Car repair shops are being audited left and right. The Florida Department of Revenue’s position is simple in this regard – everything done by the repair shop is always subject to Florida sales tax, unless the repair shop can prove otherwise. And if the repair shop’s invoices do not unequivocally show nothing tangible was involved in the transaction, the Florida Department of Revenue will stick with assessing the transaction. There are many ways to fight the Florida Department of Revenue. However, what you do not know can and will hurt you. This article will discuss common Florida sales and use tax issues and how you can have a chance at surviving a Florida sales and use tax audit.
Repair shops handle a myriad of customers and motor vehicles to be repaired from a Mack Truck all the way down to a scooter. Possessing the technical skills to repair a wide range of motor vehicles takes a level of knowledge and understanding that few possess. When it comes to Florida sales and use tax, the issue can flip the savviest of entrepreneurs on their head. The reason is simple in that Florida sales and use tax issues are not always intuitive.
The Florida Department of Revenue has called it an “expensive lesson” for those being audited. The reasoning is simple. The auditors from the Florida Department of Revenue are making exceptionally large audit assessments against these businesses. In some cases, these audit assessments are of the caliber that can cripple a business. If you thought bankruptcy was an option, the Florida Department of Revenue fights this tooth and nail every step of the way throughout the bankruptcy process. Moreover, the Florida Department of Revenue will sometimes make sure you are held personally liable for twice the assessment amount of the business. Why do they do this? The simple answer is because they can.
There are some areas of exposure repair shops must consider when preparing for a Florida sales and use tax audit. Understanding these exposure areas and how you can mitigate your risk will put you in the best position possible to fight the Florida sales and use tax assessment.
The first area for repair shops to consider involves labor only transactions. There are a good number of repair shops we represent that only charge labor for a job because the customer provided their own parts or for some other reason in which the repair shop did not provide parts. When this happens, the invoice or receipt only shows labor as a line item and an associated hourly rate. Other invoices in which the repair does include parts will show not only a line item for labor but also a line item for the parts. Despite the differences in business practices of showing the labor only transactions, the Florida Department of Revenue will consistently state the labor only invoices are taxable, unless the invoice specifically says nothing tangible was included in the transaction. In a way, the Department’s requirement is almost akin to a violation of one’s free speech rights in that the Florida Department of Revenue is mandating language be included on an invoice…or else.
An area unique to repair shops is the all-encompassing “shop supplies” charge. The issue with shop supplies comes in with whether to charge customers sales tax on the line item and whether the items used that consist of the shop supplies are taxable when purchased by the repair shop. If the charge is for items used for the repair and is encompassed in the repair, such as grease, then the purchase of the grease should be exempt from Florida sales and use tax but the sale of the shop supply should be subject to Florida sales tax to the customer. There could be situations where the purchase is of shop towels, which are used and consumed by the repair shop. In these instances, the purchase of the shop towels (or other similar items) should be taxable to the repair shop. Arguably, the repair shop should not have to charge its customers sales tax on the shop charges; however, and if the repair is otherwise subject to Florida sales tax, then the Florida Department of Revenue could take the position the shop charge is taxable. Arguably, such a position by the Florida Department of Revenue creates a pyramiding (doubling up) of tax on the transaction.
Finally, there are transactions exempt from Florida sales and use tax. What this means is the transaction is usually subject to Florida sales or use tax except there is an exception saying the repair shop does not have to charge Florida sales or use tax. A great example of this would be repairs to motor vehicles owned by the State of Florida or the United States Government. In these instances, very specific information must be provided by the government official and retained by the repair shop. Another popular exemption come across by repair shops are sales for resale. In other words, the customer goes to a repair shop to get their car repaired. The repair shop subcontracts the work to another repair shop to get the motor vehicle repaired. The first repair shop can present its Florida resale certificate to the second repair shop to exempt the motor vehicle repairs from Florida sales or use tax. The first repair shop then charges, as applicable, Florida sales tax on the repair transaction to its customer. Resale certificates for repairs can also be given by those engaged in the business of selling or leasing motor vehicles. For example, a new or used car dealer might need repairs performed to a motor vehicle it plans to sell but cannot do the repairs themselves and hires a repair shop. The car dealer can extend its Florida resale certificate to the repair facility to exempt the repairs from Florida sales and use tax. The list of exemptions from Florida sales and use tax on car repairs is quite extensive.
A frequently asked question by businesses is how long to keep records. The technical answer is one must keep records until the statute of limitations expires. So long as the repair shop is filing Florida sales and use tax returns, then the answer as to how long to keep records is about three years from the filing of the Florida sales and use tax returns. A safer consideration would be for the repair shop to keep the records for four years. Both answers presuppose there is no active audit of the period in question. If there is, then the records need to be retained until the audit, informal protest, and formal protest are completed. Electronic records should have backups. Paper records should be digitally retained as well to minimize the loss due to casualty events.
In conclusion, there are numerous ways the Florida Department of Revenue can and will assess repair shops. Oftentimes, the types of assessments are those that can cause the repair shop to go out of business. The best defense for repair shops is a good offense by instituting policies and procedures now to mitigate exposure. While it might not be perfect, fixing issues now could prevent larger and crippling issues later. Therefore, it is highly recommended for repair facilities to examine their procedures to determine where the holes are and how to fix them, as there usually is no one-size-fits-all answer.
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, Florida Statutes – Sales, storage, use tax.
ADDITIONAL RESOURCES
FL SALES TAX CAR DEALERS PLAYBOOK, published April 22, 2023, by David J. Brennan, Jr., Esq.
DON'T HIRE AN IRS ATTORNEY FOR SALES TAX PROBLEMS, published July 17, 2024, by James Sutton, CPA, 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.
FLORIDA SALES TAX AUDIT - AUTO REPAIR SHOPS, published January 27, 2022, by David J. Brennan, Jr., 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.