FLORIDA DEPARTMENT OF REVENUE
TRAINING MANUAL
SALES AND USE TAX
FOR AUDITORS
(GTAPT01)
General Tax Administration
Program Training, 2014
II
PURPOSE OF THE COURSE:
The purpose of this course is to provide all employees within the
Department of Revenue, a more complete understanding of sales
and use tax and to serve as a guideline for auditors in the conduct of
assigned audits.
This course is designed strictly as a training aid and is for internal
use only; it is not a rule and should never be cited as authority to
sustain your position on technical or procedural issues. To the
extent necessary, any citations should be made to Florida statutes
and rules.
III
IV
SALES AND USE TAX FOR AUDITORS
INDEX
Page
MODULE ONE INTRODUCTION ........................................................................................ 1-1
Nature of Sales & Use Tax Law ................................................................................................... 1-1
MODULE TWO STATUTES AND RULES .......................................................................... 2-1
Definitions...................................................................................................................................... 2-1
Organization of Statutes ................................................................................................................ 2-9
Taxable Transactions................................................................................................................... 2-10
Exempt Transactions ................................................................................................................... 2-13
Citing a Statute ............................................................................................................................ 2-17
Purpose of Rules .......................................................................................................................... 2-17
Relationship between Rules and Statutes ................................................................................... 2-18
Organization of Rules .................................................................................................................. 2-19
Citing a Rule ................................................................................................................................ 2-23
MODULE THREE TAXPAYER RESPONSIBILITIES ..................................................... 3-1
Registration .................................................................................................................................... 3-2
County-Control Number ............................................................................................................... 3-3
Consolidated Registration ............................................................................................................. 3-4
Record Keeping Requirements ..................................................................................................... 3-4
Collection of Tax ........................................................................................................................... 3-5
Sales and Use Tax Rates ............................................................................................................... 3-6
Effective Tax Rate Calculation ..................................................................................................... 3-8
Exceptions to 6% Base Tax Rate .................................................................................................. 3-9
Return Filing Requirements ........................................................................................................ 3-10
Electronic Funds Transfer/Electronic Data Interchange ............................................................ 3-11
Estimated Taxes........................................................................................................................... 3-12
Exempt Sales for Resale – Annual Resale Certificates.............................................................. 3-14
Exempt Sales for Resale - Nonresident Dealers......................................................................... 3-17
Collection Allowance .................................................................................................................. 3-17
Penalty & Interest ........................................................................................................................ 3-18
Tax Evasion, Fraud...................................................................................................................... 3-19
Conversion Penalties & Fraudulent Resale & Exemption Certificate Penalty ......................... 3-20
Exhibit – Sales Tax Tables .......................................................................................................... 3-27
Exhibit – DR-15, Sales and Use Tax Return .............................................................................. 3-29
Exhibit – DR-15EZ, Sales and Use Tax Return ......................................................................... 3-31
MODULE FOUR DEPARTMENT'S REQUIREMENTS ................................................... 4-1
Nexus ............................................................................................................................................. 4-1
Reconciliation of Ownership ........................................................................................................ 4-4
Transferee Liability – prior to April 2012 .................................................................................... 4-4
V
Transferee Liability – after April 2012 ......................................................................................... 4-8
Right to Prescribe Records to be the Maintained by Dealers ...................................................... 4-9
Dealers Required to Maintain Records ......................................................................................... 4-9
Audit Authority............................................................................................................................ 4-10
When Records Are Adequate but Voluminous In Nature ......................................................... 4-11
When Records Are Not Adequate .............................................................................................. 4-12
Statute of Limitations .................................................................................................................. 4-13
Notifying the Dealer & Establishing the Audit Period .............................................................. 4-14
Overpayments of Tax – Compliance Audits .............................................................................. 4-17
Time Line on Completion of the Audit ...................................................................................... 4-18
Commencing the Audit ............................................................................................................... 4-19
Documentation............................................................................................................................. 4-20
Failure to Commence the Audit Timely ..................................................................................... 4-21
Failure to Complete the Audit Timely ........................................................................................ 4-21
Notice of Intent to Make Audit Changes .................................................................................... 4-23
Explanations of Items .................................................................................................................. 4-24
Collection of Assessed Taxes ..................................................................................................... 4-25
MODULE FIVE AUDIT PROCEDURES ............................................................................. 5-1
Preparation for the Audit ............................................................................................................... 5-2
Audit Entrance Interview .............................................................................................................. 5-4
Analyzing Financial Data .............................................................................................................. 5-5
Adequate but Voluminous Records .............................................................................................. 5-5
Materiality...................................................................................................................................... 5-8
Testing............................................................................................................................................ 5-9
Conduct of the Audit ..................................................................................................................... 5-9
Auditing Techniques - Detail ...................................................................................................... 5-13
Auditing Techniques – Error Ratio............................................................................................. 5-13
Auditing Techniques – Percentage of Error ............................................................................... 5-15
Auditing Techniques – Rate and Ratio ....................................................................................... 5-16
Audit Techniques – Averaging, Statistical Sampling & Non-Statistical Sampling.................. 5-20
Internal Technical Advice (ITA/RTA) ....................................................................................... 5-21
Special Audit Procedures – Relief for Inadvertent Registration Errors .................................... 5-23
Special Audit Procedures – Relief for Failure to Collect Tax ................................................... 5-25
Special Audit Procedures – Relief for Failure to Apply Tax Brackets ..................................... 5-25
Documentation of Audit Findings .............................................................................................. 5-27
Presentation of Audit Findings ................................................................................................... 5-28
Audit Report ................................................................................................................................ 5-29
Audit Sampling Agreement ........................................................................................................ 5-30
Exhibit – Audit Standards ........................................................................................................... 5-39
MODULE SIX SPECIAL TAX CONSIDERATIONS ......................................................... 6-1
Foreign Goods, Import, Export and Transit ................................................................................. 6-1
Transportation Charges ................................................................................................................. 6-3
Realty v. Tangible Personal Property ........................................................................................... 6-6
VI
Packaging and Labeling Material ................................................................................................. 6-9
Computers and Related Systems................................................................................................. 6-11
Trade-Ins ...................................................................................................................................... 6-13
Discounts...................................................................................................................................... 6-13
Coupons ....................................................................................................................................... 6-14
Rebates and Gifts ......................................................................................................................... 6-15
MODULE SEVEN SLEEPING AND DWELLING ACCOMMODATIONS ................... 7-1
Houses and Apartments................................................................................................................. 7-2
Registration .................................................................................................................................... 7-4
Bona Fide Written Lease Requirements ....................................................................................... 7-5
Hotels and Motels .......................................................................................................................... 7-9
Hotel Reward Point Programs..................................................................................................... 7-13
Recreational Resort Membership Agreements........................................................................... 7-16
Trailer Parks................................................................................................................................. 7-16
Exempt Facilities – Trailer Camps, MH Parks & RV Parks ..................................................... 7-18
Exhibit – Declaration of Taxable Status - Trailer Camps, MH Parks, RV Parks ..................... 7-27
MODULE EIGHT REAL PROPERTY RENTALS AND LICENSES ............................. 8-1
Registration .................................................................................................................................... 8-2
Exempt Rental of Real Property ................................................................................................... 8-3
Tax Due on Total Rental Consideration & Tax Due at Time of Receipt .................................... 8-4
Rental Consideration - Ad Valorem Taxes .................................................................................. 8-5
Rental Consideration – R/P Improvements, Utility, Lease Termination Charges ...................... 8-6
Rental Consideration – Common Area Maintenance, Insurance ................................................ 8-7
Subleasing - Pyramiding ............................................................................................................... 8-8
Subleasing – Inverse Pyramiding................................................................................................ 8-11
Inter-Company Rentals & Common Areas ................................................................................ 8-13
Common Areas at Hotels & Motels, Billboards ........................................................................ 8-14
Parking, Docking & Storage of Motor Vehicles ........................................................................ 8-15
Specific Exemptions and Tax Due Procedures .......................................................................... 8-15
MODULE NINE FOOD AND BEVERAGE DEALERS ..................................................... 9-1
Grocery Stores ............................................................................................................................... 9-1
Premises and Hot Prepared Food .................................................................................................. 9-6
Exempt Samples & Exempt Donations to Food Banks ............................................................... 9-8
Exempt Medical Products, Delicatessens ..................................................................................... 9-7
Restaurants & Bakeries ............................................................................................................... 9-10
Caterers ........................................................................................................................................ 9-12
Meals/Fund Raising Events & Gratuities ................................................................................... 9-13
Bars & Lounges ........................................................................................................................... 9-14
Package Stores ............................................................................................................................. 9-16
Vending Machines ....................................................................................................................... 9-17
Amusement Machines ................................................................................................................. 9-21
Exhibit – Nontaxable Medical & General Grocery List ............................................................ 9-35
VII
MODULE TEN REPAIR OF TANGIBLE PERSONAL PROPERTY &
SERVICE WARRANTY AGREEMENTS ........................................................................... 10-1
Small and Large Appliance Repair ............................................................................................. 10-2
Large Industrial Equipment Repair............................................................................................. 10-4
Phase Billings .............................................................................................................................. 10-6
Industrial Equipment Repair Exemptions................................................................................... 10-7
Motor Vehicle Repairs ................................................................................................................ 10-8
Service Warranty Agreements .................................................................................................... 10-9
MODULE ELEVEN TRANSPORTATION EQUIPMENT DEALERS.......................... 11-1
Estimated Tax Payments – Alternative Method......................................................................... 11-2
Automobile Dealers ..................................................................................................................... 11-3
Partial Exemption – Sales to Resident of Another States .......................................................... 11-5
Vehicles Purchased Outside Florida & Registered in Florida ................................................... 11-7
Repairs & Shop Supplies ............................................................................................................ 11-8
Loaner Vehicles ........................................................................................................................... 11-9
Leased Vehicles and Rebates .................................................................................................... 11-11
Off-Highway Vehicles .............................................................................................................. 11-12
Mobile Homes ........................................................................................................................... 11-13
Boats........................................................................................................................................... 11-15
Aircraft ....................................................................................................................................... 11-17
Exhibit – Affidavit for Partial Exemption of MV .................................................................... 11-39
MODULE TWELVE MISCELLANEOUS TAXES AND FEES ...................................... 12-1
Cleaning Services ........................................................................................................................ 12-2
Insect or Pest Control Services ................................................................................................... 12-4
Detective, Burglar and Other Protective Services ...................................................................... 12-6
Solid Waste Fee – New Tires ...................................................................................................... 12-9
Solid Waste Fee – Batteries ...................................................................................................... 12-11
Rental Car Surcharge................................................................................................................. 12-13
Motor Vehicle Warranty Fee – Lemon Law ............................................................................ 12-16
MODULE THIRTEEN ADVERTISERS AND PRINTERS .............................................. 13-1
Newspapers and Magazines ........................................................................................................ 13-2
Inserts Distributed with Periodicals ............................................................................................ 13-3
Exempt Periodicals ...................................................................................................................... 13-4
Job Printers .................................................................................................................................. 13-5
Select Printer Use Tax Exemptions ............................................................................................ 13-6
Advertising Agencies .................................................................................................................. 13-7
MODULE FOURTEEN REAL PROPERTY CONTRACTORS ..................................... 14-1
Lump Sum Contracts ................................................................................................................... 14-3
Cost Plus & Guaranteed Price Contracts .................................................................................... 14-4
Time & Material Contracts ......................................................................................................... 14-5
Retail Sale Plus Installation Contracts ........................................................................................ 14-6
VIII
Mixed Contracts .......................................................................................................................... 14-8
Fabrication Cost ........................................................................................................................... 14-9
Asphalt Contractors and Fabrication ........................................................................................ 14-12
Contractors & Jobs Inside/Outside Florida .............................................................................. 14-13
Fill Material ............................................................................................................................... 14-14
Equipment Rentals..................................................................................................................... 14-15
Prefabricated Building Contractors .......................................................................................... 14-16
Registered Contractors who Collect Erroneous Sales Tax ...................................................... 14-16
Public Works Contracts ............................................................................................................. 14-19
MODULE FIFTEEN TRANSPORTATION COMPANIES.............................................. 15-1
Motor Carriers ............................................................................................................................. 15-4
Common Carrier Proration Factor .............................................................................................. 15-6
Line-Haul & Local Haul, & Interchange and Free Running Vehicles ...................................... 15-7
Discretionary Surtax, Piggyback Miles ...................................................................................... 15-8
Vehicle Combinations, Records.................................................................................................. 15-9
Common Carrier Example ........................................................................................................ 15-10
Air Carriers ................................................................................................................................ 15-12
Air Carrier Example .................................................................................................................. 15-14
MODULE SIXTEEN ADMISSIONS ..................................................................................... 16-1
Admission Tickets & Responsibilities of Agents & Principles ................................................. 16-2
Admissions/Resale, Vacation Packages, Cruises, Party/Head Boats ........................................ 16-3
Chartered Fishing Boats, Tax Due Dates, Exempt Charges ...................................................... 16-4
Exempt Events, Membership Organizations without Recreational Facilities........................... 16-5
Membership Organizations with Recreational Facilities ........................................................... 16-6
Not For Profit Organizations....................................................................................................... 16-7
Recreation, Sports, Entertainment and Cultural Events and Facilities ...................................... 16-8
Exhibit – Profit and Nonprofit Tax Issues ................................................................................ 16-24
MODULE SEVENTEEN MANUFACTURING AND FARMING................................... 17-1
Exempt Repairs............................................................................................................................ 17-2
Equipment Used In Production of Electrical or Steam Energy ................................................. 17-3
Manufactured Electrical or Steam Energy Used in Manufacturing .......................................... 17-3
Purchased Electrical Used in Manufacturing ............................................................................. 17-4
Semiconductor, Defense and Space Technology Production .................................................... 17-5
Research and Development, Pollution Control .......................................................................... 17-7
Qualified Power Farm Equipment .............................................................................................. 17-8
Electricity Used for Agricultural Purposes................................................................................. 17-9
MODULE EIGHTEEN GOVERNMENTAL AGENCIES & SURTAXES .................... 18-1
United States Government .......................................................................................................... 18-2
State of Florida, Counties & Cities ............................................................................................. 18-2
Sales/Rentals, Parking, General Purchases & Electric Utility Equipment Purchases .............. 18-3
Transient Rentals – Local Option Taxes (Bed Taxes) ............................................................... 18-4
IX
Discretionary Sales Surtaxes ....................................................................................................... 18-5
Surtax Limitation on the Sale of Tangible Personal Property ................................................... 18-5
Surtax on Sales, Out-of-State Dealers, Mail Order Sales .......................................................... 18-8
Service Warranties, Admissions, Utilities, Subscriptions, Florists, Real Property Rentals ... 18-10
Transient Rentals, Surtax on Purchases .................................................................................... 18-11
Surtax & Surtax Limitation on Fabrication of Tangible Personal Property............................ 18-12
Surtax – Motor Vehicle Dealers ............................................................................................... 18-13
Surtax – Aircraft & Boat Dealers.............................................................................................. 18-13
Surtax – Partial Exemption for Common Carriers ................................................................... 18-14
MODULE NINETEEN REFUNDS AND CREDITS .......................................................... 19-1
Refund Authority ......................................................................................................................... 19-2
Statute of Limitations .................................................................................................................. 19-3
Returns, Bad Debts & Repossessions ......................................................................................... 19-4
General Refund Information - Audit Scope ............................................................................... 19-7
General Refund Information - Audit Techniques ...................................................................... 19-8
General Refund Information - Sampling & Projecting Overpayments ..................................... 19-7
General Refund Information - Audit Procedures - Assignment of Rights ................................ 19-7
General Refund Information - Audit Procedures – Refund Verification Audits .................... 19-12
General Refund Information - Order of File for Refund Verification Audits ......................... 19-14
Exhibit 4-1, Assignment of Rights to Refund of Sales Tax – Detail Audit ............................ 19-22
Exhibit 4-1, Assignment of Rights to Refund of Sales Tax – Sampling Audit ...................... 19-23
MODULE TWENTY PROTEST AND APPEAL PROCEDURES ................................. 20-1
Protests by the Taxpayer ............................................................................................................. 20-1
Appeals by the Taxpayer ............................................................................................................. 20-3
Taxpayer’s Bill of Rights ............................................................................................................ 20-4
Exhibit- Flow Chart, Taxpayer Protest and Appeal Process ................................................... 20-13
X
UPDATING SHEET
GTAPT01
Directions: please advise us of any changes that need to be made to the coursebook due to
changes in statute, rule, policy or procedure. For specific comments on a particular sentence,
paragraph, example, question, answer, or exercise:
 Write the page number(s) where the updates should be made in the Page Number(s)
column in the table below
 Write the changes in the Changes column on the same line as the corresponding page
numbers.
 If more space is needed for changes, please attach additional sheets, label them A, B, C,
etc. and write "see attachment A (B, C, etc.)" on this sheet.
General comments for improvements regarding the whole coursebook can be noted in the
General Comments section below the table.
Page Number(s)
Suggested Change(s)
General Comments:
David Bowman
GTA Program Training
2450 Shumard Oak Blvd., Suite1-4623
Tallahassee, Fl. 32399-0152
Phone: (850) 717-6189
fax: (850)487-0811
email: bowmand
XI
XII
MODULE ONE INTRODUCTION
OBJECTIVES
Upon completion of this module the participant will be able to:
•
explain the nature of the Florida sales and use tax law;
•
identify the classifications of sales and use tax; and
•
recognize that sales and use tax law is constantly changing.
