Can Florida Make You the Target of a Sales Tax Audit?

If you sell goods at retail, or wholesale a product which you manufacture, or sell services in Florida, can you be sure you are collecting the appropriate amount of sales tax on the sale of your goods or services? Do you purchase supplies for your business from out of state vendors or via the internet? If the answer is "yes" to any of these questions, you might be targeted by the State of Florida for a sales and use tax audit.

Florida has increased its audit activity to the point that state tax audits now outnumber Internal Revenue Service audits significantly. Those companies that seem to be at greatest risk for a sales tax audit are manufacturers, retailers, and service businesses that make significant purchases of supplies for their company.

Your business could be the next target for a sales tax audit!

Manufacturers face a myriad of complex sales tax rules which can often make even the most seasoned expert grimace. Many manufacturers are under the false impression that they are afforded generous sales tax exemptions. While Florida does offer certain tax breaks to manufacturers, the state imposes sales tax on most of a manufacturer’s purchases of materials for its business. In certain cases, Florida imposes a sales tax on the cost of labor to make a product. In effect, your business must self assesses a tax on its fabrication costs. That could be an additional 6% or more in overhead for your business especially if you are subject to the sales surtax. Some manufacturers have been required to pay sales tax on up to 100% of their labor costs.

Retailers can't escape being targeted for sales tax audits because they often fail to properly address sales tax on “out-of-state” sales. Many retailers also do not properly calculate the Florida sales surtax or handle exempt sales properly. These errors serve as red flags, and can cost the mid-size retailer a significant amount in tax dollars. Retailers with significant growth in their business are also likely targets for a sales tax audit.

Businesses that do not collect sales tax on their product or service are also being scrutinized by the Florida Department of Revenue for sales tax audits because these companies generally make significant purchases of supplies for their business. Florida imposes sales taxes on purchases of tangible goods and certain services. Did you know that purchases made from out of state might nonetheless require businesses to accrue and pay use tax?

KEY POINT: Whether you are a manufacturer purchasing materials and supplies to make your product, a retailer, or a service provider purchasing goods included as part of a non-taxable service, sales and use tax affects you. Use taxes can add up for a business and contribute to its overhead. If you overpaid sales taxes, you could be losing money.

What can be done to ensure compliance with Florida sales tax rules to ensure a smooth and painless audit from a financial standpoint?

At Daszkal Bolton, we have a proven track record of helping clients assess their compliance, identify refund opportunities and minimize total state and local tax liability. We can analyze your historical exposure to sales and use taxes. We can forecast prospective sales and use tax exposure to help your company's cash flow. We can identify overpayments that can lead to refund opportunities and help you keep more of your profits.

If you need assistance in reviewing your sales tax filing history and compliance, please contact Faith L. Gorman, JD, Senior Manager in our Tax Services Department. She is a nationally recognized expert in the area of state and local taxes and can identify your tax exposure. Faith can be contacted directly at fgorman@daszkalbolton.com or by phone at 561-367-1040.