If you are like most people, the purchase of an aircraft is an exciting time. There are plans with how you could use your aircraft. Florida sales or use tax is usually an afterthought to the entire process. However, Florida sales or use tax is on the top of the list for the Florida Department of Revenue with making a sales or use tax assessment against aircraft owners. This begs the question of how does the Florida Department of Revenue find aircraft to audit and assess? Read on to learn how you could be at risk.
As of lately, the Florida Department of Revenue has significantly increased the number of audits being conducted of aircraft owners. Without fail, the result of the audit by the Florida Department of Revenue usually ends in an assessment of the aircraft to the aircraft owner. This outcome can occur irrespective of what you provide to an auditor. Auditors usually obtain information before the audit starts that proves you are “guilty until proven innocent” on the aircraft purchase. It can be very difficult to determine how best to fight the assessment if you do not understand where the auditor is coming from in making the assessment.
One way an aircraft owner is found is via the rewards system of the Florida Department of Revenue. If the proper forms are submitted, the claimant may be entitled to receive up to ten percent (10%) of the collected tax, penalties, and interest. The key is the Florida Department of Revenue must collect something in order to pay something to the claimant. If nothing is collected by the Florida Department of Revenue, then the claimant likely does not receive anything from the Florida Department of Revenue.
The Florida Department of Revenue, pursuant to Rule 12-18.003(2), Florida Administrative Code, has determined the amount to be paid to individuals who turn others in.
(a) The amount of compensation will be 10 percent of the taxes, penalties, and interest collected when:
1. The information is provided in the form of detailed and specific documentary or testimonial evidence;
2. The information directly caused an investigation or inspection of records;
3. The information directly resulted in the recovery of taxes, penalties, or interest due that included taxes, penalties, and interest due on a specific infraction of the revenue laws administered by the Department pursuant to Section 213.05, F.S.; and,
4. The detailed and specific documentary or testimonial evidence provided by the applicant significantly reduced the time and resources expended in establishing the facts necessary to determine that an infraction of those revenue laws existed.
(b) The amount of compensation will be 5 percent of the taxes, penalties, and interest collected when:
1. The information provided directly caused an investigation or inspection of records; and,
2. The information, although not of sufficient detail or specificity to constitute evidence, was a significant factor in establishing that an infraction occurred and in the recovery of taxes, penalties, and interest due that included taxes, penalties, and interest due on a specific infraction of the revenue laws administered by the Department pursuant to Section 213.05, F.S.
(c) The amount of compensation will be 1 percent of the taxes, penalties, and interest collected when:
1. The information caused an investigation or inspection of records; and,
2. The information provided was of no value in determining the specific liability for taxes, penalties, or interest due.
As of lately, it appears one company in particular may be sending information to the Florida Department of Revenue in hopes of receiving a reward. This company, which is not going to be identified for purposes of this article, has a website in which the company talks about how the company helps taxing jurisdictions get the money the taxing jurisdictions deserve to fund various programs. Quite literally, this company looks to be hunting down individuals and companies to turn in to state or local governments in order to receive compensation. Let that sink in for a moment. There are companies out there which make money by you paying tax, penalties, and interest to the government irrespective of whether you owe that money!
Companies attempting to obtain a reward usually can just fill out a form and send it to the Florida Department of Revenue to then decide whether to audit their next victim. Some of these companies will include information, sometimes from publicly available sources, to attempt to support their position of auditing and assessing businesses and people. In some instances, not a lot of “proof” is required from these companies in order for an audit to begin. In other words, you could be forced to pay legal fees to defend yourself all because someone turned you in for allegedly not paying sales or use tax on an aircraft purchase.
You should be concerned because I sure am. Individuals and companies are incentivized to turn over the information of others to try to receive a reward, irrespective of whether the sales or use tax is actually owed. To illustrate my point, consider the following example. A person buys an aircraft in another state and pays seven percent (7%) sales or use tax on the aircraft acquisition. The aircraft comes to Florida after seven (7) months of usage in the state to which the sales or use tax was paid. Someone turns the aircraft owner in to the Florida Department of Revenue. The Florida Department of Revenue sends an audit notice and assessment to the aircraft owner, but the aircraft owner does not get it. The aircraft owner’s bank account is suddenly frozen one day. The aircraft owner then learns of the assessment. In the eyes of the Florida Department of Revenue, the assessment cannot be challenged, and the full amount is owed. However, if the aircraft owner had received the notice timely, then the aircraft owner could have provided proof of tax payment to the other state and also demonstrate the aircraft was outside of Florida and in another state for more than six months after purchase. Both of these reasons should have caused there to be no assessment with the Florida Department of Revenue. However, if the aircraft owner pays the Florida Department of Revenue this assessment, then the person or company turning in the aircraft owner receives a reward, which reward is arguably not due in the first place. If this situation seems far-fetched, it is not. It is something I see quite frequently with clients in various industries and is much to the horror of clients with the potential outcome.
In these situations, there is only one thing you can do – fight. You have to fight to protect yourself, your aircraft, your business (if applicable), and your rights as a taxpayer. Falling victim to the rewards system is not something to settle for, as it is something that has the possibility to be repeated in the future.
In conclusion and while the rewards system is conceptionally good on paper, it presents many potential opportunities for exploitation and abuse. It is a way to potentially have sales or use tax assessed against an individual or company when in fact no sales or use tax is legally owed. Be forewarned – this is something to be weary of and prepare for before it catches you off guard. The time to take action is now before anything has happened. If you have received any type of notification from the Florida Department of Revenue or any other state, you should not ignore it; instead, you must act right away to protect your rights 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 those relating to aircraft. 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 213.30. Compensation for information relating to a violation of the tax laws.
Rule 12-18.003. Amount and Payment of Compensation.
ADDITIONAL RESOURCES
FLORIDA INCREASING SALES TAX AIRCRAFT AUDITS,published July 7, 2024, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX - A CASE STUDY OF AGGRESSIVE SALES TAX AUDITS,published October 9, 2023, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX AUDITS PROCESS AND TRAPS,published March 4, 2023, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX AIRCRAFT AUDIT PLAYBOOK,published February 4, 2023, by David J. Brennan, Jr., Esq.
AIRCRAFT USE TAX IN FLORIDA,published May 2, 2019, by David J. Brennan, Jr., Esq.
FL SALES TAX: AIRCRAFT 1% OF 6% RULE,published December 7, 2018, 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.
SALES TAX ON AIRCRAFT PARTS AND REPAIRS IN FLORIDA,published December 10, 2017, by David J. Brennan, Jr., Esq.
SALES TAX ON AIRCRAFT LEASING IN FLORIDA,published March 31, 2017, by David J. Brennan, Jr., Esq.
NO FLORIDA SALES TAX ON AIRCRAFT PURCHASED BY NON-RESIDENT?,published November 6, 2016, by David J. Brennan, Jr., Esq.