I am back! Did you enjoy our Florida Sales Tax Guide- Tattoo Parlors? If so, I have another interesting article for you and this one having to do with Florida sales tax on NAIL SALONS! Yes, you heard me correctly. Did you know the first nail salon was opened in New York in 1878. Since then, Florida is home to a large number of nail salons, with over 111,677 businesses in Florida alone. Florida is third behind California (175,401) and New York (161,194). Florida's nail industry is a significant part of the $8.5 billion nail industry in the United States.
Services
As we mentioned in our tattoo parlor article, 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. Services are generally exempt from tax. However, 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, Nail Salons (just like tattoo parlors) do NOT fit into any of these taxable service categories. Nail Salons fall under NAICS Code 812113. This U.S. industry comprises establishments primarily engaged in providing nail care services, such as manicures, pedicures, and nail extensions. 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. So, the beauty service itself is not subject to Florida sales tax. But if your Nail Salon sells any products that customers can take home with them (e.g. nail kits, polishes, or ornamental nails, etc.), then the business will need to charge Florida sales tax on that product just like any other retailer. Just make sure you collect and remit sales tax on the products. For any products that you are using to give a manicure, pedicure or nail enhancement (e.g. polishes, artificial nail tips, acrylic gel, etc.) and the equipment used (e.g. tables, chairs, massage chairs), you should pay tax to the vendor when you buy the products and KEEP PROOF you paid tax.
Alternatively, if your nail salon sells a lot of products (not used on a customer), then you might consider using your Florida resale certificate when you buy the products strictly for resale so you don’t have to pay sales tax. Then you charge tax to your customers when you sell the products. However, if you consume some of the product instead of selling them, then you are supposed to calculate and pay use tax each month on those products consumed based on the cost of each item. This is something they look for when they do sales tax audits, so make sure to keep up with your inventory accounting or it might be a painful part of a sales tax audit.
How does this article nail you? This article continues because Florida’s tax laws are often looking for the opportunity to "nail" the unwary business owner off guard. For Nail Salons, the Florida Department of Revenue will try to assess sales tax on License to Use Commercial Rent Property, otherwise known as “rent” and re-employment taxes. The re-employment tax also brings another question- whether that Nail Technician is an employee is truly an Employee or Independent Contractor?
But first, let us dive into what is a Nail Salon?
A Nail Salon is a beaty that offers nail care services, such as manicures, pedicures, and nail enhancements. Nail Salons may also offer other beauty services such as skin care, waxing, and eyelash extensions.
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.
To become a registered nail specialist in Florida, you must:
- Complete at least 180 hours of education in a nail specialty program at a Florida school of cosmetology
- Be at least 16 years old or have a high school diploma
- Complete a four-hour HIV/AIDS course within two years of applying
- Submit a completed nail specialty registration application and the required fees
- Submit a Certification of Eligibility Form
- Submit a Certificate of Completion from the approved training program
A licensed cosmetologist does not need a separate nail specialist registration. However, you can also become a full specialist, which allows you to perform both nail and facial services. To become a full specialist, you must complete at least 400 hours of education at a Florida school of cosmetology.
To open a Nail Salon, you must:
- Register your business with the Department of State
Prepare for inspections
Review Florida laws and rules to ensure your space meets all requirement
Employee or Independent Contractor
Many nails salons hire Nail Technicians or please excuse me, "Celebrity" Nail Artists. There are many distinctions between an employee and an independent contractor. However, the most important one is determining "control." The right to "control" is an important factor in distinguishing whether the person employed is an employee or independent contractor.
