Selling boats can be a very lucrative business, especially in today’s market. What can quickly turn things negative is the Florida Department of Revenue. The Florida Department of Revenue has a tendency to come in at the worst possible moment and tell a business they owe a ridiculously large amount of money that could bankrupt the business. Even though the Florida Department of Revenue does not care about this, you absolutely need to in order to protect the business. This article covers topics for you to strongly consider mastering in anticipation for when the Florida Department of Revenue will be coming to audit you.
Generally, Florida law requires Florida sales tax to be charged on the sale of a boat. Unique to the boating industry, Florida sales tax is capped at $18,000.00 on the sale of the boat. Depending on a few factors, this works out to the cap being associated with a sales price of about $300,000. Thus, it does not matter whether the sales price is $325,000 or $64,000,000. The amount of Florida sales tax owed on these hypothetical selling prices will not change the amount of Florida sales tax owed on the transaction.
There are instances where Florida sales tax might not be owed on the sale of a boat. Where a registered dealer sells a boat to a nonresident of Florida, a non-Florida corporation, or a non-Florida noncorporate entity, the sale of the boat could be exempt from Florida sales tax. A dealer can be: (1) one acting in his own behalf as a seller; (2) a broker on behalf of a seller; or (3) a broker on behalf of the purchaser and is deemed as the seller. The nonresident of Florida cannot make his or her permanent place of abode in Florida and cannot be engaged in any employment, trade, business, or profession in which the boat will be used in Florida. The corporation cannot have any of the officers or directors be a resident of Florida or make their permanent place of abode in Florida. If the buyer is a noncorporate entity, then the buyer cannot have any individual vested with authority to participate in the management, direction, or control of the entity’s affairs be a resident of, or make their permanent place of abode, in Florida.
To qualify for the aforementioned Florida sales tax exemption, the following criteria must be met: (1) the purchaser must remove the boat from Florida within (a) ninety (90) days after the date of purchase or exemption, (b) ten (10) days after the date of purchase, or (c) twenty (20) days after completion of the repairs or alterations when the boat is being repaired or altered; (2) the purchaser provides the Florida Department of Revenue with written proof, within ninety (90) days from the date of departure, the boat was licensed, registered, titled, or documented outside of Florida or proof the aforementioned was applied for; (3) the purchaser, within thirty (30) days of removing the boat from Florida, provides the Florida Department of Revenue with proof, which clearly identifies the boat, of removal in the form of receipts for fuel, dockage or slippage outside of Florida; (4) the seller provides the Florida Department of Revenue, within thirty (30) days of the sale, a copy of the sales invoice, closing statement, bills of sale, and the original affidavit signed by the purchaser making certain attestations; (5) the seller makes a copy of the affidavit as a part of its records until the statute of limitations expires; (6) the purchaser removes the boat from Florida within ten (10) days from the date of purchaser, among other things.
The above Florida sales tax exemption applies to the boat only. It does not apply to the trailer sold with the boat, if a trailer is in fact sold with the boat. Trailers sold with a boat are considered to be a motor vehicle. When a motor vehicle is a sold to a resident of another state, the motor vehicle dealer (i.e., the boat seller in this case), needs to charge Florida sales tax on the trailer in the amount that would be charged in the purchaser’s home state. The amount of Florida sales tax is capped at the normal Florida sales tax rate. It is important to note a couple of aspects. First, the Florida sales tax collected on the motor vehicle sales is considered to be Florida sales tax and MUST be remitted to the Florida Department of Revenue. Second, the motor vehicle Florida sales tax exemption is only available to residents of another state while the boat exemption is available to those who are residents of anywhere but Florida. The difference is subtle but quite important. For a more comprehensive discussion on the partial exemption for motor vehicle sales as applicable to trailers, a link will be included at the end of this article and is entitled “FL Sales Tax Car Dealers Playbook.”
What if additional items are sold with the boat? By way of an example of additional items potentially sold with a boat, these could include life jackets, oars, medical kits, and other similar items. If the customer takes possession of these items in Florida, then they are likely subject to the full amount of Florida sales tax. Should the items be shipped to the customer’s home state by the seller, then the items should not be subject to Florida sales tax. The seller will need to keep proof of shipping the goods. This can be via shipping documents, tracking information, and other evidence the purchased items were shipped.
An important lesson for sellers is this – if you do not cross every T or dot every I, then the Florida Department of Revenue can come after your business for the Florida sales tax you did not collect. Yes, that is correct. That means the payment of tax comes from your bottom line. Do not forget the interest the Florida Department of Revenue will say you owe. Then there is the matter of penalties. Penalties may range anywhere from twenty-five percent (25%) to fifty percent (50%). While penalties could be waived, auditors are consistently and unreasonably stating penalties should be imposed. It is in this manner that a Florida sales and use tax assessment can quickly balloon and get out of control. It is also this way the Florida Department of Revenue can and does put businesses out of business.
In conclusion, selling boats is hugely profitable. When selling a boat, it is important to know about the Florida sales tax cap as well as the application of the nonresident exemption on sales of boats. It is critical to understand the nonresident exemption does not fully exempt the sale of a trailer, due to trailers being treated differently than boats. Moreover, if the boat dealer sells additional items such as lifejackets, then those sales will likely be subject to Florida sales tax. An exemption may apply to the sale of these miscellaneous items, such as shipping the items to the customer outside of Florida without the customer taking possession in Florida. A business must know exactly what to do and how to do it to mitigate its Florida sales tax exposure from the Florida Department of Revenue. Do not rely on the Florida Department of Revenue to overlook or not audit you let alone give you correct guidance. If you take that approach, you are setting yourself up for a large tax bill that will come as a shock. The time to get things right was yesterday. Start today before it is too late.
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, including that of motor vehicles and boats. 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 - Sales, storage, use tax.
Rule 12A-1.0015, F.A.C. - Sales for Export; Sales to Nonresident Dealers and Foreign Diplomats.
Rule 12A-1.007, F.A.C. – Aircraft, Boats, Mobile Homes, and Motor Vehicles.
ADDITIONAL RESOURCES
FL SALES TAX CAR DEALERS PLAYBOOK, published April 22, 2023, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX AUDITS PROCESS AND TRAPS, published March 4, 2023, by David J. Brennan, Jr., Esq.
2023 FLORIDA SALES TAX RATE ON COMMERCIAL RENT, published January 23, 2023, by James Sutton, CPA, Esq.
PHONE CALL FROM FLORIDA DEPARTMENT OF REVENUE: SALES TAX, published October 15, 2022, by Jeanette Moffa, Esq.
FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, C.P.A., Esq.
FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.