Charles Darwin once wrote that there was no country in the world that did not practice tattooing or some other form of permanent body decoration. Florida is no exception with over 9,000 tattoo parlors throughout the state. The question this article poses is whether a tattoo parlor is required to collect, remit, or even be subject to Florida sales and use tax. In typical attorney speak, the answer is both yes and no. If you own a tattoo parlor or you have clients that are tattoo parlors, then this article is focused on you, to help you understand when Florida sales tax applies to the industry.
The state of Florida imposes a tax rate of 6% plus any local discretionary sales tax rate. It is commonly known that tangible personal property sold in Florida is subject to sales tax. If your tattoo parlor sells any products that customers can take home with them (besides tattoos on the skin), then the business will need to charge Florida sales tax on that product just like any other retailer. You have the customer in your shop, why not make a little extra by offering something else. Just make sure you collect and remit sales tax on the products. For any products that you are using to give tattoos (e.g. ink) and the equipment used (e.g. chairs), you should pay tax to the vendor when you buy the products and KEEP PROOF you paid tax.
What is not commonly known is that some services are also taxable in Florida. The four specific types of taxable services subject to sales tax in Florida are:
- Nonresidential Cleaning Services
- Commercial Pest Control Services
- Commercial/Residential Burglary and Security Services
- Detective Services
Luckily, tattoo parlors do NOT fit into any of these taxable service categories. In fact, Rule 12A-1.010 specifically provides that beauty shops are not required to collect tax on the services that they sell, but are required to collect tax on nail kits, polishes, or ornamental nails that are sold separately. (Are you laughing right now because no one has ever referred to your tattoo parlor as a beauty shop before?) So, the tattoo service itself is not subject to Florida sales tax. At this point, you are probably asking yourself why isn’t this the end of the article? This article continues because Florida’s taxes are tricky at best, and often catch the unwary business owner off guard. For tattoo parlors, the tricks that can sneak up you are sales tax on “rent” and re-employment taxes.
Florida Sales Tax on Rent
Hopefully this doesn’t come as a surprise to you, but Florida has a sales tax on commercial rent. Florida is the only state in the country that has a sales tax on commercial rent and the Florida legislature has been pro-actively trying to get rid of the sales tax on commercial rent. As of the time this article was published, the Florida sales tax rate on commercial rent has dropped to a 2% state tax rate plus your local surtax rate. So, if you have a 1% local surtax rate, your total tax rate for commercial rent is 3% at the moment. If you rent the space you run your business out of, then you need to be paying sales tax on your lease payments. If you pay C.A.M. charges to your landlord or pay the property taxes, then those payments would be subject to sales tax as rent as well. Again, hopefully this is not a surprise to you. What might be a surprise, and the reason we get phone calls on a regular basis from tattoo parlors, is that you might also be considered to be renting to your independent contractors that work in your tattoo parlor. Yes, even if you don’t consider yourself renting, you still might have a rent issue under Florida sales tax law.
Most tattoo parlors employ tattoo artists as Independent Contractors. If your tattoo artists are all W-2 employees, then you really don’t have to worry about rent issues for your employees. However, the tattoo parlors that have independent contractors are potentially renting the space to the independent contractors to use the space in exchange for a % of the revenue the independent contractor makes in your shop. The Florida Department of Revenue has been targeting the tattoo industry for a few years now accusing tattoo parlor owners of owing sales tax on all the funds received from the independent contractors. Think through what your company made from independent contractors over the last 3 years (the typical length of a sales tax audit). Now multiple that times 3%. How big is that number? Have you been doing this more than 3 years? If you haven’t been filing sales tax returns, then the Florida Department of Revenue has an open statute of limitations to go after your company for as long as your business has been operating. That type of assessment would devastate any business owner.
The Florida Department of Revenue will take the position that every independent contractor is paying rent in your tattoo parlor. The burden is on you to prove that your company is not renting to independent contractors. The scenarios for tattoo parlors that we represent fall into two distinct categories.
(1) The independent contractor collects money from the customers and gives a share to the shop owner. This scenario is most likely going to be considered taxable rent and the shop owner is going to be liable for all the sales tax plus penalties and interest.
(2) The independent contractors have a commission agreement with the tattoo parlor in which the customers always pay the business for services and the business pays the independent contractor a commission for any customers that use the independent contractor services. This fact scenario usually provides a good defense to the Department of Revenue’s accusation of sales tax due on commercial rent.
Again, any Florida sales tax auditor will tell you that both scenarios are subject to Florida sales tax. However, the tattoo parlor with a good commission agreement (and follows the formalities of how the money flows from the customer to the business) will likely be able to beat the assessment on appeal. Even with the perfect commission agreement, the Florida Department of Revenue has another trick up their sleeve to try to hit your business with a tax assessment – Florida Reemployment Tax.