INTRODUCTION
This module outlines the purpose and objectives of the course. It
presents the legislative intent concerning what to tax and how the tax is
classified. In addition, this module presents (in chronological order)
those events that altered Chapter 212, Florida Statutes (F.S.). The need
for this knowledge is of the utmost importance due to a three year audit
period on most audits. The participant must be able to determine when a
specific transaction or event became taxable or exempt pursuant to
Chapter 212, F.S.
NATURE OF THE FLORIDA SALES AND USE TAX
LAW
Background
There are basically two ways the Florida Legislature writes sales and use
tax law. The legislature can specify the transaction that is subject to the
tax. When this method is used, the courts strictly interpret the law
against the taxing authority. In other words, the taxing authority must
prove that the transaction is subject to the tax.
2014
Program Training
1-1
The legislature may also specify the transactions that are exempt from
the tax. When this method is used, the courts strictly interpret the law
against the taxpayer. In other words, the taxpayer must prove that the
transaction is exempt from the tax.
The Florida Legislature chose the latter method. The legislature's intent
is spelled out in Section 212.21(2), F.S., which states that the intent is:
"... to tax each and every sale, admission, use, storage, consumption, or
rental levied and set forth in this chapter, except as to such sale,
admission, use, storage, consumption, or rental as shall be specifically
exempted therefrom by this chapter, subject to the conditions
appertaining to such exemption."
Taxes are classified according to what is taxed, how it is taxed, and the
basis of measuring the amount of tax due. The Florida sales and use tax
is classified as:
•
an excise tax which is an internal tax levied or assessed on the
sale of a commodity;
•
a privilege tax that is levied or assessed on the privilege of selling
or consuming in the State;
•
a transaction tax that is measured by the value of the transaction
when there is a sale, admission, use, storage, consumption or
rental.
The manner of writing the Florida tax law creates a large number of
specific exemptions. Many tax issues cannot be classified exactly as
taxable or exempt (black or white). In many cases, the problem is cloudy
(shades of gray) and requires the auditor to research the problem
thoroughly to determine the most appropriate answer. The Revenue Law
Library is your primary research tool; it includes:
•
•
•
•
•
•
•
•
1-2
Post Legislative Review
Florida Statutes
Florida Administrative Code (Rules)
Technical Assistance Advisements
Tax Information Publications
History of Local Option Tax Rates
Internal Technical Advisements (DOR use only)
Selected Court Cases (DOR use only)
Program Training
2014
•
•
General Publication Bulletins (DOR use only)
Training Update Bulletins (DOR use only)
The Florida Sales and Use Tax Law was enacted by the Legislature in a
special session held during September 1949. The Act was signed by the
Governor and became law on September 30, 1949. The effective date of
the Act was November 1, 1949. The tax rate was three percent, and
collections for the first year were approximately forty-seven million
dollars.
The omission of the word use in the title of the original bill resulted in a
court ruling holding that purchases from out-of-state suppliers were not
taxable. The statutory language defect was corrected by the 1951
Legislature.
Sales and use tax is the primary revenue producing tax in Florida. As
such, the tax rate has been adjusted according to the revenue needs of the
state. This fact is evidenced in the history of the following tax rate
changes:
•
•
•
•
1949 - the basic tax rate was three percent
1968 - the basic rate was increased to four percent
1982 - the basic rate was increased to five percent
1988 - the basic rate was increased to six percent.
As a transaction tax, the sales and use tax has a direct effect on the price
of goods in the marketplace. A transaction tax provides the Legislature
with a means of affecting the economy of the State by controlling the
transactions that are exempt from the tax. A review of the history of the
tax reveals that the Florida Legislature has used these exemptions to
influence the State's economy.
To prevent the tax from being regressive in nature (citizens in the lower
income brackets paying a higher percentage of their income in tax than
citizens in the higher income brackets), the basic necessities of life, such
as food, shelter, and medical care and prescribed medical supplies
(including some pharmaceutical), are exempted.
In 1949, Florida was still a small state (by population) and heavily
dependent on agriculture. Sales tax law as originally adopted favored the
status of farmers. Their special status has been retained to this day, as
the list of exemptions for farmers is longer than that for any other
segment of the economy. These legislative actions promote the growth
2014
Program Training
1-3
of this segment of the economy and provide both jobs and food for the
State's population.
To encourage manufacturers to locate new facilities in Florida and
existing plants to expand their facilities, the Legislature, in 1978,
provided special exemptions for new and expanding manufacturing
plants.
The energy shortage of 1973 resulted in changes in the exemption lists to
promote the use of fuels other than residual oils. Additionally, special
tax exemptions were provided for solar energy collectors and more
efficient air conditioning systems.
Use of the tax as an economic tool means constant changes to the law
and requires the tax auditor to continually update his/her knowledge of
the law. Auditors must recognize whether law changes that occur during
the audit period affect any issues in the audit they are performing.
SUMMARY
Upon completion of this module, participants should have a general
understanding of how the sales and use tax impacts dealers in Florida.
Also, you should be able to understand the legislative intent of Section
212.21(2), F.S., which is to tax each and every sale, admission, use,
storage, consumption or rental levied and set forth in this chapter, except
for those transactions which are specifically exempted. This later
concept helps auditors concentrate on transactions that were not taxed
rather than those that were.
1-4
Program Training
2014
SELF-CHECK QUESTIONS
1. When the legislature specifies that a transaction is exempt from sales
tax the courts strictly interpret the law against whom?
A.
B.
C.
D.
The auditor.
The taxpayer.
The Department.
The State.
2. What are the options available to the Florida Legislature for
changing the revenue generated under Chapter 212, F.S.?
A.
B.
C.
D.
Change the filing frequency status.
Mandate state and local income taxes.
Change tax rate and/or exemptions.
Increase or decrease the estimated taxes paid.
3. The Florida sales and use tax is classified as a/an
A.
B.
C.
D.
2014
Excise tax.
Privilege tax.
Transaction tax.
All of the above.
Program Training
1-5
1-6
Program Training
2014
SELF – CHECK ANSWERS
1. When the legislature specifies that a transaction is exempt from sales
tax the courts strictly interpret the law against whom?
A.
B.
C.
D.
The auditor.
The taxpayer.
The Department.
The State.
Explanation: See, “NATURE OF THE FLORIDA SALES AND
USE TAX LAW, Background.” When the legislature specifies that a
transaction is exempt, the courts strictly interpret the law against the
taxpayer. In other words, the taxpayer must be able to document that the
transaction is exempt.
Choice A is incorrect. See “NATURE OF THE FLORIDA SALES
AND USE TAX LAW, Background.” The taxpayer, not the auditor,
must document that the transaction is exempt.
Choice B is correct. See “NATURE OF THE FLORIDA SALES
AND USE TAX LAW, Background.” The taxpayer, not the auditor,
must document that the transaction is exempt.
Choice C is incorrect. See “NATURE OF THE FLORIDA SALES
AND USE TAX LAW, Background.” The taxpayer, not the
Department, must document that the transaction is exempt.
Choice D is incorrect. See “NATURE OF THE FLORIDA SALES
AND USE TAX LAW, Background.” The taxpayer, not the State,
must document that the transaction is exempt.
2014
Program Training
1-7
2.
What are the options available to the Florida Legislature for
changing the revenue generated under Chapter 212, F.S.?
A.
B.
C.
D.
Change the filing frequency status.
Mandate state and local income taxes.
Change tax rate and/or exemptions.
Increase or decrease the estimated taxes paid.
Explanation: Sales and use tax is a transaction tax and provides the
Legislature with a means of affecting the economy of the State by
controlling the transactions that are exempt from tax.
Choice A is incorrect. See “Module Three”. Changing the frequency
with which taxpayers file their sales and use tax return would not
generate more revenue. The amount would remain the same.
Choice B is incorrect. Chapter 212, F. S. applies only to sales and use
tax and does not apply to state or local income taxes.
Choice C is correct. See “NATURE OF THE FLORIDA SALES
AND USE TAX LAW, Importance to a Tax Auditor.” Since the
Legislature enacted the sales and use tax in 1949, it has voted 3 times to
increase the basic rate, and over various times has changed transactions
subject to exemption, thereby influencing the state’s economy.
Choice D is incorrect. See “Module Three”. An estimated tax is a
method of calculating the difference between the estimated tax paid and
the actual amount of tax due for each month. The amount of tax would
not change.
1-8
Program Training
2014
3. The Florida sales and use tax is classified as a/an
A.
B.
C.
D.
Excise tax.
Privilege tax.
Transaction tax.
All of the above.
Explanation: See "NATURE OF THE FLORIDA SALES AND USE
TAX LAW, Background.” Taxes are classified according to what is
taxed, how it is taxed and the basis of measuring the amount of tax due.
Florida sales and use tax is classified as an excise tax, a privilege tax, and
a transaction tax. An excise tax is an internal tax levied or assessed on
the sale of a commodity. A privilege tax is levied or assessed on the
privilege of selling or consuming in the State. A transaction tax is
measured by the value of the transaction when there is a sale, admission,
use, storage, consumption, or rental.
Choice A is incorrect. While Florida sales and use tax is an excise tax,
which is an internal tax levied or assessed on the sale of a commodity, it
is not the only correct answer.
Choice B is incorrect. While Florida sales and use tax is a privilege tax,
levied or assessed on the privilege of selling or consuming in the state, it
is not the only correct answer.
Choice C is incorrect. While Florida sales and use tax is a transaction
tax, measured by the value of the transaction when there is a sale,
admission, use, storage, consumption or rental, it is not the only correct
answer.
Choice D is correct. See “NATURE OF THE FLORIDA SALES
AND USE TAX LAW, Background.” Florida sales and use tax can be
classified as all of the above.
2014
Program Training
1-9
1-10
Program Training
2014
MODULE TWO STATUTES AND RULES
OBJECTIVE
Upon completion of this module the participant will:
•
be able to locate, understand, and apply statutes and rules.
INTRODUCTION
Taxing statutes have a language within themselves. This module
introduces the reader to the statutory jargon. This new vocabulary will
not only be different; the meaning of words used can also be different
than one might expect.
Before determining the taxability of a transaction, one must understand
what the Legislature intended when creating a particular statute.
Statutes, by their nature, can be difficult for a reader to comprehend.
Therefore, the Department of Revenue was granted authority to write
rules and regulations. The rules that are written can not be in conflict
with nor change the true meaning of the statute.
DEFINITIONS
The proper application of a statute requires an understanding of what
the Legislature intended to tax and how the taxing statute is intended
to be administered. This understanding can only be obtained if you
apply the same meaning to the words in the statute that the Legislature
applied when it was written. To obtain this understanding, the
Legislature has provided s. 212.02, F.S., in the statutes that defines the
key words.
2014
Program Training
2-1
PERSON includes any individual, firm, co-partnership, joint venture,
association, corporation, estate, trust, business trust, receiver,
syndicate, or other group or combination acting as a unit and also
includes any political subdivision, municipality, state agency, bureau,
or department and includes the plural as well as the singular number.
SALE means and includes:
Any transfer of title or possession, or both, exchange, barter, license,
lease, or rental, conditional or otherwise, in any manner or by any
means whatsoever, of tangible personal property for a consideration.
The rental of living quarters or sleeping or housekeeping
accommodations in hotels, apartment houses or roominghouses, or
tourist or trailer camps, as hereinafter defined in this chapter.
The producing, fabricating, processing, printing, or imprinting of
tangible personal property for a consideration for consumers who
furnish either directly or indirectly the materials used in the producing,
fabricating, processing, printing, or imprinting.
The furnishing, preparing, or serving for a consideration of any
tangible personal property for consumption on or off the premises of
the person furnishing, preparing, or serving such tangible personal
property which includes the sale of meals or prepared food by an
employer to his or her employees.
A transaction whereby the possession of property is transferred but the
seller retains title as security for the payment of the price.
RETAIL SALE, or a sale at retail, means a sale to a consumer or to
any person for any purpose other than for resale in the form of tangible
personal property or services taxable under Chapter 212, F.S., and
includes all such transactions that may be made in lieu of retail sales or
sales at retail.
Retail sales, sales at retail, use, storage, or consumption do not include
materials, containers, labels, sacks, or bags or similar items intended to
accompany a product sold to a customer without which delivery of the
product would be impracticable because of the character of the
contents and be used one time only for packaging tangible personal
property for sale or for the convenience of the customer or for
packaging in the process of providing a service taxable under Chapter
212, F.S. When a separate charge for packaging materials is made, the
2-2
Program Training
2014
charge shall be considered part of the sales price or rental charge for
purposes of determining the applicability of tax. The terms do not
include the sale, use, storage, or consumption of industrial materials,
including chemicals and fuels except as provided herein, for future
processing, manufacture, or conversion into articles of tangible
personal property for resale when such industrial materials, including
chemicals and fuels except as provided herein, become a component or
ingredient of the finished product. However, the terms include the
sale, use, storage, or consumption of tangible personal property,
including machinery and equipment or parts thereof, purchased
electricity, and fuels used to power machinery, when the items are
used and dissipated in fabricating, converting, or processing tangible
personal property for sale, even though they may become ingredients
or components of the tangible personal property for sale through
accident, wear, tear, erosion, corrosion, or similar means. The terms do
not include the sale of materials to a registered repair facility for use in
repairing a motor vehicle, airplane, or boat, when such materials are
incorporated into and sold as part of the repair. Such a sale shall be
deemed a purchase for resale by the repair facility, even though every
material is not separately stated or separately priced on the repair
invoice.
GROSS SALES means the sum total of all sales of tangible personal
property as defined herein, without any deduction whatsoever of any
kind or character, except as provided in Chapter 212, F.S.
SALES PRICE means the total amount paid for tangible personal
property, including any services that are a part of the sale, valued in
money, whether paid in money or otherwise, and includes any amount
for which credit is given to the purchaser by the seller, without any
deduction therefrom on account of the cost of the property sold, the
cost of materials used, labor or service cost, interest charged, losses, or
any other expense whatsoever. Sales price also includes the
consideration for a transaction that requires both labor and material to
alter, remodel, maintain, adjust, or repair tangible personal property.
Trade-ins or discounts allowed and taken at the time of sale shall not
be included within the purview of this subsection. Sales price also
includes the full face value of any coupon used by a purchaser to
reduce the price paid to a retailer for an item of tangible personal
property; where the retailer will be reimbursed for such coupon, in
whole or in part, by the manufacturer of the item of tangible personal
property; or whenever it is not practicable for the retailer to determine,
at the time of sale, the extent to which reimbursement for the coupon
will be made. The term "sales price" does not include federal excise
2014
Program Training
2-3
taxes imposed upon the retailer on the sale of tangible personal
property. The term "sales price" does include federal manufacturers'
excise taxes, even if the federal tax is listed as a separate item on the
invoice.
COST PRICE means the actual cost of articles of tangible personal
property without any deductions therefrom on account of the cost of
materials used, labor or service costs, transportation charges, or any
expenses whatsoever.
LEASE, LET, OR RENTAL means leasing or renting of living
quarters or sleeping or housekeeping accommodations in hotels,
apartment houses, roominghouses, tourist or trailer camps and real
property, the same being defined as follows:
Every building or other structure kept, used, maintained, or advertised
as, or held out to the public to be, a place where sleeping
accommodations are supplied for pay to transient or permanent guests
or tenants, in which 10 or more rooms are furnished for the
accommodation of such guests, and having one or more dining rooms
or cafes where meals or lunches are served to such transient or
permanent guests; such sleeping accommodations and dining rooms or
cafes being conducted in the same building or buildings in connection
therewith, shall, for the purpose of this chapter, be deemed a hotel.
Any building or part thereof, where separate accommodations for two
or more families living independently of each other are supplied to
transient or permanent guests or tenants shall for the purpose of this
chapter be deemed an apartment house.
Every house, boat, vehicle, motor court, trailer court, or other structure
or any place or location kept, used, maintained, or advertised as, or
held out to the public to be, a place where living quarters or sleeping
or housekeeping accommodations are supplied for pay to transient or
permanent guests or tenants, whether in one or adjoining buildings,
shall for the purpose of Chapter 212, F.S., be deemed a roominghouse.
In all hotels, apartment houses, and roominghouses within the meaning
of Chapter 212, F.S., the parlor, dining room, sleeping porches,
kitchen, office, and sample rooms shall be construed to mean rooms.
A tourist camp is a place where two or more tents, tent houses, or
camp cottages are located and offered by a person or municipality for
sleeping or eating accommodations, most generally to the transient
2-4
Program Training
2014
public for either a direct money consideration or an indirect benefit to
the lessor or owner in connection with a related business.
A trailer camp, mobile home park, or recreational vehicle park is a
place where space is offered, with or without service facilities, by any
persons or municipality to the public for the parking and
accommodation of two or more automobile trailers, mobile homes, or
recreational vehicles which are used for lodging, for either a direct
money consideration or an indirect benefit to the lessor or owner in
connection with a related business, such space being hereby defined as
living quarters, and the rental price thereof shall include all service
charges paid to the lessor.
LEASE, LET, OR RENTAL also means the leasing or rental of
tangible personal property and the possession or use thereof by the
lessee or rentee for a consideration, without transfer of the title of such
property, except as expressly provided to the contrary herein. The
term lease, let, or rental does not mean hourly, daily, or mileage
charges, to the extent that such charges are subject to the jurisdiction
of the United States Interstate Commerce Commission, when such
charges are paid by reason of the presence of railroad cars owned by
another on the tracks of the taxpayer, or charges made pursuant to car
service agreements. The term “lease,” “let,” “rental,” or “license”
does not include payments made to an owner of high-voltage bulk
transmission facilities in connection with the possession or control of
such facilities by a regional transmission organization, independent
system operator, or similar entity under the jurisdiction of the Federal
Energy Regulatory Commission. However, where two taxpayers, in
connection with the interchange of facilities, rent or lease property,
each to the other, for use in providing or furnishing any of the services
mentioned in s. 166.231, the term lease or rental means only the net
amount of rental involved.
