Decorations are a big part of any holiday, especially Christmas. Setting up decorations helps to get into the season quite well. What is great is seeing the wonder and amazement in the eyes of children as they drive through neighborhoods looking at the decorations. Wonder and amazement is in the eyes of the Florida Department of Revenue as well. The Florida Department of Revenue salivates knowing it can make huge, crippling assessments against companies engaged in the holiday décor business. Read on to learn how the Florida Department of Revenue could try to trap your business and what you can do.
Sales tax is generally imposed on sales at retail of tangible personal property in Florida. A “sale” means any transfer of title or possession, or both, exchange, barter, license, lease, or rental of tangible personal property for a consideration. By consideration, the statute means money or something for which you are bargaining for such as bartering or trading. In other words, if someone provides something to you for free, you really do not have a “sale” in the vast majority of cases for purposes of the statute. Another key component for a “sale” is the tangible items need to be transferred in some capacity. For example, I have to own the item acquired – buying a Christmas tree from the Boy Scouts of America. Another example would be I have the right to use or control the item I acquired on a temporary basis – renting a car from Enterprise. In either scenario, those examples should be a “sale” that is usually subject to Florida sales or use tax. But what if you are a holiday décor company and you do not neatly fit within either of the above examples?
Holiday décor companies have a unique business model. They allow businesses and homeowners to choose from certain decoration setups outside or inside. Once the customer chooses the setup for the decorations, the holiday décor company comes by, provides all of the decorations and labor to setup the decorations. At a later date, the holiday décor company will then come back to remove decorations and return the premises back to their original condition without the decorations. To get the decorations, most holiday décor companies will purchase the items in bulk and pay sales or use tax on the acquisition of the decorations. In the minds of the holiday décor companies, they are providing a service and not selling or renting the decorations to their customers. In comes the Florida Department of Revenue to tell the holiday décor companies they are doing it all wrong.
Just as the grinch stole Christmas, the Florida Department of Revenue comes to impose sales or use tax on transactions, even if the sales or use tax is not due on the transaction. As it relates to holiday décor companies, the Florida Department of Revenue recently came out with a tax information publication to describe the ways in which the Florida Department of Revenue can assess sales or use tax. Ironically enough, the tax information publication starts off with “[s]ome Florida businesses may be unaware….” Businesses are unaware of these pronouncements by the Florida Department of Revenue because the dictating of the Florida Department of Revenue does not appear to line up with the law. This point seems to be lost on the Florida Department of Revenue.
The Florida Department of Revenue describes its positions via a few examples. One example is a customer hires Company B to provide and install holiday decorations and lighting on a temporary basis for the customer’s company office. At the end of the rental period, Company B removes the decorations and lighting. Company B is required to charge sales tax on the total rental price, which includes services to install and remove the rented décor.
The Florida Department of Revenue calls the above example a “rental.” The term “rental” means the leasing or rental of tangible personal property and the possession or use of the same by the lessee or rentee for a consideration. In essence, the Florida Department of Revenue assumes the above situation to be that of a rental to (erroneously) conclude sales or use tax is due on the transaction with the customer. It is likely a court would find the Florida Department of Revenue is wrong on its above analysis and conclusion to impose sales or use tax on these transactions. Customers are not renting the holiday decorations. Moreover, customers do not truly have possession or use of the holiday decorations either. Customers are not going to go up on to their roof to move around the lighting because the customer thinks the holiday décor company did a bad job. If the customer thought that, the customer would call the holiday décor company to come back out and fix it. This is where the Florida Department of Revenue plainly gets things wrong.
What do you do if you find yourself in the crosshairs of the Florida Department of Revenue? You need to hire competent counsel immediately. The Florida Department of Revenue is not your friend. The only way the Florida Department of Revenue will “help” is to “help” themselves to your pocketbook by making an inflated assessment for which you likely do not owe. The likely outcome of a sales or use tax audit by the Florida Department of Revenue of your business will be one of assessing tax on your transactions where you install, on a temporary basis, your own holiday decorations at a customer’s location. Though you most likely paid sales or use tax on your purchase of the decorations, the Florida Department of Revenue will most likely not give you credit for the sales or use tax already paid. In other words, this results in you paying sales or use tax twice! One time will be on the purchase and another time will be on the Florida Department of Revenue’s allegation of the “sale” with the customer.
If you begin charging sales tax on the temporary installation of holiday decorations to comply with the dictates of the Florida Department of Revenue, you will likely find yourself at a huge competitive disadvantage. More precisely, many of the competition will not be charging Florida sales or use tax on the transactions (arguably, rightfully so). As such, customers will be going with the lower bidder, all else equal. Resultingly, this means less business and can/will end with you going out of business.
With the battle lines being drawn, you have to decide how to attack this problem immediately. Ignoring the problem will not make it go away. Be prepared to have the fight of your life on your hands for this. You are fighting for your livelihood. The Florida Department of Revenue fights because they think they are right. Usually, no one’s job at the Florida Department of Revenue is in jeopardy because of losing a fight like this. With the consequences being disproportionate, this is something to take seriously.
In conclusion, holiday décor companies have more to worry about than ensuring decorations get timely setup for customers. The very livelihood of holiday décor companies is in jeopardy at the behest of the Florida Department of Revenue. Taking action immediately is a necessity, as the Florida Department of Revenue will not wait to take action against you. Act now 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 212.02, F.S. – Definitions.
Section 212.05, F.S. – Sales, storage, use tax.
Tax Information Publication 24A01-14. Florida decoration companies
ADDITIONAL RESOURCES
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.
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.
FLORIDA TAX INCENTIVES FOR BUSINESS, published November 10, 2013, by Gerald J. Donnini, II, Esq.