Almost all business by now have at least a working understanding of the Wayfair case and how it impacts their business - especially if they make sales of goods to other states. Briefly, Wayfair, overruled physical presence for nexus purposes and introduced an economic nexus basis for subjecting a business to a state's taxation authority. Most states determine the economic nexus by an either/or test using total sales dollars or numbers of transactions - with either option being a basis for establishing economic nexus. I doubt the Supreme Court fully understood the practical (or actual) ramifications of its decision. In Florida, I have seen some "interesting" situations involving the Florida Department of Revenue (FDOR) an out of state sellers. I am going to look at the issue to help alert possible "exposed' businesses to information that can help it avoid - or deal with - situations with the FDOR.
As noted above, economic nexus now can pull out of state sellers under the authority of FDOR and Florida's taxing authority. That is not the most pleasant of thoughts for most businesses. Following Florida's enactment of marketplace taxation laws that took effect July 1, 2021, businesses were held accountable for the economic nexus tests to determine if it needed to register as a dealer in Florida. Many out of state sellers are still not fully aware of the risk they face.
This is especially true for out of state sellers and their "exposure" to Florida taxation for transactions prior to July 1, 2021. Many businesses in this category likely are not even aware of the risk they face. These businesses are "exposed" from sales transactions through "marketplace providers" (subsequently defined in Florida's legislation effective July 1, 22021) who can sell the business's goods through online sales platforms with warehouses or locations in states other than where the business has a physical presence. In this case, I am specifically referring to Florida (though it likely will be at least similar to most other states as well).
The marketplace providers provide an online platform for connecting customers to products for sale. In doing this, the marketplace providers usually have two options for handling the goods - the marketplace provider will relay the sale to the business to send out the good(s) or it will have the goods in one of its warehouses or storage facilities and will directly deliver the goods to the buyer.
In the first option, the marketplace provider will not charge tax as the selling business will fulfill the sale by shipping the good to the customer. This leaves the business responsible for properly taking care of the tax liability for the transaction(s) with the appropriate taxing authority. In the second situation, there are two options for the tax liability. It appears there is confusion with businesses on how that was actually handled by the marketplace facilitator.
If the selling business has a physical presence with Florida, then the marketplace provider should have charged tax. After collection is where the questions arose. In some instances, the marketplace provider would remit the tax to the business who would be responsible for reporting the sale(s) and remitting tax to the FDOR. In other cases, the selling business with a Florida presence and the marketplace provider who charged tax would instead remit it directly to the FODR. This second option would involve a fee to the marketplace provider for this service. Many businesses seem to have chosen not to do this to avoid the expense. However, it appears many businesses did not fully understand the consequences. Or, there was confusion with the marketplace provider about exactly what was being remitted to the selling business and what actually happened to the charged tax on the transaction(s).
With respect to this problem/situation, I am seeing a number of instances involving out of state sellers and marketplace providers. Specifically, I am seeing 2019 sales/tax information allegedly being provided to the FDOR from at least one marketplace provider. I saw allegedly as the FDOR has not been providing this information in audit and collection matters. For out of state sellers in this type of situation, you can reasonably assume the business is not registered with the FDOR. Assuming that is the case, then the FDOR likely does not have business and contact information on file. The initial question is whether the information is accurate from the marketplace provider to the FDOR. The second question is whether the marketplace provider "should" have remitted tax to the out of state seller (or selling business).
To use a recent example for illustration, a marketplace provider "allegedly" provided a report to the FDOR indicating an out of state seller had an amount of sales on its platform and noted tax remitted (again allegedly) to the out of state seller. This marketplace provider information resulted in a sales tax audit of the out of state seller. From the audit information, there are numerous indications the Department was unsure of where to send audit notices and correspondence. The FDOR audit questions continued as there was no taxpayer/business follow up on any notices. In this case, the FDOR also noted it had no business phone number to call. Instead of doing further research (and possibly using a closer field office/service center) the Department decided to continue one with the audit since a certified mail receipt was returned signed. Here, the FDOR noted it was not signed for by the person the mailing was addressed to. Additionally, the name and date on the certified receipt were not legible.
The audit continued - without taxpayer/business response - even with mailings returned to the Department as "unable to forward" by the post office. This was "rare" as the FDOR routinely used regular mail and assumed delivery after the first mailing with the dubious signed return receipt. The FDOR later was able to get a call back from a "random" employee at the business who directed the FDOR to an executive on the issue. This was the only FDOR communication with the taxpayer/business during the audit. The Department then used mailings to another address - again using an outdated address the taxpayer/business was not located at when the FDOR sent the later mailing. The Department again used certified mail that was signed for by a desk person - with a signature and date again illegible but not by the person named on the mailing.
As you can expect, the Department continued on and issued the Notice of Proposed Assessment (NOPA) without having a substantive discussion with the taxpayer/business about the audit or proposed findings (of note, the auditor's assumptions resulted in alleged tax, penalty and interest due of almost $2.5 million). As you can also expect, the taxpayer/business was completely unaware of the audit or findings and did not respond to contest the audit.
Subsequently, the FDOR followed up with collections activity. The collections staff did not explain the audit or provide detail on its findings. It simply told the taxpayer/business that its protest rights had expired and that it owed the money. The taxpayer/business contacted the Department since its bank accounts had been frozen - each account had been frozen for an amount of $2.5 million (individually not collectively, I have seen the Department freeze multiple accounts for more than the amount due but that is a topic for another article).
There are important points to take away from the above situation - especially if you are an out of state seller with sales to Florida customers are were involved with a Florida sales tax audit and communications "ceased" unexpectedly. A taxpayer/business needs to follow up on communications it receives from the FDOR. This can ensure that a matter doesn't proceed to unexpected repercussions. A taxpayer/business also needs to know that the Department will assume a business simply is not responding before it will assume that it has failed to properly communicate about FDOR activity. But, most importantly, a taxpayer/business needs to know to investigate its rights and options when dealing with a FDOR audit/situation. While many FODR employees work to help taxpayers/businesses, many are not told/given the full and accurate information on taxpayer situations and rights. This means it can be dangerous (and detrimental) to "rely" on what a FDOR employee might tell a business in response to a audit or collections notice.
We offer free initial consultations which can be invaluable when you or your client encounter a situation with the FDOR and you or your client are being told you have limited or only one option. Many times, this is at least misleading if not completely inaccurate. With collection activity, if you enter into a stipulated payment plan, you generally are going to waive your rights to protest options and will subsequently be very limited in how you can contest a liability (audit or otherwise). You and/or your client need to know your rights before deciding how to proceed with the FDOR. This is the best way to proceed and help avoid paying amounts that are not due.
About the Author: Mr. Parker is a partner in the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice concentrates on sales and use tax and includes state tax audits and controversies proceeding from audit through administrative litigation involving sales and use tax and all other state taxes including reemployment tax, communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Parker received his accounting degree, law degree, and L.L.M. in Taxation from the University of Florida. If you have any questions please do not hesitate to contact the firm at 813-775-2131.
About the Firm: 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. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
FLORIDA SALES TAX AUDIT - AMAZON FBA, published October 30, 2021, by James Sutton CPA, Esq.
FL GOVENOR SIGNS ECONOMIC NEXUS LEGISLATION, published April 20, 2021, by James Sutton, CPA., 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.