REAL PROPERTY means the surface land, improvements thereto,
and fixtures, and is synonymous with realty and real estate.
LICENSE, as used in this chapter with reference to the use of real
property, means the granting of a privilege to use or occupy a building
or a parcel of real property for any purpose.
PRIVILEGE, FRANCHISE, OR CONCESSION FEES, or fees for a
license to do business, paid to an airport are not payments for leasing,
letting, renting, or granting a license for the use of real property.
2014
Program Training
2-5
STORAGE is any keeping or retention in this state of tangible
personal property for use or consumption in this state or for any
purpose other than sale at retail in the regular course of business.
USE is the exercise of any right or power over tangible personal
property incident to the ownership thereof, or interest therein, except
that it does not include the sale at retail of that property in the regular
course of business. The term "use" does not include the loan of an
automobile by a motor vehicle dealer to a high school for use in its
driver education and safety program.
BUSINESS means any activity engaged in by any person, or caused to
be engaged in by him or her, with the object of private or public gain,
benefit, or advantage, either direct or indirect. Except for the sales of
any aircraft, boat, mobile home, or motor vehicle, the term "business"
shall not be construed in Chapter 212, F.S., to include occasional or
isolated sales or transactions involving tangible personal property or
services by a person who does not hold himself or herself out as
engaged in business, but includes other charges for the sale or rental of
tangible personal property, sales of services taxable under Chapter
212, F.S., sales of or charges of admission, communication services,
all rentals and leases of living quarters, other than low-rent housing
operated under chapter 421, sleeping or housekeeping
accommodations in hotels, apartment houses, roominghouses, tourist
or trailer camps, and all rentals of or licenses in real property, other
than low-rent housing operated under chapter 421, all leases or rentals
of or licenses in parking lots or garages for motor vehicles, docking or
storage spaces for boats in boat docks or marinas as defined in Chapter
212, F.S., and made subject to a tax imposed by Chapter 212, F.S. The
term business shall not be construed in Chapter 212, F.S., to include
the leasing, subleasing, or licensing of real property by one corporation
to another if all of the stock of both such corporations is owned,
directly or through one or more wholly owned subsidiaries, by a
common parent corporation; the property was in use prior to July 1,
1989, title to the property was transferred after July 1, 1988, and
before July 1, 1989, between members of an affiliated group, as
defined in s. 1504(a) of the Internal Revenue Code of 1986, which
group included both such corporations and there is no substantial
change in the use of the property following the transfer of title; the
leasing, subleasing, or licensing of the property was required by an
unrelated lender as a condition of providing financing to one or more
members of the affiliated group; and the corporation to which the
property is leased, subleased, or licensed had sales subject to the tax
imposed by Chapter 212, F.S., of not less than $667 million during the
2-6
Program Training
2014
most recent 12-month period ended June 30. Any tax on such sales,
charges, rentals, admissions, or other transactions made subject to the
tax imposed by Chapter 212, F.S., shall be collected by the state,
county, municipality, any political subdivision, agency, bureau, or
department, or other state or local governmental instrumentality in the
same manner as other dealers, unless specifically exempted by this
chapter.
TANGIBLE PERSONAL PROPERTY is personal property which
may be seen, weighed, measured, or touched or is in any manner
perceptible to the senses, including electric power or energy, boats,
motor vehicles and mobile homes as defined in s. 320.01(1) and (2),
aircraft as defined in s. 330.27, and all other types of vehicles. The
term tangible personal property does not include stocks, bonds, notes,
insurance, or other obligations or securities; or pari-mutuel tickets sold
or issued under the racing laws of the state.
ADMISSIONS are the net sum of money after deduction of any
federal taxes for admitting a person or vehicle or persons to any place
of amusement, sport, or recreation or for the privilege of entering or
staying in any place of amusement, sport, or recreation, including, but
not limited to, theaters, outdoor theaters, shows, exhibitions, games,
races, or any place where charge is made by way of sale of tickets,
gate charges, seat charges, box charges, season pass charges, cover
charges, greens fees, participation fees, entrance fees, or other fees or
receipts of anything of value measured on an admission or entrance or
length of stay or seat box accommodations in any place where there is
any exhibition, amusement, sport, or recreation, and all dues and fees
paid to private clubs and membership clubs providing recreational or
physical fitness facilities, including, but not limited to, golf, tennis,
swimming, yachting, boating, athletic, exercise, and fitness facilities,
except physical fitness facilities owned or operated by any hospital
licensed under chapter 395.
MOTOR FUEL is what is commonly known and sold as gasoline and
fuels containing a mixture of gasoline and other products.
RETAILER is every person engaged in the business of making sales at
retail or for distribution, or use, or consumption, or storage to be used
or consumed in this state.
DIESEL FUEL is any liquid product, gas product, or combination
thereof used in an internal combustion engine or motor to propel any
form of vehicle, machine, or mechanical contrivance. This term
2014
Program Training
2-7
includes, but is not limited to, all forms of fuel commonly or
commercially known or sold as diesel fuel or kerosene. However, the
term diesel fuel does not include butane gas, propane gas, or any other
form of liquefied petroleum gas or compressed natural gas.
SPACEPORT ACTIVITIES are activities directed or sponsored by
Space Florida on spaceport territory pursuant to its powers and
responsibilities under the Space Florida Act.
SPACE FLIGHT is any flight designed for suborbital, orbital, or
interplanetary travel of a space vehicle, satellite, or station of any kind.
COIN-OPERATED AMUSEMENT MACHINE is any machine
operated by coin, slug, token, coupon, or similar device for the
purposes of entertainment or amusement. The term includes, but is not
limited to, coin-operated pinball machines, music machines, juke
boxes, mechanical games, video games, arcade games, billiard tables,
moving picture viewers, shooting galleries, and all other similar
amusement devices.
SEA TRIAL is a voyage for the purpose of testing repair or
modification work, which is in length and scope reasonably necessary
to test repairs or modifications, or a voyage for the purpose of
ascertaining the seaworthiness of a vessel. If the sea trial is to test
repair or modification work, the owner or repair facility shall certify,
in a form required by the department, what repairs have been tested.
ENTERPRISE ZONE is an area of the state designated pursuant to s.
290.0065. This subsection expires on the date specified in s. 290.016
for the expiration of the Florida Enterprise Zone Act.
FACTORY-BUILT BUILDING is a structure manufactured in a
manufacturing facility for installation or erection as a finished
building; factory-built building includes, but is not limited to,
residential, commercial, institutional, storage, and industrial structures.
IN THIS STATE OR IN THIS STATE is within the state boundaries
of Florida as defined in s. 1, Art. II of the State Constitution and
includes all territory within these limits owned by or ceded to the
United States.
2-8
Program Training
2014
ORGANIZATION OF THE STATUTES
Taxation and Exemptions
S. 212.03, F.S.
S. 212.0305, F.S.
S. 212.031, F.S.
S. 212.04, F.S.
S. 212.05, F.S.
S. 212.0506, F.S.
S. 212.054, F.S.
S. 212.0596, F.S.
S. 212.0598, F.S.
S. 212.06, F.S.
-
S. 212.08, F.S.
-
Transient rentals
Convention development tax
Lease, license or rental of real property
Admissions
Sales, storage and use tax
Service warranties
Discretionary sales surtax
Taxation of mail order sales
Air carriers
Sales, storage, use tax; dealer defined;
dealers to collect; legislative intent as to
scope of tax
Specified exemptions
Administration of the Tax
S. 212.081, F.S.
S. 212.0821, F.S.
-
S. 212.084, F.S.
S. 212.085, F.S.
S. 212.09, F.S.
S. 212.12, F.S.
-
S. 212.13, F.S.
S. 212.15, F.S.
-
S. 212.17, F.S.
S. 212.183, F.S.
S. 212.184, F.S.
-
S. 212.21, F.S.
-
2014
Legislative Intent
Legislative Intent for Use of Tax
Exemption Certificates by Political
Subdivisions and Libraries
Review of Exemption Certificates
Fraudulent Resale Certificates
Trade-ins
Dealer's Collection Allowance, penalties
for noncompliance; Tax Rate and
Bracket System
Record keeping, power to inspect
Taxes declared State Funds, penalties for
not remitting the tax due and delinquent
dates; and Provision of Judicial Review.
Credits for returned goods
Rules for Self-accrual of Sales Tax
Rules of Construction; disclosure of
information
Legislative Intent
Program Training
2-9
Taxpayer Responsibilities
S. 212.07, F.S.
S. 212.10, F.S.
S. 212.11, F.S.
S. 212.13, F.S.
-
Tax added to purchase price, Dealer
cannot absorb the tax, and Dealer
responsible for taxes not collected.
Sale of Business
Tax Returns
Maintenance of Records
Departmental Duties and Powers
S. 212.10, F.S.
-
S. 212.11, F.S.
-
S. 212.12, F.S.
S. 212.13, F.S.
-
S. 212.17, F.S.
-
S. 212.18, F.S.
-
Attach amounts due a dealer who is
delinquent.
Authorize quarterly and semiannual tax
returns and consolidated tax returns.
Audit authority, statistical sampling,
makes estimates of tax due.
Power to inspect records and prescribe
records to be maintained.
Gives the power to publish rules and
regulations.
Charged with enforcing the law and
authorizes the publication of rules and
regulations.
NOTE: this list does not include all statutes.
GENERAL TYPES OF TAXABLE TRANSACTIONS
Sales tax: (S. 212.05, F.S.) The tax is levied upon the privilege of
engaging in business or the occupation of selling, renting or licensing
tangible personal property and certain services in the state, including
the business of making mail order sales. It is computed on the sale,
rental or licensing price of the personal property sold or service and is
collected from the purchaser.
Use tax: (S. 212.05(1)(b), F.S.) The tax is levied on the storage, use or
consumption in the state of any item of tangible personal property.
The primary function of the use tax is to complement the sales tax and
make the taxation of tangible personal property uniform, whether
produced, purchased and used in Florida or produced and purchased
outside of Florida but used in Florida. Together, the sales tax and use
2-10
Program Training
2014
taxes provide a uniform method of taxing the sale at retail and/or use
of tangible personal property irrespective of where it was purchased.
Rental or lease of parking or docking space: (S. 212.03(6), F.S.) The
rental of parking or storage space for motor vehicles in parking lots or
garages and rental of docking or storage space for boats in docks or
marinas, or who rents or leases tie-down spaces or storage for aircraft,
is taxable.
Lease or rental of tangible personal property: (S. 212.05(1)(c) and (d),
F.S.) The rental or lease of tangible personal property is subject to the
tax where the lease or rental of such property is an established business
or part of an established business.
Transient rental tax (S. 212.03, F.S.) The tax is levied on the renting or
leasing of any living quarters, sleeping or house-keeping
accommodations, from hotels, apartment houses, rooming houses,
tourist or trailer camps.
Rental of real property: (S. 212.031, F.S.) Rentals are taxable unless
the real property is:
•
Assessed as agricultural property under s.193.461;
•
Used exclusively as dwelling units;
•
Properties subject to tax on parking, docking, or storage spaces
under s. 212.03(6);
•
Recreational property or the common elements of a
condominium when subject to a lease between the developer or
owner thereof and the condominium association;
•
Public or private street or right-of-way occupied or used by a
utility for utility purposes;
•
Public Street or road used for transportation purposes;
•
Property used at an airport exclusively for the purpose of
aircraft landing or taxiing or property used for the purpose of
loading or unloading passengers or property onto or from
aircraft or for fueling aircraft;
Property used at a port authority exclusively for the purpose of
ocean going vessels for the purpose of loading or unloading
•
2014
Program Training
2-11
passengers or cargo onto or from such a vessel or property used
at a port authority for fueling such vessels.
•
Property used as an integral part of the performance of
qualified production services in connection with the production
of a qualified motion picture;
•
Leased to a person providing food and drink concessionaire
services within the premises of a convention hall, arena or
publicly owned recreational facility;
•
Property occupied pursuant to an instrument calling for
payments which the department has declared, in a Technical
Assistance Advisement issued on or before March 15, 1993, to
be nontaxable pursuant to rule 12A-1.070(19)(c), F.A.C.;
•
Property used or occupied predominantly for space flight
business purposes.
Admissions (s. 212.04, F.S.) tax is levied on the net sum paid for
admissions.
Electrical power or energy is taxable.
Mail order sales are taxable sales of tangible personal property,
ordered by mail or other means of communication, from a dealer who
receives the order in another state, or in a commonwealth, territory, or
other area under the jurisdiction of the United States, and transports
the property or causes the property to be transported, whether or not by
mail, from any jurisdiction of the United States, to a person in this
state, including the person who ordered the property.
2-12
Program Training
2014
GENERAL TYPES OF EXEMPT TRANSACTIONS
General
Doubtful language in taxing statutes should be resolved in favor of
the taxpayer. The reverse is true of exceptions and exemptions.
The burden of proof for exemptions from tax is the taxpayer's
responsibility. The law is to be strictly construed against the
taxpayer. The construction of the sales and use tax law is to tax
specific transactions and to provide specific exemptions from some
of those otherwise taxable transactions. The specific exemptions
must be carefully studied to prevent extension beyond the law.
Section 212.08(13), F.S., states that no transactions shall be
exempt from the tax except those expressly exempted.
Section 212.08, F.S., sets forth most, but not all exemptions. It
should be considered along with Rule 12A-1.001, F.A.C.
Generally, the exempt items are:
2014
•
General groceries - for off premises consumption
•
Medical
•
Items bearing other excise taxes, etc.
•
Feed for poultry, livestock and horses
•
Disinfectant, fertilizers, pesticides, insecticides, herbicides,
fungicides, and weed killers used on crops
•
Certain machinery and equipment used in new or expanded
manufacturing businesses
•
Certain machinery used in the production of electrical or
steam energy
•
Sales made to the United States Government, the State of
Florida or any county, municipality, or political subdivision
with certain exceptions
•
Services rendered by radio and television stations
Program Training
2-13
2-14
•
Non-Profit
charitable
•
School books and lunches in schools with grades K through
12
•
Charges for hospital meals and rooms
•
Professional and personal services where tangible personal
property is an inconsequential element of the sale and not
separately stated
•
Sales to certain volunteer fire departments of rescue and
fire fighting equipment and supplies
•
The sale or rentals of guide dogs and the sale of food and
supplies for guide dogs for the blind
•
Residential household utilities and fuel used for cooking,
heating, refrigeration and lighting
•
U.S. and Florida flags
•
Sales of bait to commercial fishermen to catch Callinectes
Supidus (Blue Crab) and Menippe Mercenaria (Stone Crab)
•
Meals sold to handicapped elderly or indigent persons by
certain nonprofit organizations when delivered as a
charitable function to their residence
•
Partial exemptions for vehicles engaged in interstate or
foreign commerce
•
Partial exemptions for a motor vehicle sold to a resident of
another state
•
Partial exemptions for the sale to a resident of another state
of a flyable aircraft
institutions:
Program Training
religious,
educational
and
2014
Some of the other sections of Chapter 212, F.S. providing exemptions
are listed below.
Section 212.02, F.S., packaging material for tangible personal property
intended for sale; materials for conversion into tangible personal
property for resale when such material becomes a component or
ingredient of the finished product.
Section 212.09, F.S., trade-ins or discounts allowed and taken at the
time of sale.
Section 212.02, F.S., mileage charges subject to the jurisdiction of the
I.C.C., paid by reason of the presence of railroad cars owned by
another on the tracks of the taxpayer.
Section 212.03, F.S., rentals paid under a written lease for longer than
six months for continuous residence or rentals paid for residence at the
same location after having paid tax for six months. Rooms provided
guest when there is no consideration involved.
Section 212.03, F.S., rentals of residences by full time students
enrolled in an institution offering post-secondary education and
military personnel on active duty. Rentals of residence in any building
or group of buildings or trailer lots intended primarily for rent to
persons as their permanent or principal place of residence. Rentals of
living accommodations in migrant labor camps.
Section 212.031, F.S., sublease of space to a convention or industry
trade show in a convention hall, exhibition hall or auditorium.
Section 212.031, F.S., lease or rental of land, hall, or other facilities by
a fair association subject to Chapter 616, F.S., to a show promoter or
prime operator of a carnival or midway attraction is exempt.
Section 212.04, F.S., admission to events held by elementary schools,
junior high schools, middle schools, high schools, community
colleges, deaf and blind schools, facilities of the youth services
programs of the Department of Health and Rehabilitative Services, and
State Correctional Institutions when only student, faculty, or inmate
talent is utilized.
Section 212.04, F.S., admissions, dues or membership fees imposed by
s. 501(c)(3), I.R.C., (religious, charitable and educational)
organizations.
2014
Program Training
2-15
Section 212.05, F.S., boats and aircraft sold by or through a registered
dealer to a nonresident purchaser who removes a qualifying boat from
the state within 90 days; or an aircraft; or a nonqualifying boat within
10 days after purchase, or within 20 days after the completion of
alterations or repairs.
Section 212.06, F.S., property imported, produced or manufactured in
this state for export.
Section 212.06, F.S., property sold to non-resident dealers for resale
outside Florida.
Section 212.06, F.S., use, consumption, distribution or storage of
property where a like tax equal to or greater than Florida's tax has been
lawfully imposed and paid in another state.
Section 212.06, F.S., religious publications, bibles, hymn books,
prayer books, vestments, altar paraphernalia, sacramental chalices and
like church service and ceremonial raiment and equipment.
Section 212.07, F.S., livestock and livestock products, poultry and
poultry products, farm and agricultural products when produced by the
farmer and used by him, members of his family and employees on the
farm.