The Department provides 10 common law factors in determining whether a worker is an employee or an independent contractor:
- The extent of control which (by agreement between the employer and the worker) the business may exercise over the details of the work;
- Whether the one employed is engaged in a distinct occupation or business
- Whether the work done in a certain locality is usually done under the direction of the employer or by a specialist without supervision
- The skill required in the particular occupation
- Whether the employer or the worker supplies the instrumentalities (for example: equipment, vehicle, materials), tools, and the place of work for the person doing the work
- The length of time the person is employed
- The method of payment, whether by the time or by the job
- Whether the work is a part of the regular business of the employer
- Whether the parties believe they are creating the relationship of employer and employee
- Whether the hiring party is or is not a business
And why is this important?
Many Taxpayers may be tempted to classify a Nail Technician as an Independent Contractor for the short term benefits it may provide however, if a worker (Nail Technician) files a claim for reemployment assistance benefits but the business did not report the worker, the Florida Department of Revenue will investigate the relationship between the worker and the business. Thus, opening a can of worms. The Department adopts the abductive reasoning that if something looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. If a Taxpayer classifies workers that are clearly Employees as independent contractors, it often times leads to a reemployment tax audit or rent.
Florida Sales Tax on 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 Nail Salons, is that you might also be considered to be renting to your independent contractors that work in your Nail Salon. Yes, even if you don’t consider yourself renting, you still might have a rent issue under Florida sales tax law. Florida Rule 12A-1.010(4) specifically provides:
- When the owner or operator of a barber or beauty shop provides space to beauticians, manicurists, specialists of massage, pedicures, or make-overs, or any person, the amount charged by the owner or operator to such person is a rental charge or license fee to use real property and is taxable, as provided in Rule 12A-1.070, F.A.C.
- When the owner or operator of the business is also a lessee or licensee, a credit may be taken on the owner’s or operator’s sales and use tax return for the amount of tax paid on the floor space that is subleased or assigned on a pro rata basis, as provided in Rule 12A-1.070, F.A.C.
So, the question is whether your independent contractor nail techs are giving your business a portion of the customer’s payments or whether your company is paying a commission to the nail techs. It can boil down to how well do you have this documented. Do you have independent contractor agreements in place? Are all customer payments made to the business? Do you just accept cash and have no record of the transactions? The answers to these questions can determine whether you can survive a commercial rent sales tax audit in Florida. These are questions we can help you answer.
Even if you survive a commercial rent sales tax audit, you still might be looking at a reemployment tax audit from the state of Florida. These audits are focused on whether your independent contractors should really be employees. If the Florida Department of Revenue auditor determines that they should be employees, then the audit results are sent to the Internal Revenue Service for a federal employment tax audit (which can be very expensive). There is a link at the bottom of this article discussing Florida Reemployment Tax Audits.
We also have a Business Division at Moffa Sutton & Donnini, PA that could help you as well! So, if you need help with independent contractor agreements, disputes with employees or customers, or even operating agreements, this is something we can help with. You can learn more about our business division www.FloridaBusinessLawyer.com
Summary
If you own a Nail Salon, then you want to make ensure your sales tax and reemployment tax issues correctly. If you have any questions regarding this article or you have recently been contacted by the Florida Department of Revenue, please feel free to contact our firm for a free initial consultation.
About the Author
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 Our 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. Contact us for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
AUTHORITY
Florida Rule 12A-1.010 Receipts from sales by Barber Shops and Beauty Shops
Florida Rule 12A-1.070 Leases and Licenses of Real Property
ADDITIONAL RESOURCES
FLORIDA SALES TAX GUIDE – TATOO PARLORS, published September 23, 2024, by Andrea Arauz, Esq.
FLORIDA SALES TAX AUDIT HELP, published January 8, 2025, by James Sutton, CPA, Esq.
FLORIDA SALES TAX ARREST – RESTAURANT OWNER, published January 16, 2025, by James Sutton, CPA, Esq.
2025 FL COMMERCIAL RENT SALES TAX RATES, published December 28, 2024, by Jackie Mustian, Esq.
WHAT TO EXPECT FROM A FLORIDA REEMPLOYMENT TAX AUDIT, published November 29, 2023, by Matthew Parker, Esq.
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