It is that time of year again. No, I am not talking about the holidays. I am talking about the time of year when the Florida Department of Revenue (FDOR) sends out Reemployment Tax (RT) Rate Notices. Most of the time, this comes as a surprise if there is a negative change i.e. your reemployment tax rate is increasing. It is important to know about this as there can be expensive consequences to this potentially “missed” document mailed out to unsuspecting taxpayers.
Most RT rate notices are issued around the start of December. This is done because the associated rate changes will start in quarter one of the next year. The document generally is two pages. The first page includes “summary” account info with a tax rate calculation below that. Below the rate calculation, there is a summary of benefits charges that impact the above rate calculation which identifies any change to the business’s RT rate. Many business that open this letter might not even realize (or care about) the change to the rate. Along this line, many business owners might not even know their RT rate if their tax professional simply files the returns for them.
The second page of the RT rate notice provides concise information explaining the components of the rate calculation around the middle of the first page. Each box of the computation is explained, by box number for ease of reference, to help with understanding the rate determination. While somewhat helpful, there are general statutory references to sections in Chapter 443, Florida Statutes for the authority and basis for the categories. Chapter 443 is generally broadly worded and the Department takes great discretion with its operations under the Chapter. However, that is a discussion for another day. The primary factor that most businesses might not know about impacting the RT rate calculation is the benefits charges. This is shown in Box 2 of the RT Rate Notice and represents the amount of unemployment assistance benefits paid to former employees and charged to the business’s account. This information is not detailed in the report other than quarterly summaries on the bottom of the first page. The computation goes back 12 quarters or three years for the computation of the RT tax rate.
With the updated rate disclosed in the RT rate notice, the business will now remit RT based on that rate for the identified quarter and going forward. RT is based on the first $7K of employee wages in the calendar year. For small businesses, this might not be a big impact. However, if you have a larger number of employees – or have a lot of turnover so that employees don’t “cap out” earnings – then the rate could have a large impact on the tax burden for the business. This is particularly true if you have not earned rate reductions to a low rate. The “default” (starting) rate is 2.7%. The rate doubts to 5.4% which is the penalty rate (and maximum rate). This is a significant increase as compared to the lowest rate of .1%.
If there is a rate increase, then the very important information in the RT rate notice becomes immediately needed. This information is in the boxes in the upper right hand part of the notice. While there is a “mailed on or before” date, the more important date is below. This is the protest deadline. The protest deadline is strictly adhered to and cannot be missed. For notices that come out during the year, this is less of an issue. However, during the end of year holidays, this can become a bigger issue when deadlines can occur between holidays and office closures. The RT rate notice will provide 20 days for the deadline from the stated “mailing” deadline listed above it. This is what many business owners overlook or fail to realize until it is too late and a deadline has passed.
The RT rate notice will include a “Reason Code” on the form. This typically will just correspond to the rate being the “earned tax rate” based on the employment account history. However, there can be other reasons identified that lead to rate increases. Whatever the reason, the business needs to prepare a protest that complies with the filing requirements beyond being timely filed. The bottom of the RT rate notice provides the “appeal rights” under a box labeled “IMPORTANT” – with no other warning. A business that disagrees with the tax rate determination may file a written protest which MUST include a short and concise statement of the facts and grounds for disagreement. The postmark date of the protest must be on or before the protest deadline stated in the RT rate notice.
The RT rate notice protest might not sound complicated or serious. However, it starts an important and sometimes difficult process to contest the rate notice increase and basis. I have seen a number of cases that involve dramatic increases to the penalty rate. With the rate increase – especially to the penalty rate – that rate might not lower until some deficiency or error is remedied. Many times, business are not specifically aware of what needs to be corrected in order to reduce the rate or return it to a lower applicable rate. Frequently, the lower prior rate must be “re-earned” if the RT rate notice is not protested to avoid the increase and/or work out the issue. Some cases with the prolonged increased RT rate have hinged on what rate notice was protested and when it was protested. One prior liability that went unpaid to the Department could trigger an ongoing rate increase that results in tax due that is greatly disproportionate to the unpaid liability. One case I was involved with had a nominal amount due trigger a penalty rate that resulted in alleged six figures of tax and amounts due and covered many periods. The Department did not want to address “fairness” of a $20 debt that I argued led to over $100,000 in amounts due that stemmed over several years when the business thought the liability was paid and presumed rate notices issued in error.
So, this season, while looking through the holiday cards and mailings, make sure to check for “friendly” FDOR notices and mailings. If you get anything that includes a “protest deadline,” then you should definitely take a second look or seek professional guidance. You will want to verify if it is something that can be ignored or readily resolved. If not, then you need to confirm the tax exposure and need to file a qualifying protest. You can reach out to us for a free initial consultation to determine your rights and/or possible exposure. We have handled many RT audits and audit/rate protests. It is never good business to run afoul of the FDOR and missing protest deadline generally does not allow any recourse for the resulting consequences.
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 criminal defense of sales tax cases and state tax audits/controversies proceeding from audit through administrative litigation involving sales and use tax and all other state taxes including reemployment tax, communication service tax, and cigarette & tobacco tax. Mr. Parker also handles matters involving the Department of Business and Personal Regulation and Office of Financial Regulation and the industries they oversee. Mr. Parker received his accounting degree, law degree, and L.L.M. in Taxation from the University of Florida. To learn more about Matthew, please see his firm bio.
About the law 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.
ADDITIONAL RESOURCES
What to Expect from a Florida Reemployment Tax Audit, published November 29, 2023, by Matthew Parker Esq.
How to Fight a Florida Sales Tax Audit, published September 8, 2024, by James Sutton, CPA, Esq. and Jackie Mustian, Esq.
Don’t Hire an IRS Attorney for Sales Tax Problems!, published July 17, 2024, by James Sutton, CPA, Esq.
Florida Sales and Use Tax for Taxable Services, published December 1, 2023, by David Brennan, Esq.