Section 212.07, F.S., agricultural commodities sold by persons other
than producers to persons who purchase raw products for use or for
sale in the process of preparing, finishing, manufacturing such
agricultural commodities for the ultimate retail consumer.
Sections 212.02 and 212.05, F.S., when taken together provide
exemption for occasional or isolated sales. Section 212.02, F.S. by
stating that "business" shall not be construed to include occasional or
isolated sales by a person who does not hold himself out as engaged in
business.
Section 212.096, F.S.; It is the legislative intent to encourage the
provision of meaningful employment opportunities which will
improve the quality of life of those employed and to encourage
economic expansion of enterprise zones by issuing a jobs credit to
those businesses that employ persons from enterprise zones.
2-16
Program Training
2014
CITING A STATUTE
When dealing with a taxpayer it is best to use the full section
designation of the statute quoted. Example, to cite the statute that
regulates the bracketed amounts on sales at the 6% tax rate you would
cite, s. 212.12(9), F.S. In this example the citation means: Chapter
212 of the Florida Statutes, s. 212.12, and subsection (9). If you are
citing a specific citation because of a change in the law, you would add
the year of the change after the F.S. Example, s. 212.02(10)(g), F.S.,
2002, because this section was amended effective, 2002. If a statute
cite does not specify a year, it is presumed that the citation refers to the
most recent statute revision.
PURPOSE OF THE RULES AND REGULATIONS
The purpose of the rules and regulations is to explain the law in such a
manner that various types of businesses affected by the law can
determine which transactions are subject to the tax.
This stated purpose is expressed as follows:
Section 212.17(6), F.S. The department has authority to adopt rules
pursuant to ss. 120.536(1) and 120.54 to enforce the provisions of this
chapter.
Section 212.18(2), F.S. The department shall administer and enforce
the assessment and collection of the taxes, interest, and penalties
imposed by this chapter. It has authority to adopt rules pursuant to ss.
120.536(1) and 120.54 to enforce the provisions of this chapter in
order that there shall not be collected on the average more than the rate
levied herein. The department is authorized to and it shall provide by
rule a method for accomplishing this end. It shall prepare instructions
to all persons required by this chapter to collect and remit the tax to
guide such persons in the proper collection and remission of such tax
and to instruct such persons in the practices that may be necessary for
the purpose of enforcement of this chapter and the collection of the tax
imposed hereby. The use of tokens in the collection of this tax is
hereby expressly forbidden and prohibited.
2014
Program Training
2-17
RELATIONSHIP BETWEEN THE RULES AND THE
STATUTES
Each rule is based on one or more sections of the statute. A change in
the statute can necessitate a change in the rules and regulations. At the
end of each rule pertinent information is provided to the reader. This
information serves much the same purpose as the historical
information found at the end of each section of the statute.
The following information is taken from Rule 12A-1.024, F.A.C., and
Fabrication of Tangible Personal Property for Others:
1. The producing, fabricating, processing, printing or imprinting
of tangible personal property is taxable.
2. The total charge for manufacturing a part in the shop from
stock is fully taxable.
3. Material which is cut, threaded, shaped, bent, polished, welded,
sheared, punched, drilled, machined or in some way has work
performed on it which changes its original state is considered
to have been fabricated and is taxable.
4. Charges for labor, replacement parts, materials and supplies
used by dealers to adjust, apply, alter, install, maintain,
remodel or repair tangible personal property belonging to
others are fully taxable.
Cross-Reference – Rules 12A-1.006, 12A-1.043, 12A-1.063, F.A.C.
Law Implemented 212.02(15), (16), 212.06(1)(b), (2)(a), F.S.
History--Revised 10-7-68, 6-16-72, Formerly 12A-1.24
Note the following information at the end of the rule:
Law Implemented - In this particular example, ss. 212.02(15)(16) and
212.06(2)(a), F.S., form the basis of this rule. This reference provides
an easy index to the statute when needed.
History - Revised - The dates shown in the example reveal that this
rule was last revised on June 16, 1972. This date can be checked
against the historical information in the sections of the statute to
determine if it reflects the latest information.
2-18
Program Training
2014
History - Amended – Had this rule been amended an amended date
indicates an amendment to the rule, not a rewrite. This date may or
may not be traced to the statute. A court decision or a change in
industry methods of operating may be a cause for amending the rule.
All rules in the Florida Administrative Code have been renumbered for
standardization purposes. This was accomplished by adding a zero
immediately after the decimal point. For example, Rule 12A-1.24,
F.A.C., is now Rule 12A-1.024, F.A.C.
GENERAL ARRANGEMENT OF THE RULES AND
REGULATIONS
Taxation or Exemption of Property
Rule 12A-1.001, F.A.C.
Rule 12A-1.0011, F.A.C.
Rule 12A-1.005, F.A.C.
Rule 12A-1.016, F.A.C.
Rule 12A-1.017, F.A.C.
Rule 12A-1.020, F.A.C.
Rule 12A-1.021, F.A.C.
Rule 12A-1.022, F.A.C.
Rule 12A-1.024, F.A.C.
Rule 12A-1.032, F.A.C.
Rule 12A-1.033, F.A.C.
Rule 12A-1.034, F.A.C.
Rule 12A-1.040, F.A.C.
Rule 12A-1.043, F.A.C.
Rule 12A-1.045, F.A.C.
Rule 12A-1.091, F.A.C.
Rule 12A-1.0911, F.A.C.
Rule 12A-1.104, F.A.C.
Rule 12A-1.107, F.A.C.
2014
Specific Exemptions
Schools Offering Grades K through 12;
Parent-Teacher Associations and ParentTeacher Organizations
Admissions
Sales, Installation Charges
Finance and Interest Charges and
Carrying Charges on Installment Sales
Drugs, Medicine and Medical Supplies
Prosthetic and Orthopedic Appliances
Federal Excise Tax
Fabrication of Tangible Personal
Property for Others
Computers and Related Systems
Sales of Manuscripts
Promotional Materials Exported from
this State
Sales of Containers, Wrapping and
Packing Materials and Related Products
Manufacturing
Transportation Charges
Use Tax
Self-Accrual Authorization
Sales of Property to be Transported to a
Cooperating State
Enterprise
Zone
and
Florida
Neighborhood Revitalization Programs
Program Training
2-19
Specific Industries
Rule 12A-1.0015, F.A.C.
Rule 12A-1.002, F.A.C.
Rule 12A-1.006, F.A.C.
Rule 12A-1.007, F.A.C.
Rule 12A-1.0071, F.A.C.
Rule 12A-1.008, F.A.C.
Rule 12A-1.009, F.A.C.
Rule 12A-1.0091, F.A.C.
Rule 12A-1.0092, F.A.C.
Rule 12A-1.010, F.A.C.
Rule 12A-1.011, F.A.C.
Rule 12A-1.0115, F.A.C.
Rule 12A-1.0161, F.A.C.
Rule 12A-1.023, F.A.C.
Rule 12A-1.025, F.A.C.
Rule 12A-1.027, F.A.C.
Rule 12A-1.029, F.A.C.
Rule 12A-1.035, F.A.C.
Rule 12A-1.036, F.A.C.
2-20
Sales for Export; Sales to Nonresident
Dealers and Foreign Diplomats
Practitioners of the Healing Arts
Charges by Dealers Who Adjust, Apply,
Alter, Install, Maintain, Remodel or
Repair Tangible Personal Property
Aircraft, Boats, Mobile Homes, and
Motor Vehicles
Boats Temporarily Docked in Florida
Newspapers, Magazines and Periodicals
Receipts from Services Rendered by
Insect or Pest Exterminators
Cleaning Services
Detective, Burglar Protection, and Other
Protection Services
Receipts from Sales by Barber Shops
and Beauty Shops
Sales of Food Products for Human
Consumption by Grocery Stores,
Convenience Stores, and Supermarkets;
Sales of Bakery Products by Bakeries,
Pastry Shops, or Like Establishments;
Drinking Water; Ice.
Sales of Food Products Served,
Prepared, or Sold in or by Restaurants,
Lunch Counters, Cafeterias, Hotels,
Taverns, or Other Like Places of
Business
and
by
Transportation
Companies.
Sales and Use Tax on Services; Sales for
Resale
Linen Supply
Receipts from Sales of Tangible
Personal Property Sold to Building
Operators, Business Establishments,
Offices
Printing of Tangible Personal Property
Labels and Other Printed Matter Sold to
Manufacturers
Funerals
Furniture and Storage Warehousemen
Program Training
2014
Rule 12A-1.041, F.A.C.
Rule 12A-1.042, F.A.C.
Rule 12A-1.044, F.A.C.
Rule 12A-1.047, F.A.C.
Rule 12A-1.048, F.A.C.
Rule 12A-1.049, F.A.C.
Rule 12A-1.051, F.A.C.
Rule 12A-1.057, F.A.C.
Rule 12A-1.059, F.A.C.
Rule 12A-1.061, F.A.C.
Rule 12A-1.0615, F.A.C.
Rule 12A-1.062, F.A.C.
Rule 12A-1.063, F.A.C.
Rule 12A-1.064, F.A.C.
Rule 12A-1.0641, F.A.C.
Rule 12A-1.065, F.A.C.
Rule 12A-1.066, F.A.C.
Rule 12A-1.067, F.A.C.
Rule 12A-1.068, F.A.C.
Rule 12A-1.070, F.A.C.
Rule 12A-1.071, F.A.C.
Rule 12A-1.072, F.A.C.
Rule 12A-1.073, F.A.C.
Rule 12A-1.076, F.A.C.
2014
Sales by Photographers, Photo Finishers,
Photostat Producers, Photo engravers,
Wood Engravers, and Public Officials of
Public Records
Dry-Cleaners and Laundries
Vending Machines
Florists
Sale of Agricultural Products, Including
Poultry and Livestock
Sales of Animals
Sales to or by Contractors Who Repair,
Alter, Improve and Construct Real
Property
Alcoholic and Malt Beverages
Fuels
Leases and Licenses to Use Transient
Accommodations
Hotel Reward Points Program
Information Services
Tangible Personal Property Consumed in
Manufacturing, Processing, Assembling
and Refining
Sales to Licensed Common Carriers
Operating Motor Vehicles or Railroad
Rolling Stock in Interstate or Foreign
Commerce
Sales of Vessels Used in Interstate or
Foreign Commerce or for Commercial
Fishing Purposes
Sales to Banks
Auctioneers, Agents, Brokers and
Factors
Pawnbrokers
Tire Recapping
Leases and Licenses of Real Property;
Storage of Boats and Aircraft
Rentals, Leases, or Licenses to use
Tangible Personal Property
Advertising Agencies
Motor Vehicle Parking Lots, Garages
and Boat Docks and Marinas, and
Aircraft Tie-Down or Storage
Sales of Articles of Clothing, Clothing
Accessories, and Jewelry
Program Training
2-21
Rule 12A-1.080, F.A.C.
Rule 12A-1.085, F.A.C.
Rule 12A-1.087, F.A.C.
Rule 12A-1.094, F.A.C.
Rule 12A-1.096, F.A.C.
Rule 12A-1.103, F.A.C.
Rule 12A-1.105, F.A.C.
Concession Prizes
Exemption for Qualified Production
Companies
Partial Exemption for Farm Equip.
Public Works Contracts
Industrial Machinery and Equipment for
Use in a New or Expanding Business
Mail Order Sales
Service Warranties
Administration of the Tax Law
Rule 12A-1.003, F.A.C.
Rule 12A-1.004, F.A.C.
Rule 12A-1.012, F.A.C.
Rule 12A-1.014, F.A.C.
Rule 12A-1.018, F.A.C.
Rule 12A-1.037, F.A.C.
Rule 12A-1.038, F.A.C.
Rule 12A-1.039, F.A.C.
Rule 12A-1.074, F.A.C.
Rule 12A-1.075, F.A.C.
Rule 12A-1.077, F.A.C.
Rule 12A-1.081, F.A.C.
Rule 12A-1.089, F.A.C.
Rule 12A-1.097, F.A.C.
Sales of Several Items to the Same
Purchaser at the Same Time
Sales Tax Brackets
Repossessed Merchandise and Bad
Debts
Refunds and Credits for Sales Tax
Erroneously Paid
Trade and Cash Discounts
Occasional or Isolated Sales of Tangible
Personal Property
Consumer’s Certificate of Exemption
Sales for Resale
Trade-ins
Deposits
Free Merchandise
Consignment Sales
Gift Certificates
Public Use Forms
Duties and Responsibilities of the Taxpayer
Rule 12A-1.055, F.A.C.
Rule 12A-1.056, F.A.C.
Rule 12A-1.060, F.A.C.
2-22
Sale or Discontinuance of Business
Tax Due at Time of Sale; Tax Returns
and Regulations
Registration
Program Training
2014
Duties and Responsibilities of the Department
Rule 12A-1.055, F.A.C.
Rule 12A-1.056, F.A.C.
Rule 12A-1.060, F.A.C.
Rule 12A-1.090, F.A.C.
Sale or Discontinuance Business
Tax Due at Time of Sale; Tax Returns
and Regulations
Registration
Tax Liens and Garnishment
Using the rules and regulations requires research into more than one
rule.
Rules classified as administrative will affect industry
transactions. A rule developed for a specific industry may contain
items that would affect a different industry. An auditor should become
acquainted with all the rules to assist in researching a particular
problem.
CITING A RULE
When dealing with a taxpayer, it is best to use the full section
designation of the rule being quoted, i.e., Rule 12A-1.024(2), F.A.C.
When discussing rules with other members of the Department, shorter
rule identification can be used. Since all sales and use tax rules are
designated as 12A-1, it is not necessary to always use this designation.
Within the Department, Rule 12A-1.024(2), F.A.C. may be referred to
as Rule 24-2.
SUMMARY
Upon completing this module the reader should be able to discuss key
words found in the statutes as well as their definitions. You should be
able to identify, in general terms, taxable and exempt transactions.
You should be able to explain the meanings of "Specific Authority",
"Law Implemented", and "History" found at the end of each rule.
2014
Program Training
2-23
2-24
Program Training
2014
SELF-CHECK QUESTIONS
1. If one wants to locate exempt transactions, one would find them
listed in:
A.
B.
C.
D.
S. 212.08, F.S.
Various sections of Chapter 212, F.S.
All sections of Chapter 213, F.S.
All transactions found in Chapter 212, F.S., are exempt.
2. The basic difference between sales tax and use tax is:
A. schedule A is for sales tax and schedule B is for use tax.
B. sales tax is on transactions within Florida, use tax is on
transactions outside Florida.
C. time or point of application of the tax; sales tax is collected by
the seller and use tax is normally paid by the consumer.
D. use tax is generally less in amount than sales tax.
3. Each rule in Chapter 12A-1, F.A.C. is:
A.
B.
C.
D.
based only on one section of the statute.
based on one or more sections of the statute.
based on business nexus.
based on court cases and statutes.
4. The primary purpose of the Rules and Regulations, Chapter 12A-1,
F.A.C., is to:
A Guide internal audit program.
B. Assist the Collections and Enforcement Sub-processes in the
tax collection program.
C. Guide various types of businesses in determining which
transactions are subject to tax.
D. Help the out-of-state dealers impose the use tax.
2014
Program Training
2-25
2-26
Program Training
2014
SELF – CHECK ANSWERS
1. If one wants to locate exempt transactions, one would find
them listed in:
A.
B.
C.
D.
S. 212.08, F.S.
Various sections of Chapter 212, F.S.
All sections of Chapter 213, F.S.
All transactions found in Chapter 212, F.S., are exempt.
Explanation:
See
TRANSACTIONS.”
“GENERAL
TYPES
OF
EXEMPT
Choice A is incorrect. See “GENERAL TYPES OF EXEMPT
TRANSACTIONS, General.” Section 212.08, F. S., contains most,
but not all exemptions.
Choice B is correct. See “GENERAL TYPES OF EXEMPT
TRANSACTIONS,” which shows that exempt transactions can be
viewed in various sections of Chapter 212, F.S.
Choice C is incorrect. See response to Choice A, sections 212.08,
F.S., contains most, but not all exempt transactions.
Choice D is incorrect. See “GENERAL TYPES OF EXEMPT
TRANSACTIONS.” Chapter 212, F.S., lists transactions that are
taxable and exempt. Section 212.08(13), F.S., states that no
transactions shall be exempt from the tax except those expressly
exempted.
2014
Program Training
2-27
2. The basic difference between sales tax and use tax is:
A. schedule A is for sales tax and schedule B is for use tax.
B. sales tax is on transactions within Florida, use tax is on
transactions outside Florida.
C. time or point of application of the tax; sales tax is collected
by the seller and use tax is normally paid by the consumer.
D. use tax is generally less in amount than sales tax.
Explanation:
See “GENERAL TYPES OF TAXABLE
TRANSACTIONS”.
Sales tax: Section 212.05, F.S., states,…”The tax is levied
upon the privilege of engaging in business or the occupation of selling,
renting or licensing tangible personal property and certain services in
the state…”
Use tax: Section 212.05(1)(b), F. S., states …”The tax is levied
on the storage, use or consumption in the state of any item of tangible
personal property.”
Choice A is incorrect. Sales/Services are reported on line A of form
DR-15 and Taxable Purchases are reported on line B of form DR-15.
Choice B is incorrect. See GENERAL TYPES OF TAXABLE
TRANSACTIONS, “Use tax,” Together, the sales tax and use taxes
provide uniform method of taxing the sale at retail and/or use of
tangible personal property irrespective of where it was purchased.
Choice C is correct. See GENERAL TYPES OF TAXABLE
TRANSACTIONS, “Use tax.” The primary function of the use tax is
to complement the sales tax and make the taxation of tangible personal
property uniform, whether produced, purchased and used in Florida or
produced and purchased outside of Florida, but used in Florida.
