In Florida, there is a hidden pitfall that can strike at any moment, which threatens the financial stability of your business. We are talking about Florida sales and use tax, a complex and often misunderstood subject matter that can cause headaches to no end for business owners. While many think Florida sales and use tax only applies to tangible goods, Florida has some unique provisions making certain services just as susceptible to Florida sales and use tax. This article will shed light on those services subject to Florida sales and use tax.
Before we dive into the depths of these taxable services, we want to make one thing clear: this is not a subject to take lightly. Ignoring these obligations can result in steep penalties and even jeopardize a business's future. If you do not resolve these issues now, then the Florida Department of Revenue would be more than happy to “help” you fix them later via much more extortionary measures.
INVESTIGATION/SECURITY SERVICES
The first category we will review are certain protective services. These services encompass detective, burglar protection, and other protection services with a NAICS code of 561611, 561612, 561613, or 561621.
When it comes to detective, burglar protection, and other protection services, the Florida Department of Revenue is unapologetic in its pursuit of sales and use tax revenue. If your services fall under NAICS National Numbers 561611 (investigation services), 561612 (security guard services), 561613 (armored car services), or 561621 (security system services), you are absolutely in the crosshairs of the Florida Department of Revenue.
Many business owners believe they are exempt from sales and use tax because they solely provide a service – i.e., there is nothing tangible with respect to the service performed. That misconception is where the trap lies. Florida sales and use tax law casts a wide net on these services, causing the services to be subject to Florida sales or use tax. To avoid paying tax from your bottom line, when it should have come from your customer, as well as penalties and interest, it is crucial to understand which parts of your services are taxable.
Below are just a couple of examples of taxable aspects within these industries.
- Monitoring Fees: If your business charges customers for monitoring services, alarm response, or security consulting, these fees are likely subject to Florida sales tax. Even though you are providing peace of mind via a service, the Florida Department of Revenue wants its cut of the pie.
- Equipment Sales: Any tangible items sold as part of your service, such as security equipment or surveillance systems, are also subject to Florida sales tax. If you sell security cameras, alarms, or access control systems, beware. This assumes the items sold are tangible in nature and not incorporated into the real property. If incorporated into the realty, there may be other outcomes.
As it relates specifically to investigative services, there was a change to the statute this year. Small investigative agencies do not have to charge Florida sales tax on their services. To qualify, the small investigative service provider must employ three or fewer full or part time employees. Moreover, the total sales must be less than $150,000. The sales threshold cap applies for all business related through common ownership.
Do not let the urgency of the situation escape you. You must review your sales to ensure you are correctly taxing your transactions. Just because others in the industry are charging (or in some cases not charging) Florida sales tax in a specific manner does not mean it is correct. Ignoring these Florida sales tax obligations could lead to an unpleasant surprise when the taxman comes knocking.
CLEANING SERVICES
The second category involves nonresidential cleaning services under NAICS code 561720. Cleaning, whether residential or nonresidential, is a vital service that ensures hygiene and a safe environment, especially in this post-COVID environment. However, when it comes to nonresidential cleaning, it is essential to tread carefully. Services performed under NAICS code 561720 (nonresidential cleaning services), face the looming shadow of Florida sales or use tax on the services provided.
It is easy for one to assume cleaning services are nontaxable, since such services are exactly that, as service. However, the Florida Department of Revenue sees things differently. Nonresidential cleaning can trigger Florida sales or use tax liabilities, making it a potential minefield for the unwary. Like before, we will discuss some examples of specific taxable transactions.
What can be subject to Florida sales or use tax?
- Cleaning Supplies: Any tangible cleaning supplies or chemicals used in the cleaning process can be subject to sales tax to the service provider. This one is not intuitive, as the cleaning service might argue it is “selling” the cleaning supplies in the performance of the cleaning service. Unfortunately, the Florida Department of Revenue disagrees. The Florida Department of Revenue believes the cleaning service to be the end user and consumer of the items, which results in sales or use tax being owed on the items.
- Equipment and Machinery: If your business uses equipment like power washers, floor buffers, or industrial vacuums, the sale or rental of these items should be subject to Florida sales or use tax on your acquisition. Again, the Florida Department of Revenue takes the position the cleaning service provider is the end user and consumer of these items.