Florida Reemployment Tax
There is a joke that goes around our law firm and it goes like this: “There has never been an independent contractor that the Florida Department of Revenue auditors do not think should be an employee.” In reality, the issue is no joke for businesses like tattoo parlors that regularly hire independent contractors. If all your independent contractors are found to be employees, then not only would your business owe Florida’s reemployment tax on all the money’s paid to the independent contractors, but the business also has the very real risk of the IRS coming back to say your business owes all the Federal employment taxes on those recharacterized wages, plus 100% penalties and interest. Think about all the money your independent contractors made in your business last year. Now multiple that number times 30%. That would be the minimal cost of an IRS audit finding your independent contractors were really employees for 1 year (and they can audit multiple years). The Florida cost would be minimal, maybe 5.4% of the first $7,500 of “salary” of each person. The big risk comes from the fact that the Florida Department of Revenue is contracted by the IRS to do reemployment tax audits of businesses in Florida and report the findings to the IRS. Every time the Department of Revenue auditors are doing “rent” audits of businesses like tattoo parlors, the auditors are also gathering evidence on whether there are independent contractor vs employee issues so they can come back with a reemployment tax audit right after the sales tax on rent audit. This is the reason you want to have very, very good independent contractor agreements drafted that not only protect your business from rent issues, but also employment tax issues.
There is a good article linked at end of this article specifically on Florida’s reemployment tax audits.
Voluntary Disclosure Program
If you are reading this article and you spot potential issues in your tattoo parlor business, then there may be a way to get this cleaned up that is much less painful than going through a sales tax audit. The state of Florida has a statutory program that allows a business to come forward to say “opps, I made a mistake.” The state lets you get it cleaned up with just a 3 year look back period, usually no penalties, and a little bit of interest. You usually can avoid a costly audit by going the Voluntary Disclosure route. It also gives you an opportunity to get your agreements updated so you minimize the risks going forward. Please note that the Voluntary Disclosure Program is only available if your company has NOT already been contacted by the Florida Department of Revenue. That means if you get a call about a pending sales tax or reemployment tax audit, your company can’t use the Voluntary Disclosure Program.
There is a good article linked at the end of this article specifically on the Voluntary Disclosure Program.
Underreported Sales Tax
Since tattoo parlors are not collecting tax very often, issues of not reporting the correct amount of sales tax will hopefully be minimal. But it is worth mentioning, just in case, that any Florida business that collects sales tax and doesn’t report/remit the tax timely can have a criminal implications very quickly. It only takes $301 dollars of collected but not remitted sales tax to become a 3rd degree felony with up to five years in jail. Not filing 6 returns in a row is also a 3rd degree felony with up to five years in jail. Almost 1,000 people a year get arrested for sales tax fraud in Florida.
Summary
If you own a tattoo parlor (or you have clients in the industry), you want to make sure you are handling both your sales tax and reemployment tax issued correctly. Proper agreements and planning can save your business tens of thousands of dollars and a world of stress. If you have questions about this article, feel to contact our firm for a free initial consultation.
About the Authors
James Sutton is a Florida licensed CPA and attorney as well as a partner in Moffa, Sutton, & Donnini, PA. Mr. Sutton is charge of the Tampa office of the firm and practices almost exclusively in the area of Florida Sales & Use Tax Controversy. Mr. Sutton handles audits, protest, litigation, criminal cases, revocations, collections, and consulting engagements all in the area of sales tax. Mr. Sutton is an active member in the FICPA, AICPA, AAA-CPA, and FIADA. Mr. Sutton is also the State and Local Tax Chairman for the AAA-CPA and past president of the Florida AAA-CPA. For 2022 to 2024, Mr Sutton was the Chairman for the State Tax Committee for the FICPA. Otherwise, you can learn more about Mr. Sutton in his firm bio HERE and you call him directly at 813-775-2131.
Andrea Arauz is an associate attorney who joined the Law Offices of Moffa, Sutton, & Donnini, P.A. in 2024. Andrea focuses her practice on Florida state and local tax, with an emphasis on sales and use tax. Andrea joined the firm after spending 5 1/2 years at KPMG, LLP, a public accounting firm handling a wide variety of state tax consulting and compliance work for Fortune 500 companies. In addition to working at the Law Offices of Moffa, Sutton, & Donnini, P.A., Andrea currently serves as a Trial Defense Judge Advocate in the Florida National Guard. You can learn more about Andrea in her bio HERE.
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. Contact us for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
AUTHORITY
Sec 12A-1.010 FAC – Receipts from Sales by Barber Shops and Beauty Shops
ADDITIONAL RESOURCES
WHAT TO EXPECT FROM A FLORIDA REEMPLOYMENT TAX AUDIT, published November 29, 2023, by Matthew Parker, Esq.
FLORIDA SALES TAX – VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018.
FILING FLORIDA SALES TAX RETURNS LATE, published August 26, 2024, by Jackie Mustian, 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 IRA ATTORNEY FOR SALES TAX PROBLEMS!, published July 14, 2024, by James Sutton, CPA, Esq.