Choice D is incorrect. The tax rates for sales tax and use tax are the
same.
3.
Each rule in Chapter 12A-1, F.A.C. is:
A.
B.
C.
D.
2-28
based only on one section of the statute.
based on one or more sections of the statute.
based on business nexus.
based on court cases and statutes.
Program Training
2014
Explanation: see RELATIONSHIP BETWEEN THE RULES AND
THE STATUES. Each rule is based on one or more sections of the
statute. A change in the statute can necessitate a change in the rules
and regulations.
Choice A is incorrect. See Explanation above.
Choice B is correct. See Explanation above.
Choice C is incorrect. See Explanation above.
Choice D is incorrect. See Explanation above.
4. The primary purpose of the Rules and Regulations, Chapter
12A-1, F.A.C., is to:
A. Guide internal audit program.
B. Assist the Collections and Enforcement Sub-processes in
the tax collection program.
C. Guide various types of businesses in determining which
transactions are subject to tax.
D. Help the out-of-state dealers impose the use tax.
Explanation:
See “PURPOSE OF THE RULES AND
REGULATIONS.” The purpose of the rules and regulations is to
explain the law in such a manner that various types of businesses
affected by the law can determine which transactions are subject to the
tax.
Choice A is incorrect. See Explanation above.
Choice B is incorrect. See Explanation above.
Choice C is correct. See Explanation above.
Choice D is incorrect. See Explanation above.
2014
Program Training
2-29
2-30
Program Training
2014
MODULE THREE TAXPAYER RESPONSIBILITIES
OBJECTIVES
Upon completion of this module the participant will be able to:
•
explain the registration process;
•
describe the record keeping requirements;
•
apply the tax collection rates;
•
explain the tax return filing requirements;
•
calculate the tax due, collection allowance, penalty, and
interest; and
•
establish the documentation needed to exempt a sale from
Florida taxation.
INTRODUCTION
New businesses in Florida are required to be licensed and registered by
many city, county and state agencies. The Department of Revenue not
only requires registration of businesses that collect sales tax, but it also
determines how and when the taxes will be paid. Failure to collect or
remit sales tax will result in the taxpayer owing the tax as well as
penalty and interest. With these responsibilities comes an additional
burden of keeping the required books and records. This module is
designed to outline the responsibilities of the taxpayer.
2014
Program Training
3-1
REGISTRATION
Rule 12A-1.060, F.A.C.:
Every person must file an Application to Collect and/or Report Tax in
Florida (form DR-1) with the Department of Revenue for a dealer's
certificate of registration before engaging in any one of the following
businesses, but not limited to: (The rule list 18 specific activities.)
•
•
•
•
•
•
•
•
•
sale of admissions or making of any charge for admission to any
place of amusement, sport, or recreation or where there is any
exhibition or entertainment;
sale, lease, let, rental, or granting a license to use tangible personal
property;
lease, let, rental, or granting licenses for transient accommodations,
as defined in Rule 12A-1.061, F.A.C.;
lease, let, rental, or granting a license in real property;
lease or rental of parking or storage space for motor vehicles in
parking lots or garages;
lease or rental of docking or storage space in boat docks or
marinas;
lease or rental of tie-down or storage space for aircraft;
sale of service warranty agreements; or
sale of taxable services.
A separate application must be filed to obtain a separate dealer’s
certificate of registration for each “place of business”. If the applicant
is located in the state of Florida, a fee of $5.00 must accompany each
application. However, the fee will be waived when applications are
submitted through the department’s internet registration process. No
registration fee is required to accompany any application to make mail
order sales or for out-of-state dealers who have no business locations
in Florida.
A "place of business" is a location where a dealer engages in an
activity or activities described above. A place of business includes the
entire contiguous area in which the dealer carries on an activity or
activities that require registration. A dealer that engages in more than
one activity requiring registration within a contiguous area generally is
required to obtain only one registration certificate for that location.
3-2
Program Training
2014
The department will, however, treat areas within a single contiguous
location as separate places of business and require a dealer to obtain
separate registration certificates if:
•
•
•
the activities carried on in those areas are subject to taxation under
different provisions of Chapter 212, F.S.,
the activities are not functionally related, and
the efficient administration of the taxes imposed by Chapter 212,
F.S., is facilitated by multiple registrations.
The department will permit a dealer to obtain separate registrations for
activities carried on at a single contiguous location at the dealer's
request if the dealer keeps separate financial records for the activities
and the activities are not functionally related.
Upon approval of the application, the Department issues the taxpayer a
separate Sales and Use Tax Certificate of Registration (DR-11) for
each place of business.
Each second-hand dealer and secondary metals recycler is required to
register with the Department. A separate application and fee is
required for each place of business. Any business that applies for
registration as a secondhand dealer or secondary metals recycler is
required to undergo a background investigation and pay the applicable
fee, currently $53.25, plus the $6 registration fee. Each second-hand
dealer renewing a registration shall pay an annual renewal fee of $6 on
October 1st of each year. (Ch. 538, F.S, & Rule 12A-17, F.A.C.)
Special Tax Reporting Method: County-Control Number
A dealer with two or more business locations in one county may
request for the Department to inactivate all registration numbers
except one per county. This will eliminate the necessity of filing
separate tax returns for multiple locations in one county. The
Department's action does not cancel the registrations. The action
simply reduces the number of tax returns that must be filed by the
dealer. The dealer reports all sales tax activity in each county under
one registration number (county-control number). If the dealer has two
or more county-control numbers (locations in more than one county)
the dealer may also apply to the Department to file a consolidated tax
return. In this situation the consolidated tax return (county code 80)
would list only the county prime numbers (active accounts) on the tax
return.
2014
Program Training
3-3
Consolidated Account Registration
A dealer with two or more places of business may be authorized by the
Department to file a consolidated tax return. When authorized to file a
consolidated tax return (Form DR-7), the taxpayer applies for and is
assigned a bulk coding number. The registration number for bulk
coding begins with eighty (80) for the county code. The dealer is
required to combine all of the registered locations’ sales tax activities
on the consolidated return. The consolidated return is filed monthly
together with the tax returns for each separate registered place of
business. However, only one payment is due from the dealer.
Consolidated accounts receive a collection allowance for each active
place of business.
The Registration Number
The only social data expressed in the registration number is
determined by the first two digits of the number.
The certificate number format: CC-FNNNNNNNNN-D
C = County Codes 11 – 77, Out-Of-State 78, Consolidated 80,
Exempt Organization 85
F = Contract Object Format, a unique digit
N = Contract Object Number’s last 9 digits
D = Check digit
RECORD KEEPING REQUIREMENTS
Section 212.13, F.S., is the basic reference for the records required to
be maintained by taxpayers. Other requirements for the keeping of
records, which apply in specific situations, are scattered throughout the
statutes and rules.
Each dealer is required to maintain complete records of tangible
personal property or services received, used, sold at retail, distributed
or stored, leased or rented. The types of records required are; invoices,
bills of lading, gross receipts from such sales, and other pertinent
records and papers as may be required by the department for the
reasonable administration of Chapter 212, F.S.
Records supporting all transactions must be kept for at least 3 years.
3-4
Program Training
2014
COLLECTION OF TAX
Section 212.12(12), F.S., provides that the legislative intent is to tax
the last retail sale of tangible personal property. In other words, the
transaction involving a sale to the end or final consumer is the
transaction upon which the tax is to be collected.
Section 212.12(9), F.S., and other sections in the statute also require
the tax to be added to the total selling price and collected from the
consumer.
Section 212.07(2), F.S., requires the tax to be separately stated on any
invoice, charge tickets, sales slips or other record of a sale.
Section 212.15(1), F.S., declares the tax becomes state funds at the
time of collection.
Section 212.15(1), F.S., and Rule 12A1-056(1), F.A.C., requires the
total amount of tax on cash sales, credit sales, installment sales, or
sales made on any kind of deferred payment plan shall be due at the
moment of the transaction.
Collection of the tax on transactions dealing with the rental of transient
accommodations or real property rentals is slightly different from
other transactions. Sections 212.03(2) and 212.031(3), F.S., declare
the tax is due when the rent is received.
Section 212.07(1), (2), (3), and (4), F.S., makes the seller liable for any
tax not collected and forbids the dealer from stating that the tax will be
absorbed by the dealer or in any manner not collected on the sale.
Under s. 212.07(8), F.S., a person that has made a taxable purchase
and cannot prove the tax was paid to the vendor is liable for the tax.
This use tax must be accrued for payment in the same manner as the
sales tax.
2014
Program Training
3-5
SALES AND USE TAX RATE
The sales and use tax rate is generally 6% on each sales transaction.
However, the bracket system is used to calculate tax when sales
transactions fall between whole dollar amounts. The bracket system
can cause the sales tax rate on total sales for the month to fluctuate
from 6% to 10%. Section 212.12(9), F.S., sets out rates as follows:
"Taxes imposed by this chapter upon the privilege of the use,
consumption, storage for consumption, or sale of tangible personal
property, admissions, license fees, rentals, communication services,
and upon the sale or use of services as herein taxed shall be collected
upon the basis of an addition of the tax imposed by this chapter to the
total price of such admissions, license fees, rentals, communication or
other services, or sale price of such article or articles that are
purchased, sold, or leased at any one time by or to a customer or
buyer; the dealer, or person charged herein, is required to pay a
privilege tax in the amount of the tax imposed by this chapter on the
total of his or her gross sales of tangible personal property, admissions,
license fees, rentals, and communication services or to collect a tax
upon the sale or use of services, and such person or dealer shall add
the tax imposed by this chapter to the price, license fee, rental, or
admissions, and communication or other services and collect the total
sum from the purchaser, admittee, licensee, lessee, or consumer.
Notwithstanding the rate of taxes imposed upon the privilege of sales,
admissions, license fees, rentals, and communication services, or upon
the sale or use of services, the following brackets shall be applicable to
all transactions taxable at the rate of 6 percent:
(a) On single sales of less than 10 cents, no tax shall be added.
(b) On single sales in amounts from 10 cents to 16 cents, both
inclusive, 1 cent shall be added for taxes.
(c) On sales in amounts from 17 cents to 33 cents, both
inclusive, 2 cents shall be added for taxes.
(d) On sales in amounts from 34 cents to 50 cents, both
inclusive, 3 cents shall be added for taxes.
(e) On sales in amounts from 51 cents to 66 cents, both
inclusive, 4 cents shall be added for taxes.
3-6
Program Training
2014
(f) On sales in amounts from 67 cents to 83 cents, both
inclusive, 5 cents shall be added for taxes.
(g) On sales in amounts from 84 cents to $1, both inclusive 6
cents shall be added for taxes.
(h) On sales in amounts of more than $1, 6 cents shall be
charged upon each dollar of price, plus the above
appropriate bracket charge upon any fractional part of a
dollar."
EFFECTIVE TAX RATE
BASED ON THE 6 % TAX BRACKET
Transaction
Amount
Sales Tax
Due
Effective Tax Rate
Per Transaction
$2.35
1.65
.20
1.55
4.70
9.40
.35
3.12
.85
1.08
$ .15
.10
.02
.10
.29
.57
.03
.19
.06
.06
6.38 %
6.06 %
10.00 %
6.45 %
6.17 %
6.06 %
8.57 %
6.09 %
7.06 %
5.56 %
Totals $25.25
$1.57
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
6.22 % Effective Rate
$1.57 / $25.25 = .0622 tax collection rate rounded to 4 digits
2014
Program Training
3-7
Effective Tax Rate Calculation Examples
A) Single sale:
Sale Amount
Sales Tax Due 6% Tax Bracket
$ .20 taxable
1.35 taxable
1.85 taxable
.70 taxable
$ 4.10 total taxable sale
$ .25 sales tax due
Effective tax rate calculation this sale:
$ .25 / $ 4.10 = .0610 or 6.10%
B) Four sales ( 4 transactions):
Sale Amounts
Sales Tax Due 6% Tax Bracket
1) $ .20 taxable
2) 1.35 taxable
3) 1.85 taxable
4)
.70 taxable
$ 4.10 total taxable sales
$ .02
.09
.12
.05
$ .28 total sales tax due
Effective tax rate calculation for all four sales:
$ .28 / $ 4.10 = .0683 or 6.83%
C) Single sale that includes taxable and exempt items:
Sale Amount
Sales Tax Due 6% Tax Bracket
$ .60 taxable
2.40 exempt
.60 taxable
$ 3.60 total sale
1.20 total taxable sale
$ .08 sales tax due
Effective tax rate calculation for this mixed sale:
$ .08 / $ 1.20 = .0667 or 6.67%
3-8
Program Training
2014
Examples of Exceptions to the 6% Base Tax Rate
Electricity:
Electrical power used for commercial purposes is taxed at 7 percent.
Vending Machines:
Rule 12A-1.044, F.A.C., provides tax rates applicable to sales made
through vending machines. These rates are as follows:
•
•
•
Soft drinks, coffee and tea are taxable at 6.45%;
Food items, milk products, natural fruits and vegetables are
6.45%;
Novelty items and tobacco products are taxable at 6.59%.
Amusement Machines:
Section 212.05(1)(h), F.S., imposes tax at the rate of 4 percent on the
charges for the use of coin-operated amusement machines.
Bars and Package Stores:
Bars and package stores that do not separately charge tax on each sale
are required to remit sales tax as follows:
•
•
•
6.35% for package stores;
6.59% for bars and bar/package store combinations;
These rates apply unless the taxpayer can demonstrate a lower
tax rate. Rule 12A-1.057, F.A.C.
Concession Stands:
Unless it can be established to the contrary, concession stands in drivein theaters, theaters, and similar places of business, should remit the
tax at a rate of 6.59% of total taxable sales.
2014
Program Training
3-9
Fairs: S. 212.05(1)(m), F.S. & Rule 12A-1.080, F.A.C.
•
Operators of game concessions or other concessionaires who
customarily award tangible personal property as prizes may, in
lieu of paying tax on the cost price of such property, pay tax on
25% of the gross receipts from such concession activity (S.
212.05(1)(m), F.S.);
•
Vendors that fail to separately state sales tax on the sales slip
should remit the tax at the rate of 6.59% of gross receipts.
RETURN FILING REQUIREMENTS
After registration, the Department will mail the taxpayer the forms that
will be used to remit taxes collected to the Department. The return
forms used are:
DR-15
DR-15EZ
tax return used by most taxpayers;
an abbreviated form of the DR-15.
Return filing frequency
Normally, the tax return is filed monthly.
The Department may authorize the taxpayer to file a quarterly return
when the tax remitted in the preceding four quarters did not exceed
$1000.
Semiannual returns may be authorized when the tax remitted during
the preceding four quarters did not exceed $500.
Annual returns may be authorized when the tax remitted during the
preceding four quarters did not exceed $100.
The Department may allow a dealer to continue filing on a quarterly,
semi-annual, or annual filing frequency, even though the dealer may
remit taxes that exceed the maximum amount allowable by statute for
such filing frequency. The dealer is required to submit a written
request to continue at the same filing frequency, including an
explanation that the excessive payment is due to nonrecurring business
activity.
3-10
Program Training
2014
Due date of the tax return
Taxes collected are due by the first day of the month following the
date of the sale or transaction. The payment and return must reach the
office of the DOR, or be postmarked, on or before the 20th day of the
month following the date of the sale or transaction. When a return is
filed late the dealer may lose the collection allowance and may be
billed penalty and interest charges.
Quarterly and semiannual returns are due on the first day of the month
following the return period. The payment and return must reach the
office of the DOR, or be postmarked, on or before 20th day of the
month following the end of the return period.
Should the 20th day of a month fall on a Saturday, Sunday or legal
holiday (Federal or State), the return is due on the next working day.
Filing the Tax Return
Many returns are mailed to Tallahassee. If the envelope has a US Post
Office postmark (not a postal meter) dated on or before the due date of
the return, the return was filed on time. Returns may be hand delivered
at any of the area service centers operated by the DOR.
Electronic Funds Transfer/Electronic Data interchange
Effective January, 2008, with the December, 2007, return this
threshold is lowered to an amount greater than or equal to $20,000
sales and use tax for the preceding state fiscal year. Any taxpayer who
operates two or more places of business for which returns are required
to be filed with the department shall combine the tax payments for all
such locations in order to determine whether they are obligated to file
in accordance with the sales and use tax threshold.
2014
Program Training
3-11
Estimated Taxes
Beginning with the December 1999 sales and use tax return, which
was required to be filed on or before January 20, 2000, all dealers
(including dealers eligible to file a consolidated return) who paid sales
and use taxes greater than $200,000 during the immediately preceding
state fiscal year are required to calculate their estimated tax liability by
one of the following methods:
1. 60% of the current month's sales and use tax liability;
2. 60% of the sales and use tax reported on the tax return during the
corresponding month of the preceding calendar year; or
3. 60% of the average sales and use tax liability for those months
during the preceding calendar year in which there were reported
taxable transactions.
The following are not required to be included in computing the
estimated tax liability: (Rule 12A-1.056, F.A.C.)
1. Any local option sales tax, such as the tourist development tax;
tourist impact tax; convention development tax, or discretionary sales
surtaxes.
2. The rental car surcharge.
3. Any solid waste fee, such as the new tire fee or the lead-acid battery
fee.
4. The motor vehicle warranty fee.
5. The Miami-Dade County Lake Belt mitigation fee or water
treatment plant upgrade fee.
Note: Regarding consolidated return filers;
S. 212.11, F.S.(4)(c), F.S. Any dealer who is eligible to file a
consolidated return and who paid the tax imposed by this chapter for
the immediately preceding state fiscal year in an amount greater than
or equal to $200,000 or would have paid the tax in such amount if he
or she had filed a consolidated return shall be subject to the provisions
of this subsection notwithstanding an election by the dealer in any
month to file a separate return.
