic nexus threshold. But all the old nexus laws are still law in Florida. Florida merely added one additional way for your company to have nexus with Florida – economic nexus. But the physical presence nexus rules will trump the economic nexus rules. So if you company only has $50,000 of sales into Florida during the year (non-Amazon sales), then the misconception is that there is no way for Florida to come after your company for sales tax. If you company has some type of physical nexus with Florida, then your company has nexus with Florida, even for just the $50,000 in sales. Amazon FBA sellers are exposed to the dangerous part of this misconception because their FBA inventory in Florida gives the company nexus with Florida regardless of whether the company crosses the $100,000 threshold. Florida has already issued informal rulings very clearly stating their position on this, specially that Amazon FBA sellers have nexus in Florida for any sales into Florida outside a marketplace and that the $100,000 threshold does not apply. This is going to be a big shock to many companies out there who have been told by most advisors that you don’t have to worry about nexus until you cross the economic nexus threshold outside of a marketplace. Even if you don’t use Amazon FBA, if your company does any of the other nexus creating activities list above in Florida, then the $100,000 economic nexus threshold is irrelevant. Your company has nexus with Florida and it started when your company started that other nexus creating activity. The sales tax exposure is merely growing every day for sales into Florida and this is tax your company could have been collecting from customers.
Registered in Time to Get Amnesty – But Still Got an Audit Notice?
If your company registered with Florida during the amnesty period, but your company still got an audit notice from the Florida Department of Revenue, then you are not alone. We have received multiple calls from remote sellers that have been faced with this issue. Registering during the amnesty period should have given you amnesty for activity prior to July 1, 2021, but the Department of Revenue is not always honoring this amnesty. If you need a sales tax lawyer to fight back, then give me a call.
Moral of the (Florida Sales Tax) Story
If you or your client is a remote seller into Florida, then I would strongly suggest reviewing your current connections with Florida. In my experience, many remote companies that take a serious look at their activities in Florida have the same glaring problem – the company is unaware they already had substantial nexus with the remote states years before Florida adopted economic nexus or even before the Wayfair decision came out. This is a very costly problem because the process of registering to collect sales tax in Florida is riddled with questions designed to determine whether a company already had nexus prior to registering. More troubling is the fact that a company has no statute of limitations protections from a state going back in time if no sales tax returns have been filed. A voluntary disclosure may be the cheapest and easiest way to not only eliminate this exposure for the past, but also stop the tax exposure from continuing to grow. If you have questions, then please don’t hesitate to reach out. We have a very generous free initial consultation policy.
About the author: James Sutton is a Florida licensed CPA and attorney as well as a partner in Moffa, Sutton, & Donnini, PA. Mr. Sutton is charge of the Tampa office of the firm and practices almost exclusively in the area of Sales & Use Tax Controversy. Mr. Sutton is an active member in the FICPA State Tax Committee. Most notable to this article, Mr. Sutton was the lead author on an amicus brief filed in the US Supreme Court on behalf of the AAA-CPA in the SD v Wayfair case and attended oral arguments. JamesSutton@FloridaSalesTax.com | 813-775-2131
ADDITIONAL RESOURCES
FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.
FL GOVENOR SIGNS ECONOMIC NEXUS LEGISLATION, published April 20, 2021, by James Sutton, CPA., Esq.
FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, C.P.A., Esq.
SHIPPING: AN OVERLOOKED FLORIDA SALES TAX EXEMPTION, published September 12, 2019, by Jeanette Moffa, Esq.
FLORIDA - ECONOMIC NEXUS & MARKETPLACE FACILITATOR BILL IINTRODUCED, published February 20, 2019, by James Sutton, C.P.A., Esq.
POST-WAYFAIR - CAN YOU AFFORD TO WAIT TO REGISTER, published August 8, 2018, by James Sutton, C.P.A., 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.