Of a specialized note, some cleaning services go beyond your basic janitorial services. Some of these types of services might include services such as mold remediation, fire or flood damage restoration, and biohazard cleanup. If there is a specific NAICS code that is outside of the nonresidential cleaning NAICS code that more accurately describes this service (and the same is true for other services), then this specialized service should not be subject to Florida sales or use tax. Having the Florida Department of Revenue accept this can be a different story. As luck would have it, if the service is only for carpet cleaning, then there is a separate NAICS code for that type of service that is not taxable!
PEST CONTROL SERVICES
The third category consists of nonresidential building pest control services under NAICS 561710. Pest control services are a critical aspect of maintaining a safe and clean environment, especially in nonresidential buildings and across numerous industries. However, do not be fooled into thinking this service only transaction is exempt from Florida sales and use tax. Nonresident pest control services under NAICS code 561710 are subject to Florida sales or use tax, unless a specific exemption applies.
With the above in mind, what can you do to be better prepared for when (not if) the Florida Department of Revenue audits your business? First, you really need to understand where your exposure is and might be. This premise of determining exposure is what is needed to effectively then determine the best solution for going forward. One aspect is to change what you are doing. This can be from the context of making sure tax is charged and paid on the appropriate transactions. From a service provider’s standpoint, it is significantly less costly to charge the customer tax rather than pay the tax from your bottom line! You will also need to ensure your documents are in order. If not, the Florida Department of Revenue could then assess tax on transactions, even if sales tax was already charged and paid.
The urgency of understanding and complying with Florida sales and use tax issues cannot be overstated. Failure to do so can result in severe consequences for your business, including bankrupting assessments. Ensuring you are in compliance from the beginning is a lot easier than fighting.
LABOR WITH PARTS
The final type of service that is subject to Florida sales and use tax is the one that catches more businesses off guard. For some reason, many industries, such as auto mechanics, think that only the parts are subject to Florida sales and use tax, but the labor is not taxable. Unfortunately, that is not the case. When selling tangible personal property, the charges for labor to install that tangible personal property is also subject to Florida sales tax. So if the auto mechanic does not charge tax on the labor portion of the job, then the business will be liable for the sales taxes on that labor. While, it doesn’t seem like a lot of tax on a $200 of labor, the cost to the business will be ALL installation labor charges over a 3 year audit period. That could result in $100,000+ assessment against even a small business.
SUMMARY
If you find yourself in the middle of an audit by the Florida Department of Revenue, there is still hope. The key is to be knowledgeable in the ways the Florida Department of Revenue looks to make assessments and how best to protect your business. Though requests by some auditors will seem to be innocuous, the auditor is looking at different ways to make an assessment. Understanding this could mean the difference in whether your business survives.
In conclusion and in the labyrinth of Florida's sales and use tax regulations, ignorance is not bliss. It is a liability waiting to be exposed. With specific services falling into the realm of being subject to Florida sales or use tax, it is crucial for business owners to take action now while you still can.
About the author: David Brennan is partner 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 Doctor 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. While working for the Florida Department of Revenue as a Senior Attorney, David focused on various sales and use tax issues. You can read his BIO HERE.
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 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. Contact us for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
AUTHORITY
Section 212.05, F.S. – Sales, storage, use tax.
Section 212.06, F.S. – Sales, storage, use tax.
Rule 12A-1.0091, F.A.C. – Cleaning Services.
Rule 12A-1.0092, F.A.C. – Detective, Burglar Protection, and Other Protective Services.
ADDITIONAL RESOURCES
2023 FLORIDA SALES TAX UPDATE PART I, published July 5, 2023, by David J. Brennan, Jr., Esq.
2023 FLORIDA SALES TAX UPDATE PART II, published August 14, 2023, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX AUDITS PROCESS AND TRAPS, published March 4, 2023, by David J. Brennan, Jr., Esq.
PHONE CALL FROM FLORIDA DEPARTMENT OF REVENUE: SALES TAX, published October 15, 2022, by Jeanette Moffa, Esq.