Rule 12A-1.056(3)(b), F.A.C. Any dealer who files a consolidated
return to report the business activity of multiple places of business
must calculate the estimated tax under one of the methods above for
each county or each reporting location, and use the same method to
calculate the estimated tax liability on the consolidated return as a
whole.
3-12
Program Training
2014
The amount of any estimated tax due and the actual amount of tax due
for such month is required to be remitted by electronic funds transfer
(EFT) and is due and payable on the first day of the following month
and is required to be remitted by electronic funds transfer no later than
5:00 P.M. (Eastern Time) on the business/banking day prior to the
20th day thereof.
When a dealer that is required to pay any estimated tax fails to pay by
electronic funds transfer, or underpays the estimated tax due timely, a
specific penalty is added in an amount of 10 percent of any unpaid
estimated tax. This penalty is in addition to all other penalties and
interest.
Boats, motor vehicle, and aircraft dealers have an alternative method
available for calculating and paying their estimated sales tax. Refer to
Module 11 for specific application.
Example - New Filer Estimated Tax Return Filings (Method #1)
DECEMBER 2007 DR-15 (filed in January)
LESS EST. TAX PAID
PLUS EST. TAX DUE
(January’s total estimated tax liability was $60,000)
AMOUNT DUE WITH DR-15 BY JAN. 20th
$125,000
-0
+36,000*
JANUARY 2008 DR-15 (filed in February)
LESS EST. TAX PAID
PLUS EST. TAX DUE
(February’s total estimated tax liability was $60,000)
AMOUNT DUE WITH DR-15 BY FEB. 20th
$ 50,000
-36,000
+36,000*
FEBRUARY 2008 DR-15 (filed in March)
LESS EST. TAX PAID
PLUS EST. TAX DUE
(March’s total estimated tax liability was $70,000)
AMOUNT DUE WITH DR-15 BY MAR. 20th
$ 54,000
-36,000
+42,000*
MARCH 2008 DR-15 (filed in April)
LESS EST. TAX PAID
PLUS EST. TAX DUE
(April’s total estimated tax liability was $80,000)
AMOUNT DUE WITH DR-15 BY APR. 20th
$ 65,000
-42,000
+48,000*
•
2014
$161,000
$ 50,000
$ 60,000
$ 71,000
The estimated tax due is 60% of the total estimated tax liability.
Program Training
3-13
EXEMPT SALES FOR RESALE
Rule 12A-1.039(1)(a), F.A.C., expresses that it is the specific
legislative intent that each and every sale, use, storage, consumption,
or rental is taxable, unless such sale, use, storage, consumption, or
rental is specifically exempt. The exempt nature of the transaction
must be established by the selling dealer.
Rule 12A-1.039(5), F.A.C., expresses that a selling dealer who makes
a sale for resale in good faith, and who complies with the requirements
of the rule, has met the burden of proof for establishing the exempt
nature of the sale, and is relieved from any liability for tax due on that
sale.
Annual Resale Certificates
A selling dealer must obtain a copy of the purchaser's departmentissued Annual Resale Certificate (DR-13) prior to making any
exempt sales for resale. The certificate must be signed by the
purchaser. The name of the selling dealer to whom the certificate is
being given must also be placed on the copy of the certificate by the
purchaser. A dealer may make exempt sales for resale to a customer
whose current Annual Resale Certificate is on file without seeking a
new Annual Resale Certificate for each subsequent transaction during
that calendar year. The copy of the Annual Resale Certificate may be
kept on file by the selling dealer through use of imaging, microfiche,
or other electronic storage media.
When a dealer registers with the department an annual resale
certificate is issued to the dealer. The certificate is included in the
dealer’s tax returns booklet. Booklets are issued annually to all
registered dealers that make sales for resale or are in the business of
renting real property to others. All annual resale certificates issued by
the department will expire on December 31 of the calendar year for
which they are issued.
Annual Resale Certificate Usage Beyond the Expiration Date:
For sales made to purchasers who purchase on account from a dealer
on a continual basis, the selling dealer may rely upon the Annual
Resale Certificate beyond the expiration date of the certificate and is
not required to obtain a new Annual Resale Certificate each calendar
year. For purposes of this paragraph, the phrase "purchase on account
from a dealer on a continual basis" means that the selling dealer has a
3-14
Program Training
2014
continuing business relationship with a purchaser and makes recurring
sales on account to that purchaser in the normal course of business.
For purposes of this paragraph, a sale "on account" refers to a sale
where the dealer extends credit to the purchaser and records the debt as
an account receivable, or where the dealer sells to a purchaser who has
an established cash or C.O.D. account, similar to an "open credit
account." For purposes of this paragraph, purchases are made from a
selling dealer on a "continual basis" if the selling dealer makes sales to
the purchaser no less frequently than once in every twelve month
period in the normal course of business.
Annual Resale Certificate Usage Prior to Date of Issue:
An annual resale certificate does not exempt sales for resale that
occurred prior to the year for which the certificate was issued. These
transactions are treated as undocumented sales and sales tax should be
assessed by the auditor unless the auditor can justify the exempt status
on the basis expressed under the Dealer’s Failure to Document
Exempt Sales for Resale portion of this section (Page 3-16). This
issue will be discussed further in Module 20 concerning certificates
presented during the post audit protest.
Transaction Resale/Exemption Authorization Number
Alternatively, if the purchaser does not have their annual resale
certificate or consumer certificate of exemption available, the selling
dealer may prior to or at the point of sale obtain a transaction
authorization number from the department that will be provided by
an automated telephone verification system or by using the
Department’s on-line Certificate Verification System. Unlike the
actual annual resale certificate, a dealer must obtain a transaction
authorization number for each transaction, and the dealer may not rely
upon the transaction authorization number for subsequent purchases by
the same customer.
The selling dealer must document the transaction authorization number
on each sales invoice, purchase order, or separate form that is prepared
by either the purchaser or the selling dealer. When the transaction is
for resale each sales invoice, purchase order, or separate form must
contain the following statement: "The purchaser hereby certifies that
the property or services being purchased or rented are for resale"
followed by the signature of the purchaser. This process may be
handled by the dealer through use of an electronic signature pad or
other electronic method. Documenting the transaction authorization
2014
Program Training
3-15
number on a properly completed Uniform Sales and Use Tax
Certificate-Multijurisdiction (adopted by the Multistate Tax
Commission) will be considered sufficient compliance with this
paragraph.
Vendor Resale/Exemption Authorization Number
In lieu of obtaining a Transaction Resale Authorization Number for
each transaction or a current annual resale certificate or consumer
certificate of exemption to document an exempt sale for resale or an
exempt purchase by an exempt organization the selling dealer may
obtain a Vendor Resale Authorization Number from the Department.
The Vendor Resale/Exemption Authorization Number may be used by
dealers whose regular customers have previously submitted
documentation to the selling dealer that was valid for the calendar year
it was issued. This could occur when the customer has not purchased
on account from the seller on a continual basis. The selling dealer
must maintain a copy of the purchaser’s annual resale certificate or
consumer certificate of exemption, whether valid or outdated.
To obtain vendor resale/exemption authorization numbers, the selling
dealer may use the Department’s on-line Certificate Verification
System, send a written request or send form DR-600013 to the
Department along with a list of its regular customers for which the
dealer has a valid or outdated annual resale certificate or consumer
certificate of exemption on file.
A vendor resale/exemption
authorization number will be issued for those customers that are active
registered dealers.
The selling dealer may make exempt sales for resale or exempt
purchases by an exempt organization to any customers for whom the
department has issued a vendor resale/exemption authorization
number. The selling dealer may only rely upon the vendor
authorization number through the end of the calendar year. Therefore,
the selling dealer will need to request this information from the
department on an annual basis. Vendor authorization numbers issued
by the department in November or December will be valid for the
remainder of the current calendar year and the next calendar year.
3-16
Program Training
2014
Dealer’s Failure to Document Exempt Sales for Resale
A sale that is not in compliance with the documentation requirements
described above will be considered a taxable sale at retail unless the
auditor can determine from other resources that the purchaser was
actually in the business of reselling the product purchased and had an
active dealer registration at the time of the purchase. (See Module 5,
CONDUCT OF THE AUDIT)
NONRESIDENT DEALERS – Exempt Purchases for Resale
Outside the State
Section 212.06(5)(b), F.S., and Rule 12A-1.0015(3), F.A.C., provide
for a nonresident dealer (out-of-state or out-of-country) who does not
hold a Florida sales tax registration to purchase property for resale
without paying the tax. The nonresident dealer furnishes the seller a
statement declaring that the tangible personal property will be
transported outside of Florida by the nonresident dealer for resale and
no other purpose. The statement must include the nonresident dealer's
name, address, applicable passport, or visa number, and evidence of
authority to do business in his home state or country such as the
business name, address and occupational license number. The
statement must be signed by the nonresident dealer and must contain
the following: "Under penalties of perjury, I declare that I have read
the foregoing, and the facts alleged are true to the best of my
knowledge and belief."
COLLECTION ALLOWANCE
Section 212.12(1), F.S., provides compensation to registered dealers
for the keeping of prescribed records and the proper accounting and
remitting of taxes. Where consolidated returns are filed, the allowance
is computed for each location included in the consolidated return.
Where multiple locations are reported under a single number (prime or
county control number) the compensation is computed as though it
were a single location.
The collection allowance is 2.5% of the first $1,200 of the amount of
tax due (maximum $30) for each active account.
For sales and use tax returns and payments due on or after July 1,
2012, dealers may deduct a collection allowance only when they file
(e-file) and pay (e-pay) tax electronically on time.
2014
Program Training
3-17
The collection allowance will not be granted if;
 the required tax return is incomplete, or
 the tax payment is delinquent at the time of payment, or
 the dealer under pays the amount of tax due with the return.
An "incomplete return" is a return which is lacking such uniformity,
completeness, and arrangement that the physical handling, verification,
review of the return, or determination of other taxes and fees reported
on the return may not be readily accomplished.
Note: Dealers who make mail order sales:
Section 212.12(1), F.S., expresses that the executive director of the
department is authorized to negotiate a collection allowance, pursuant
to rules promulgated by the department, with a dealer who makes mail
order sales. The rules of the department shall provide guidelines for
establishing the collection allowance based upon the dealer's estimated
costs of collecting the tax, the volume and value of the dealer's mail
order sales to purchasers in this state, and the administrative and legal
costs and likelihood of achieving collection of the tax absent the
cooperation of the dealer. However, in no event shall the collection
allowance negotiated by the executive director exceed 10 percent of
the tax remitted for a reporting period.
PENALTIES AND INTEREST
Penalty for Failure To Disclose Taxes On The Return
For audit purposes a delinquent penalty applies to all tax liabilities that
were not timely reported on the dealer’s tax returns. The penalty is
10% for the first 30 day period, or fraction thereof, and increases 10%
for each 30 day period thereafter that the tax liability remains unpaid
up to a maximum penalty of 50%.
INTEREST
Interest is calculated beginning on the twenty-first day of the month
following the month tax was due. There is no limit on the amount of
interest that can be charged. Interest accrues from the date the tax was
due until the tax is paid.
3-18
Program Training
2014
Interest rates assessed by the Department are reviewed for possible
adjustment every six months based on the adjusted prime rate charged
by banks. The interest rate to be applied for the period January 1 –
June 30 will be determined by the adjusted prime rate for the prior
April 1 – September 30 period plus as much as 4 percent (rates are
subject to a 12 percent cap) for the period. The interest rate to be
applied for the period July 1 – December 31 will be determined by the
adjusted prime rate for the prior October 1 – March 31 period plus as
much as 4 percent (rates are subject to a 12 percent cap) for the period.
The daily interest rate shall be determined by dividing the effective
interest rate for the period by 365 days or 366 days (leap year).
INTEREST RATES APPLIED TO UNDERPAYMENTS
Interest Period
Interest Rate
Daily Factor
10%
11%
12%
12%
11%
9%
8%
7%
7%
7%
7%
.000273973
.000301370
.000328767
.000327869
.000300546
.000246575
.000219178
.000191781
.000191257
.000191781
.000191781
01/01/06 – 06/30/06
07/01/06 – 12/31/06
01/01/07 – 12/31/07
01/01/08 – 06/30/08
07/01/08 – 12/31/08
01/01/09 – 06/30/09
07/01/09 – 12/31/09
01/01/10 – 12/31/11
01/01/12 – 12/31/12
01/01/13 – 12/31/13
01/01/14 – 06/30/14
The floating rate of interest applies to underpayments, late payments
and overpayments of taxes and fees. The rate of interest paid on
overpayments may not exceed 11% and begins only if an overpayment
is not refunded within 90 days from receipt by the Department of a
complete refund application.
Tax Evasion and Fraud Penalty
The filing of a false or fraudulent return and/or the willful intent to
evade payment of the tax can result in an additional specific penalty of
100% of the tax due and prosecution for a misdemeanor of the second
degree.
2014
Program Training
3-19
Conversion Penalty
Conversion is the theft or embezzlement of tax revenue.
Section 212.14(3), F.S., states that filing a return not accompanied by
payment is prima facie evidence of conversion of the money due.
In addition to the administrative imposition of penalties and interest
discussed earlier, Section 212.15(2), F.S., lists various criminal
penalties if convicted. For the first offense:
•
•
•
Less than $300.00 - second degree misdemeanor;
$300.00 or more - third degree felony;
$20,000.00 or more - second degree felony.
Fraudulent Resale and Exemption Certificate Penalty
Section 212.085, F.S., provides for a mandatory penalty in the amount
of 200% of the tax, for issuing a certificate or statement claiming a tax
exemption for the purpose of evading the tax. In addition to the
administrative penalty, the action is a third-degree felony.
SUMMARY
This module outlines the registration process required of a new
business in Florida as well as how to identify registration numbers and
resale and exemption certificates.
Taxpayers are required to keep suitable books and records for tax
purposes. The records must show the tax collection, recording, and
timely payment of all tax liabilities. Failure to pay these tax liabilities
on a timely basis may incur penalty, interest, and loss of a collection
allowance. Other specific penalties could also apply depending on the
individual business's filing requirements.
3-20
Program Training
2014
SELF-CHECK QUESTIONS
1. Sandy Small owns 12 separate office buildings. Three of these
buildings are located in Dade County, three in Orange County,
three in Hillsborough County and three are located in Leon
County. How many locations must be registered?
A.
B.
C.
D.
3
1
4
12
2. A retailer sold and delivered a television for $500 on March 10,
2006. The retailer accepted a $50 deposit at the time of the sale,
another payment of $50 on March 24th and $400 on April 7, 2006.
How much sales tax does the retailer owe the department on their
March sales tax return?
A.
B.
C.
D.
$ 0.00
$ 3.00
$ 6.00
$30.00
3. Chapter 212, F.S., requires dealers to maintain complete records of
their transactions, after July 1, 1999, for:
A.
B.
C.
D.
2014
12 months
24 months
36 months
60 months
Program Training
3-21
4. What is the effective tax rate on this single transaction at a grocery
store?
Car oil filter
Milk
Paper towels
Gross Sale
Sales Tax
Gross Receipts
A.
B.
C.
D.
3-22
$4.60 taxable
2.80 exempt
1.99 taxable
$9.39
.40
$9.79
4.09%
4.26%
6.00%
6.07%
Program Training
2014
SELF-CHECK ANSWERS
1. Sandy Small owns 12 separate office buildings. Three of these
buildings are located in Dade County, three in Orange County,
three in Hillsborough County and three are located in Leon
County. How many locations must be registered?
A.
B.
C.
D.
3
1
4
12
Explanation: see REGISTRATION, which states, ‘A separate
application must be filed to obtain a separate dealer’s certificate of
registration for each “place of business.”’
Choice A is incorrect. See explanation. Also see “REGISTRATION,
Rule 12A-1.060, F.A.C., The rule states in part, that every person must
file an Application to Collect and/or Report Tax in Florida (form DR1) with the Department of Revenue for a dealer’s certificate of
registration before engaging in any one of the following businesses, …
lease, let, rental or granting a license in real property.”
Choice B is incorrect. See response for Choice A and D.
Choice C is incorrect. See response for Choice A and D.
Choice D is correct. See explanation which also defines ‘A “place of
business” as a location where a dealer engages in an activity or
activities described above.’ Sandy Small is engaging in activity at 12
locations, hence she would separately register all 12 locations.
2014
Program Training
3-23
2. A retailer sold and delivered a television for $500 on March 10,
2006. The retailer accepted a $50 deposit at the time of the
sale, another payment of $50 on March 24th and $400 on April
7, 2006. How much sales tax does the retailer owe the
department on their March sales tax return?
A.
B.
C.
D.
$ 0.00
$ 3.00
$ 6.00
$30.00
Explanation: See “COLLECTION OF THE TAX,” which states ‘tax
is due as required by Rule 12A-1.056, F.A.C., when tangible personal
property is sold or rented.’ See “TAX RATES,” which states that the
sales and use tax rate is generally 6% on each sales transaction.’
Choice A is incorrect. Rule 12A-1.056, F.A.C. requires that the total
sales tax is due when tangible personal property is sold, not when paid.
Choice B is incorrect. See response to Choice A.
Choice C is incorrect. See response to Choice A.
Choice D is correct. (If not otherwise stated the state tax rate of 6% is
to be used when calculating problems). See explanation. The tangible
personal property was sold in March, hence the tax at 6% of $500, or
$30.00, is due to be reported on the retailer’s March sales tax return.
