To collect or not to collect Florida sales tax, that is the question. The real question is whether you have to collect Florida sales tax on sales into Florida. The answer to that question boils down to something called “nexus.” Nexus is a legal term that mandates when the Florida Department of Revenue has the right to require a business, regardless of whether that business is physically present in Florida, to collect sales tax on sales to customers in Florida. If you have nexus and are not collecting sales tax from your Florida customers, then you likely have a huge liability lurking. Such a liability could realistically put you out of business. You must read this article to learn how you might be able to limit your exposure.
Sales tax nexus comes in all different shapes and sizes. The most tried and true standard for sales tax nexus involves physical presence. If you have inventory, real property, or employees in the state, then you likely have Florida sales tax nexus. The Florida Department of Revenue will want you to get registered for sales and use tax purposes if you are making sales subject to Florida sales tax. If you have been making taxable sales to Florida customers and are caught by an auditor, the auditor will assess Florida sales tax on the sales as well as interest and possibly penalties. An ultra-aggressive auditor may even also assess you Florida use tax on the inventory in Florida if you were not already registered for Florida sales and use tax purposes as a dealer. If you believe the latter cannot happen, think again. There have been many instances where auditors will assess Florida use tax on the inventory because the seller did not have a Florida Annual Resale Certificate. Then, the auditor also assesses Florida sales tax on the sales too. Talk about a situation going from bad to worse!
There might be an instance where your business does not have inventory, real property, or employees in Florida. In other words, your business is located outside of Florida. If that is the case, the Florida Department of Revenue takes the position that if you conduct “a substantial number of remote sales,” then you must become registered for Florida sales and use tax purposes with the Florida Department of Revenue. Florida defines “substantial number of remote sales” as being taxable remote sales in the previous calendar year with the total sales price exceeding one hundred thousand dollars ($100,000.00). Therefore, even if you never set foot in Florida but you have taxable sales greater than one hundred thousand dollars ($100,000.00) into Florida, you will have to get registered and start filing Florida sales and use tax returns.
There may be instances in which your business is located outside of Florida but you hire a subcontractor to perform work on your behalf. There have been many occasions where businesses have said subcontractors are nothing more than independent contractors. In the eyes of businesses, these subcontractors have the problem with the Florida Department of Revenue and it is not the problem of the business to have to worry about the Florida sales tax issues. This misperception is not accurate. The business is hiring the independent contractor to be its subcontractor and effectuate work the business was already attempting to perform. By having the subcontractor perform the work, the independent contractor is really stepping into the shoes of the business to get the work done. That is exactly why a business located outside of Florida but using independent contractors to perform the work will still cause the out-of-state business to have Florida sales tax nexus. Therefore, these businesses will need to become registered with the Florida Department of Revenue for sales and use tax purposes.
Another way the Florida Department of Revenue likes to trap unwary businesses is by getting information from Amazon on those businesses using Amazon’s Fulfilled by Amazon (“FBA”) services. The information obtained by the Florida Department of Revenue shows what businesses have inventory in the state via the FBA program. The Florida Department of Revenue then proclaims the business to have a physical presence in Florida. Thus, the Florida Department of Revenue states the business must then collect Florida sales tax on its sales since the inventory was first in the Amazon warehouse. Such an argument by the Florida Department of Revenue ignores basic Constitutional procedures and safeguards. This is absolutely a position that can (and should!) be pushed back on.
Another mechanism the Florida Department of Revenue has been using is to determine about nexus is if Amazon, Uber Eats, DoorDash, and other similar companies have allegedly collected and paid out Florida sales tax to the business regardless of whether the business has nexus with Florida. The Florida Department of Revenue’s position on this, albeit wrong, is the sales tax is being collected by the underlying business and must be remitted by the underlying business. When said business does not remit the Florida sales tax to the Florida Department of Revenue, then the Florida Department of Revenue says the business collected but did not remit the sales tax. Hence, the business owes the sales tax, interest, and penalties. However, the Florida Department of Revenue’s logic is severely flawed. The business making the sales and not remitting the sales tax to the Florida Department of Revenue is arguably Amazon, Uber Eats, or DoorDash. Each one of those entities is the business with whom the customer is interacting. Amazon, Uber Eats, and DoorDash, then “buy” the goods from the underlying business to resell to their customers.
If your business does have nexus with Florida, the downside of not registering for Florida sales and use tax purposes means the statute of limitations does not start to run. What this means is twenty years from now, the Florida Department of Revenue could look back to today, assuming your company has had nexus the entire time, and make an assessment for this entire period. That means you will have tax, penalties, and interest for that entire period. This is the type of liability that can put a business out of business or kill a business deal to buy or sell a business.
You may be able to mitigate your exposure via a voluntary disclosure. The voluntary disclosure will usually allow you to limit your exposure to the prior three years for sales and use tax purposes while mitigating the penalties that may otherwise be imposed. It can be an expensive process. If done correctly, it could end up saving a significant amount of money in the end. This option is only available if the Florida Department of Revenue has not contacted you first.
In conclusion, there are many ways the Florida Department of Revenue can assert sales tax nexus. The most common and usual way is via a physical presence in the state. This can mean having your business, employees, or property located in Florida. Having inventory via Amazon’s FBA program arguably does not create sales tax nexus with Florida. The Florida Department of Revenue might also be able to require your business to collect Florida sales tax if you have over one hundred thousand dollars ($100,000.00) of sales in a calendar year. Moreover, the Florida Department of Revenue might also say that sales tax you have been paid by a seller such as Uber Eats on sales made by said seller must be paid by you to the Florida Department of Revenue. This is another point that is very much arguable. There are ways to mitigate your exposure, but time is not on your side.
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 212.0596, F.S. - Taxation of remote sales.
Section 212.06, F.S. - Sales, storage, use tax.
ADDITIONAL RESOURCES
FL SALES TAX NEXUS - OUT OF STATE SELLERS PROTEST RIGHTS, published May 4, 2023, by Matthew Parker, Esq.
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.
PHONE CALL FROM FLORIDA DEPARTMENT OF REVENUE: SALES TAX, published October 15, 2022, by Jeanette Moffa, Esq.
FL GOVERNOR SIGNS ECONMIC NEXUS LEGISLATION, published April 20, 2021, by James Sutton, C.P.A., Esq.
FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, C.P.A., Esq.