3. Chapter 212, F.S., requires dealers to maintain complete
records of their transactions, after July 1, 1999, for:
A.
B.
C.
D.
12 months
24 months
36 months
60 months
Explanation: See “RECORD KEEPING REQUIREMENTS, and
Section 212.13, F.S”. The basic reference for the records required to
be maintained by taxpayers’ states that each dealer is required to
maintain complete records of tangible personal property or services
received, used, sold at retail, distributed or stored, leased or rented.
Records supporting all transactions must be kept for at least 3 years.
3-24
Program Training
2014
Choice A is incorrect. See explanation.
Choice B is incorrect. See explanation.
Choice C is correct. See explanation.
Choice D is incorrect. See explanation.
4. What is the effective tax rate on this single transaction at a
grocery store?
Car oil filter
Milk
Paper towels
Gross Sale
Sales Tax
Gross Receipts
A.
B.
C.
D.
$4.60 taxable
2.80 exempt
1.99 taxable
$9.39
.40
$9.79
4.09%
4.26%
6.00%
6.07%
Explanation: See “TAX RATES”, the sales and use tax rate is
generally 6% on each sales transaction. However, the bracket system
is used to calculate tax when sales transactions fall between whole
dollar amounts. The bracket system can cause the sales tax rate on
total sales for the month to fluctuate from 6% to 10%.’ Also see the
effective tax rate based on the 6% tax bracket table. There can be no
effective tax rate on a sale of an exempt item.
Choice A is incorrect. See explanation. This percent includes the sale
of the milk, an exempt item (see MODULE 2, GENERAL TYPES OF
EXEMPT TRANSACTIONS, section 212.08, F.S. and Rule 12A1.001, F.A.C., general groceries – for off premises consumption). This
response is the result of $.40/$9.79. Even if all items in this
transaction were taxable, the calculation would not include the tax in
the denominator.
2014
Program Training
3-25
Choice B is incorrect. See explanation. This percent includes the sale
of the milk, an exempt item (see MODULE 2, GENERAL TYPES OF
EXEMPT TRANSACTIONS, section 212.08, F.S. and Rule 12A1.001, F.A.C., general groceries – for off premises consumption). This
response is the result of $.40/$9.39.
Choice C is incorrect. See explanation. Since the gross sale was not
an even dollar amount you would not expect to see a 6% sales and use
tax rate.
Choice D is correct. Taxable sale items were $4.60 and $1.99, for a
total taxable sale of $6.59. The tax charged, $.40, was computed as
follows: 6% on $6.00 plus .04 on .59. (See TAX RATES, on sales in
amounts from 51 cents to 66 cents, both inclusive, 4 cents shall be
added for taxes). The $.40/$6.59 = .0607 tax collection rate rounded
to 4 digits.
3-26
Program Training
2014
DR-2X
R. 01/11
Sales Tax Rate Table
General Sales Tax Rate and Combined General Sales Tax Rate
Plus Common County Discretionary Sales Surtax Rates
6% (General Sales Tax Rate Only)
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
.10 - .16
.17 - .33
.34 - .50
.51 - .66
.67 - .83
.84 - 1.09
.01
.02
.03
.04
.05
.06
2.10 - 2.16
2.17 - 2.33
2.34 - 2.50
2.51 - 2.66
2.67 - 2.83
2.84 - 3.09
.13
.14
.15
.16
.17
.18
4.10 - 4.16
4.17 - 4.33
4.34 - 4.50
4.51 - 4.66
4.67 - 4.83
4.84 - 5.09
.25
.26
.27
.28
.29
.30
6.10 - 6.16
6.17 - 6.33
6.34 - 6.50
6.51 - 6.66
6.67 - 6.83
6.84 - 7.09
.37
.38
.39
.40
.41
.42
8.10 - 8.16
8.17 - 8.33
8.34 - 8.50
8.51 - 8.66
8.67 - 8.83
8.84 - 9.09
.49
.50
.51
.52
.53
.54
10.10 - 10.16
10.17 - 10.33
10.34 - 10.50
10.51 - 10.66
10.67 - 10.83
10.84 - 11.09
.61
.62
.63
.64
.65
.66
1.10 - 1.16
1.17 - 1.33
1.34 - 1.50
1.51 - 1.66
1.67 - 1.83
1.84 - 2.09
.07
.08
.09
.10
.11
.12
3.10 - 3.16
3.17 - 3.33
3.34 - 3.50
3.51 - 3.66
3.67 - 3.83
3.84 - 4.09
.19
.20
.21
.22
.23
.24
5.10 - 5.16
5.17 - 5.33
5.34 - 5.50
5.51 - 5.66
5.67 - 5.83
5.84 - 6.09
.31
.32
.33
.34
.35
.36
7.10 - 7.16
7.17 - 7.33
7.34 - 7.50
7.51 - 7.66
7.67 - 7.83
7.84 - 8.09
.43
.44
.45
.46
.47
.48
9.10 - 9.16
9.17 - 9.33
9.34 - 9.50
9.51 - 9.66
9.67 - 9.83
9.84 - 10.09
.55
.56
.57
.58
.59
.60
11.10 - 11.16
11.17 - 11.33
11.34 - 11.50
11.51 - 11.66
11.67 - 11.83
11.84 - 12.09
.67
.68
.69
.70
.71
.72
6.25% (Combined 6% General Sales Tax Rate Plus 0.25% Discretionary Sales Surtax Rate)
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
.10
.17
.33
.49
.65
.81
.01
.02
.03
.04
.05
.06
1.93 - 2.08
2.09 - 2.24
2.25 - 2.40
2.41 - 2.56
2.57 - 2.72
2.73 - 2.88
.13
.14
.15
.16
.17
.18
3.85 - 4.09
4.10 - 4.16
4.17 - 4.32
4.33 - 4.48
4.49 - 4.64
4.65 - 4.80
.25
.26
.27
.28
.29
.30
5.77 - 5.92
5.93 - 6.08
6.09 - 6.24
6.25 - 6.40
6.41 - 6.56
6.57 - 6.72
.37
.38
.39
.40
.41
.42
7.69 - 7.84
7.85 - 8.09
8.10 - 8.16
8.17 - 8.32
8.33 - 8.48
8.49 - 8.64
.49
.50
.51
.52
.53
.54
9.61 - 9.76
9.77 - 9.92
9.93 - 10.08
10.09 -10.24
10.25 -10.40
10.41 -10.56
.61
.62
.63
.64
.65
.66
.07
.08
.09
.10
.11
.12
2.89 - 3.04
3.05 - 3.20
3.21 - 3.36
3.37 - 3.52
3.53 - 3.68
3.69 - 3.84
.19
.20
.21
.22
.23
.24
4.81 - 4.96
4.97 - 5.12
5.13 - 5.28
5.29 - 5.44
5.45 - 5.60
5.61 - 5.76
.31
.32
.33
.34
.35
.36
6.73 - 6.88
6.89 - 7.04
7.05 - 7.20
7.21 - 7.36
7.37 - 7.52
7.53 - 7.68
.43
.44
.45
.46
.47
.48
8.65 - 8.80
8.81 - 8.96
8.97 - 9.12
9.13 - 9.28
9.29 - 9.44
9.45 - 9.60
.55
.56
.57
.58
.59
.60
10.57 -10.72
10.73 -10.88
10.89 - 11.04
11.05 - 11.20
11.21 - 11.36
11.37 - 11.52
.67
.68
.69
.70
.71
.72
- .16
- .32
- .48
- .64
- .80
- .96
.97 - 1.12
1.13 - 1.28
1.29 - 1.44
1.45 - 1.60
1.61 - 1.76 1.77 - 1.92
6.5% (Combined 6% General Sales Tax Rate Plus 0.5% Discretionary Sales Surtax Rate)
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
.10 - .15
.16 - .30
.31 - .46
.47 - .61
.62 - .76
.77 - .92
.93 - 1.07
.01
.02
.03
.04
.05
.06
.07
2.10 - 2.15
2.16 - 2.30
2.31 - 2.46
2.47 - 2.61
2.62 - 2.76
2.77 - 2.92
2.93 - 3.07
.14
.15
.16
.17
.18
.19
.20
4.10 - 4.15
4.16 - 4.30
4.31 - 4.46
4.47 - 4.61
4.62 - 4.76
4.77 - 4.92
4.93 - 5.07
.27
.28
.29
.30
.31
.32
.33
6.10 - 6.15
6.16 - 6.30
6.31 - 6.46
6.47 - 6.61
6.62 - 6.76
6.77 - 6.92
6.93 - 7.07
.40
.41
.42
.43
.44
.45
.46
8.10 - 8.15
8.16 - 8.30
8.31 - 8.46
8.47 - 8.61
8.62 - 8.76
8.77 - 8.92
8.93 - 9.07
.53
.54
.55
.56
.57
.58
.59
10.10 - 10.15
10.16 - 10.30
10.31 - 10.46
10.47 - 10.61
10.62 - 10.76
10.77 - 10.92
10.93 - 11.07
.66
.67
.68
.69
.70
.71
.72
1.08 - 1.23
1.24 - 1.38
1.39 - 1.53
1.54 - 1.69
1.70 - 1.84
1.85 - 2.09
.08
.09
.10
.11
.12
.13
3.08 - 3.23
3.24 - 3.38
3.39 - 3.53
3.54 - 3.69
3.70 - 3.84
3.85 - 4.09
.21
.22
.23
.24
.25
.26
5.08 - 5.23
5.24 - 5.38
5.39 - 5.53
5.54 - 5.69
5.70 - 5.84
5.85 - 6.09
.34
.35
.36
.37
.38
.39
7.08 - 7.23
7.24 - 7.38
7.39 - 7.53
7.54 - 7.69
7.70 - 7.84
7.85 - 8.09
.47
.48
.49
.50
.51
.52
9.08 - 9.23
9.24 - 9.38
9.39 - 9.53
9.54 - 9.69
9.70 - 9.84
9.85 - 10.09
.60
.61
.62
.63
.64
.65
11.08 - 11.23
11.24 - 11.38
11.39 - 11.53
11.54 - 11.69
11.70 - 11.84
11.85 - 12.09
.73
.74
.75
.76
.77
.78
Additional increments and rate cards can be found on our Internet site: www.myflorida.com/dor
DR-2X
R. 01/11
7% (Combined 6% General Sales Tax Rate Plus 1% Discretionary Sales Surtax Rate)
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
.10 - .14
.15 - .28
.29 - .42
.43 - .57
.58 - .71
.72 - .85
.86 - 1.09
.01
.02
.03
.04
.05
.06
.07
2.10 - 2.14
2.15 - 2.28
2.29 - 2.42
2.43 - 2.57
2.58 - 2.71
2.72 - 2.85
2.86 - 3.09
.15
.16
.17
.18
.19
.20
.21
4.10 - 4.14
4.15 - 4.28
4.29 - 4.42
4.43 - 4.57
4.58 - 4.71
4.72 - 4.85
4.86 - 5.09
.29
.30
.31
.32
.33
.34
.35
6.10 - 6.14
6.15 - 6.28
6.29 - 6.42
6.43 - 6.57
6.58 - 6.71
6.72 - 6.85
6.86 - 7.09
.43
.44
.45
.46
.47
.48
.49
8.10 - 8.14
8.15 - 8.28
8.29 - 8.42
8.43 - 8.57
8.58 - 8.71
8.72 - 8.85
8.86 - 9.09
.57
.58
.59
.60
.61
.62
.63
10.10 - 10.14
10.15 - 10.28
10.29 - 10.42
10.43 - 10.57
10.58 - 10.71
10.72 - 10.85
10.86 - 11.09
.71
.72
.73
.74
.75
.76
.77
1.10 - 1.14
1.15 - 1.28
1.29 - 1.42
1.43 - 1.57
1.58 - 1.71
1.72 - 1.85
1.86 - 2.09
.08
.09
.10
.11
.12
.13
.14
3.10 - 3.14
3.15 - 3.28
3.29 - 3.42
3.43 - 3.57
3.58 - 3.71
3.72 - 3.85
3.86 - 4.09
.22
.23
.24
.25
.26
.27
.28
5.10 - 5.14
5.15 - 5.28
5.29 - 5.42
5.43 - 5.57
5.58 - 5.71
5.72 - 5.85
5.86 - 6.09
.36
.37
.38
.39
.40
.41
.42
7.10 - 7.14
7.15 - 7.28
7.29 - 7.42
7.43 - 7.57
7.58 - 7.71
7.72 - 7.85
7.86 - 8.09
.50
.51
.52
.53
.54
.55
.56
9.10 - 9.14
9.15 - 9.28
9.29 - 9.42
9.43 - 9.57
9.58 - 9.71
9.72 - 9.85
9.86 - 10.09
.64
.65
.66
.67
.68
.69
.70
11.10 - 11.14
11.15 - 11.28
11.29 - 11.42
11.43 - 11.57
11.58 - 11.71
11.72 - 11.85
11.86 - 12.09
.78
.79
.80
.81
.82
.83
.84
7.5% (Combined 6% General Sales Tax Rate Plus 1.5% Discretionary Sales Surtax Rate)
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
.10 - .13
.14 - .26
.27 - .40
.41 - .53
.54 - .66
.67 - .80
.81 - .93
.94 - 1.06
1.07 -1.20
1.21 - 1.33
1.34 - 1.46
1.47 - 1.60
1.61 - 1.73
1.74 - 1.86
1.87 - 2.09
.01
.02
.03
.04
.05
.06
.07
.08
2.10 - 2.13
2.14 - 2.26
2.27 - 2.40
2.41 - 2.53
2.54 - 2.66
2.67 - 2.80
2.81 - 2.93
2.94 - 3.06
.16
.17
.18
.19
.20
.21
.22
.23
4.10 - 4.13
4.14 - 4.26
4.27 - 4.40
4.41 - 4.53
4.54 - 4.66
4.67 - 4.80
4.81 - 4.93
4.94 - 5.06
.31
.32
.33
.34
.35
.36
.37
.38
6.10 - 6.13
6.14 - 6.26
6.27 - 6.40
6.41 - 6.53
6.54 - 6.66
6.67 - 6.80
6.81 - 6.93
6.94 - 7.06
.46
.47
.48
.49
.50
.51
.52
.53
8.10 - 8.13
8.14 - 8.26
8.27 - 8.40
8.41 - 8.53
8.54 - 8.66
8.67 - 8.80
8.81 - 8.93
8.94 - 9.06
.61
.62
.63
.64
.65
.66
.67
.68
10.10 - 10.13
10.14 - 10.26
10.27 - 10.40
10.41 - 10.53
10.54 - 10.66
10.67 - 10.80
10.81 - 10.93
10.94 - 11.06
.76
.77
.78
.79
.80
.81
.82
.83
.09
.10
.11
.12
.13
.14
.15
3.07 - 3.20
3.21 - 3.33
3.34 - 3.46
3.47 - 3.60
3.61 - 3.73
3.74 - 3.86
3.87 - 4.09
.24
.25
.26
.27
.28
.29
.30
5.07 - 5.20
5.21 - 5.33
5.34 - 5.46
5.47 - 5.60
5.61 - 5.73
5.74 - 5.86
5.87 - 6.09
.39
.40
.41
.42
.43
.44
.45
7.07 - 7.20
7.21 - 7.33
7.34 - 7.46
7.47 - 7.60
7.61 - 7.73
7.74 - 7.86
7.87 - 8.09
.54
.55
.56
.57
.58
.59
.60
9.07 - 9.20
9.21 - 9.33
9.34 - 9.46
9.47 - 9.60
9.61 - 9.73
9.74 - 9.86
9.87 - 10.09
.69
.70
.71
.72
.73
.74
.75
11.07 - 11.20
11.21 - 11.33
11.34 - 11.46
11.47 - 11.60
11.61 - 11.73
11.74 - 11.86
11.87 - 12.09
.84
.85
.86
.87
.88
.89
.90
8% (Combined 7% Sales Tax Rate on Electric Power or Energy
Plus 1% Discretionary Sales Surtax Rate)
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
Amount of Sale Tax
.10 - .12
.13 - .25
.26 - .37
.38 - .50
.51 - .62
.63 - .75
.76 - .87
.88 - 1.09
.01
.02
.03
.04
.05
.06
.07
.08
2.10 - 2.12
2.13 - 2.25
2.26 - 2.37
2.38 - 2.50
2.51 - 2.62
2.63 - 2.75
2.76 - 2.87
2.88 - 3.09
.17
.18
.19
.20
.21
.22
.23
.24
4.10 - 4.12
4.13 - 4.25
4.26 - 4.37
4.38 - 4.50
4.51 - 4.62
4.63 - 4.75
4.76 - 4.87
4.88 - 5.09
.33
.34
.35
.36
.37
.38
.39
.40
6.10 - 6.12
6.13 - 6.25
6.26 - 6.37
6.38 - 6.50
6.51 - 6.62
6.63 - 6.75
6.76 - 6.87
6.88 - 7.09
.49
.50
.51
.52
.53
.54
.55
.56
8.10 - 8.12
8.13 - 8.25
8.26 - 8.37
8.38 - 8.50
8.51 - 8.62
8.63 - 8.75
8.76 - 8.87
8.88 - 9.09
.65
.66
.67
.68
.69
.70
.71
.72
10.10 - 10.12
10.13 - 10.25
10.26 - 10.37
10.38 - 10.50
10.51 - 10.62
10.63 - 10.75
10.76 - 10.87
10.88 - 11.09
.81
.82
.83
.84
.85
.86
.87
.88
1.10 - 1.12
1.13 - 1.25
1.26 - 1.37
1.38 - 1.50
1.51 - 1.62
1.63 - 1.75
1.76 - 1.87
1.88 - 2.09
.09
.10
.11
.12
.13
.14
.15
.16
3.10 - 3.12
3.13 - 3.25
3.26 - 3.37
3.38 - 3.50
3.51 - 3.62
3.63 - 3.75
3.76 - 3.87
3.88 - 4.09
.25
.26
.27
.28
.29
.30
.31
.32
5.10 - 5.12
5.13 - 5.25
5.26 - 5.37
5.38 - 5.50
5.51 - 5.62
5.63 - 5.75
5.76 - 5.87
5.88 - 6.09
.41
.42
.43
.44
.45
.46
.47
.48
7.10 - 7.12
7.13 - 7.25
7.26 - 7.37
7.38 - 7.50
7.51 - 7.62
7.63 - 7.75
7.76 - 7.87
7.88 - 8.09
.57
.58
.59
.60
.61
.62
.63
.64
9.10 - 9.12
9.13 - 9.25
9.26 - 9.37
9.38 - 9.50
9.51 - 9.62
9.63 - 9.75
9.76 - 9.87
9.88 - 10.09
.73
.74
.75
.76
.77
.78
.79
.80
11.10 - 11.12
11.13 - 11.25
11.26 - 11.37
11.38 - 11.50
11.51 - 11.62
11.63 - 11.75
11.76 - 11.87
11.88 - 12.09
.89
.90
.91
.92
.93
.94
.95
.96
Additional increments and rate cards can be found on our Internet site: www.myflorida.com/dor
DR-15
R. 07/12
Sales and Use Tax Return
Rule 12A-1.097
Florida Administrative Code
You may file and pay tax online or you may
complete this return and pay tax by check
or money order and mail to:
Florida Department of Revenue
5050 W Tennessee Street
Tallahassee, FL 32399-0120
Please read the Instructions for DR-15 Sales
and Use Tax Returns (Form DR-15N) before you
complete this return. Instructions are posted on
our website at www.myflorida.com/dor.
Certificate Number:
Florida
A. Sales/Services
B. Taxable Purchases
C. Commercial Rentals
D. Transient Rentals
E. Food & Beverage Vending
Transient Rental Rate:
SALES AND USE TAX RETURN HD/PM Date:
/
1. Gross Sales
2. Exempt Sales
3. Taxable Amount
.
.
.
Include use tax on Internet / out-of-state untaxed purchases
.
.
.
.
.
.
.
.
.
.
Surtax Rate:
Collection Period
/
5. Total Amount of Tax Collected
6. Less Lawful Deductions
7. Total Tax Due
8. Less Est Tax Pd / DOR Cr Memo
Name
9. Plus Est Tax Due Current Month
Address
10. Amount Due
City/St/ZIP
11. Less Collection Allowance
12. Plus Penalty
13. Plus Interest
Due:
Late After:
Check here if payment was
made electronically.
Certificate Number:
Florida
A. Sales/Services
B. Taxable Purchases
C. Commercial Rentals
D. Transient Rentals
E. Food & Beverage Vending
Transient Rental Rate:
Do not write in the space below.
14. Amount Due with Return
Collection Period
/
5. Total Amount of Tax Collected
6. Less Lawful Deductions
7. Total Tax Due
8. Less Est Tax Pd / DOR Cr Memo
Name
9. Plus Est Tax Due Current Month
Address
10. Amount Due
City/St/ZIP
11. Less Collection Allowance
12. Plus Penalty
13. Plus Interest
Due:
Late After:
Check here if payment was
made electronically.
DR-15 R. 07/12
4. Tax Collected
.
.
.
.
.
.
.
.
.
.
.
E-file/E-pay Only
.
.
.
.
9100 0 20129999 0001003031 5 4999999999 0000 5
SALES AND USE TAX RETURN HD/PM Date:
/
1. Gross Sales
2. Exempt Sales
3. Taxable Amount
.
.
.
Include use tax on Internet / out-of-state untaxed purchases
.
.
.
.
.
.
.
.
.
.
Surtax Rate:
Do not write in the space below.
14. Amount Due with Return
DR-15 R. 07/12
4. Tax Collected
.
.
.
.
.
.
.
.
.
.
.
E-file/E-pay Only
.
.
.
.
9100 0 20129999 0001003031 5 4999999999 0000 5
Proper Collection of Tax: Florida’s state sales tax rate is 6%; however, there is an established “bracket system” for collecting sales
tax on any part of each total taxable sale that is less than a whole dollar amount. The Sales Tax Rate Table (Form DR-2X) provides tax
rates for most counties that charge a discretionary sales surtax and it is posted on our Internet site at www.myflorida.com/dor.
Discretionary Sales Surtax: Most counties impose a local option discretionary sales surtax that must be collected on taxable
transactions. You must collect discretionary sales surtax along with the 6% state sales tax on taxable sales when delivery or use
occurs in a county that imposes a surtax. Current discretionary sales surtax rates for all counties are listed on Form DR-15DSS,
Discretionary Sales Surtax Information, posted on our Internet site.
Under penalties of perjury, I declare that I have read this return and the facts stated in it are true.
Signature of Taxpayer
Date
Signature of Preparer
( ___________ ) ____________________________________________
Telephone Number
Date
( ___________ ) ____________________________________________
Telephone Number
Discretionary Sales Surtax ( Lines 15(a) through 15(d) )
15(a). Exempt Amount of Items Over $5,000 (included in Column 3) . ........................................................................................... 15(a). __________________________________
15(b). Other Taxable Amounts NOT Subject to Surtax (included in Column 3)............................................................................... 15(b). __________________________________
15(c). Amounts Subject to Surtax at a Rate Different Than Your County Surtax Rate (included in Column 3)............................... 15(c). __________________________________
15(d). Total Amount of Discretionary Sales Surtax Collected (included in Column 4)............................................................... 15(d). __________________________________
16.
Total Enterprise Zone Jobs Credits (included in Line 6)......................................................................................................... 16. __________________________________
17.
Taxable Sales/Untaxed Purchases of Electric Power or Energy (included in Line A)............................................................. 17. __________________________________
18.
Taxable Sales/Untaxed Purchases of Dyed Diesel Fuel (included in Line A)........................................................................... 18. __________________________________
19.
Taxable Sales from Amusement Machines (included in Line A) ............................................................................................. 19. __________________________________
20.
Rural and/or Urban High Crime Area Job Tax Credits............................................................................................................... 20. __________________________________
21.
Other Authorized Credits........................................................................................................................................................... 21. __________________________________
Under penalties of perjury, I declare that I have read this return and the facts stated in it are true.
Signature of Taxpayer
Date
( ___________ ) ____________________________________________
Telephone Number
Signature of Preparer
Date
( ___________ ) ____________________________________________
Telephone Number
Discretionary Sales Surtax ( Lines 15(a) through 15(d) )
15(a). Exempt Amount of Items Over $5,000 (included in Column 3) . ........................................................................................... 15(a). __________________________________
15(b). Other Taxable Amounts NOT Subject to Surtax (included in Column 3)............................................................................... 15(b). __________________________________
15(c). Amounts Subject to Surtax at a Rate Different Than Your County Surtax Rate (included in Column 3)............................... 15(c). __________________________________
15(d). Total Amount of Discretionary Sales Surtax Collected (included in Column 4)............................................................... 15(d). __________________________________
16.
Total Enterprise Zone Jobs Credits (included in Line 6)......................................................................................................... 16. __________________________________
17.
Taxable Sales/Untaxed Purchases of Electric Power or Energy (included in Line A)............................................................. 17. __________________________________
18.
Taxable Sales/Untaxed Purchases of Dyed Diesel Fuel (included in Line A)........................................................................... 18. __________________________________
19.
Taxable Sales from Amusement Machines (included in Line A) ............................................................................................. 19. __________________________________
20.
Rural and/or Urban High Crime Area Job Tax Credits............................................................................................................... 20. __________________________________
21.
Other Authorized Credits........................................................................................................................................................... 21. __________________________________
Sales and Use Tax Return
DR-15EZ
R. 07/12
Rule 12A-1.097
Florida Administrative Code
You may file and pay tax online or you may
complete this return and pay tax by check
or money order and mail to:
Florida Department of Revenue
5050 W Tennessee Street
Tallahassee, FL 32399-0120
Please read the Instructions for DR-15EZ Sales
and Use Tax Returns (Form DR-15EZN) before
you complete this return. Instructions are posted
on our website at www.myflorida.com/dor.
FLORIDA SALES AND USE TAX RETURN
Collection Period
Certificate Number:
Surtax Rate:
Location/Mailing Address Changes:
New Location Address:
DOR USE ONLY
DR-15EZ
R. 07/12
postmark or hand-delivery date
Telephone Number: (
)
New Mailing Address:_________________________________________
Name
Address
City/St/ZIP
Amount Due From Line 9
On Reverse Side
,
Check here if payment was made electronically.
Due:
Late After:
9100 0 20129999 0001003043 6 4999999999 0000 5
FLORIDA SALES AND USE TAX RETURN
Collection Period
Certificate Number:
Surtax Rate:
Location/Mailing Address Changes:
New Location Address:
DOR USE ONLY
DR-15EZ
R. 07/12
postmark or hand-delivery date
Telephone Number: (
)
New Mailing Address:_________________________________________
Name
Address
City/St/ZIP
Amount Due From Line 9
On Reverse Side
,
Check here if payment was made electronically.
Due:
Late After:
9100 0 20129999 0001003043 6 4999999999 0000 5
Proper Collection of Tax: Florida’s state sales tax rate is 6%; however, there is an established “bracket system” for collecting sales
tax on any part of each total taxable sale that is less than a whole dollar amount. The Sales Tax Rate Table (Form DR-2X) provides tax
rates for most counties that charge a discretionary sales surtax and it is posted on our Internet site at www.myflorida.com/dor.
Discretionary Sales Surtax: Most counties impose a local option discretionary sales surtax that must be collected on taxable
transactions. You must collect discretionary sales surtax along with the 6% state sales tax on taxable sales when delivery or use
occurs in a county that imposes a surtax. Current discretionary sales surtax rates for all counties are listed on Form DR-15DSS,
Discretionary Sales Surtax Information, posted on our Internet site.
1. Gross Sales
(Do not include tax)
2. Exempt Sales
(Include these in
Gross Sales, Line 1)
3. Taxable Sales/Purchases
,
,
DOLLARS
(Include Internet/Out-of-State
Purchases)
4. Total Tax Collected
(Include Discretionary Sales Surtax
from Line B)
5. Less Lawful Deductions
6. Less DOR Credit Memo
7. Total Tax Due
8. Less Collection Allowance or
Plus Penalty and Interest
9. Amount Due With Return
(Enter this amount on front)
1. Gross Sales
(Do not include tax)
2. Exempt Sales
(Include these in
Gross Sales, Line 1)
3. Taxable Sales/Purchases
(Include Internet/Out-of-State
Purchases)
4. Total Tax Collected
(Include Discretionary Sales Surtax
from Line B)
5. Less Lawful Deductions
6. Less DOR Credit Memo
7. Total Tax Due
8. Less Collection Allowance or
Plus Penalty and Interest
9. Amount Due With Return
(Enter this amount on front)
,
,
DOLLARS
,
,
,
,
,
,
,
,
,
CENTS
,
,
,
,
,
,
,
,
,
CENTS
Under penalties of perjury, I declare that I have read this return and
the facts stated in it are true.
Signature of Taxpayer
Date
Telephone #
Signature of Preparer
Date
Telephone #
Discretionary Sales Surtax Information
A. Taxable Sales and
Purchases NOT Subject
to DISCRETIONARY
SALES SURTAX
B.Total Discretionary
Sales Surtax Collected
,
,
E-file / E-pay to receive collection allowance
Please do not fold or staple.
Under penalties of perjury, I declare that I have read this return and
the facts stated in it are true.
Signature of Taxpayer
Date
Telephone #
Signature of Preparer
Date
Telephone #
Discretionary Sales Surtax Information
A. Taxable Sales and
Purchases NOT Subject
to DISCRETIONARY
SALES SURTAX
B.Total Discretionary
Sales Surtax Collected
,
,
E-file / E-pay to receive collection allowance
Please do not fold or staple.
MODULE FOUR DEPARTMENT’S REQUIREMENTS
OBJECTIVES
Upon completion of this module, the participant will be able to:
•
explain nexus;
•
locate and explain audit authority; and
•
apply statute of limitations.
INTRODUCTION
Along with taxpayer's responsibilities concerning registration and
filing requirements, the State also has responsibilities. The State's
responsibilities are directed toward conducting an audit within certain
time periods and obtaining the books and records needed to conduct
audits. In order to address time periods and record requirements,
several Department of Revenue (DOR) forms have been created.
Some of these forms are Notice of Intent to Audit Books and Records
(DR-840), Notice of Intent to Make Audit Changes (DR-1215),
Explanation of Items (DR-803) and Taxpayer Rights.
NEXUS
States from time to time seek guidance as to who the state can subject
to collecting their taxes. The limit of a state’s sales and use taxing
authority is embodied in the concept of Nexus.
Nexus is that activity, relationship, connection, link or tie which is
necessary to subject a person, including a business or corporation, to a
jurisdiction’s taxing powers. This legal principal has generated
substantial litigation, resulting in the adoption of many opinions by the
United States Supreme Court.
2014
Program Training
4-1
Since the court has dealt with nexus on a case-by-case basis, relying
heavily on the specific facts in each case, the liability of any company
engaged in activities not exactly the same as those litigated, remains
clouded.
The nexus necessary to legally impose sales tax is substantially
different from the contact necessary to impose other types of taxes.
The imposition of a sales tax liability upon an out-of-state vendor,
when they have nexus, is designed primarily to complement the use
tax. This type of tax supports the use tax in two respects:
•
protection of a state's revenues by taking away from
inhabitants the advantages of being able to resort to
untaxed out-of-state purchases; and
•
protection of local merchants against out-of-state
competition from those who may be enabled by means of
lower tax burdens to offer lower prices.
The collection of sales tax is by its very nature a difficult
administrative problem. However, if the foreign vendor can be
compelled to collect and remit the tax, the state's administrative
difficulties would be greatly reduced.
The imposition of sales tax, however, has been strongly opposed by
foreign vendors on the grounds that it conflicts with the federal
Commerce Clause and extends the powers of a state beyond its borders
in violation of the Due Process Clause.
In Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the United States
Supreme Court held that the Commerce Clause of the U.S.
Constitution requires an in-state physical presence of an out-of-state
seller for a state's jurisdiction to impose a sales tax collection duty
upon the out-of-state seller. Economic presence through purposeful
solicitation of business within a state was not sufficient. Thus, repair
service provided directly by a company employee in the customer's
state creates in-state physical presence that exceeds contact by U.S.
mail or common carrier and constitutes substantial nexus. Courts have
also consistently ruled that out-of-state companies may not circumvent
state jurisdiction to impose taxes by contracting with in-state persons
to conduct company business that would have otherwise created nexus
if the out-of-state company had used their own employees.
4-2
Program Training
2014
Therefore, nexus with the state of Florida, occurs when an out-of-state
seller utilizes representatives to conduct regular or systematic activities
in Florida. Contact with the State, only through the delivery of sales
by mail or common carrier is not sufficient activity to create nexus.
Florida Sales and Use Tax Nexus Indicators
Examples of limited activities of a vendor within Florida's taxing
jurisdiction which could substantiate nexus to exist, include:
2014
•
locations in Florida (does not have to be retail stores);
•
salespersons, solicitors visiting or located in Florida;
•
goods on consignment in Florida;
•
delivery of goods into Florida by means of vendor owned
or leased vehicles (usually trucks);
•
rental or license to use TPP or RP located in Florida;
•
repairs made in Florida by company technicians or
representatives;
•
maintenance conducted in Florida by company employees
or representatives;
•
services provided to Florida Residents;
•
whether employees install or assemble in Florida;
•
an out-of-state seller who uses in-state representative or
repair shop to service or repair TPP: or
•
personal property (TPP or intangibles) or real property in
Florida (could include ownership of contract rights);
•
registered with the Department for sales and use tax
purposes.
Program Training
4-3
RECONCILIATION OF OWNERSHIP
The auditor must make sure that the proper taxpayer (legal entity) is
being audited. It is not unusual for a business to have several owners
during its lifetime. Because of this, the auditor must determine the
legal entity that currently is in control of the books and records
necessary to conduct an audit. Ownership must be established
throughout the audit period and should be determined during the preaudit research and audit entrance interview.
Audits are required to be conducted pursuant to the listed legal entity
indicated on the Service Notification. When an auditor is confronted
with multiple owners (individual or entity) during the three year audit
period, the auditor must determine how to conduct the audit, including
which parties are liable for an assessment.
Some basic decisions include but are not limited to:
•
audit the previous owner(s) only;
•
audit the previous owner for the period that they owned the
business and the current owner for the remaining period;
•
audit the current owner for the entire audit period and hold
them responsible for the previous owner's liability if the
seller or current owner failed to exercise their legal
responsibilities regarding the sale/purchase of a business.
TRANSFEREE LIABILITY - When the sale of a business
occurs prior to April 6, 2012
S. 212.10, F.S., expresses that when any dealer sells out his business or
stock of goods (inventory), the dealer must make a final return and pay
any tax, interest or penalty due, within fifteen days after the date of
sale. It is the duty of the purchaser of the business, or stock of goods,
to obtain from the seller a written statement from the Department of
Revenue showing the amount of any unpaid tax, interest or penalty as
of the date of the sale of business. The purchaser must withhold a
sufficient portion of the purchase money to cover the amount of such
unpaid taxes, interest and/or penalties until the seller produces a
receipt from the Department of Revenue showing that the liability has
been paid.
4-4
Program Training
2014
If the purchaser of a business or stock of goods fails to withhold a
sufficient amount of the purchase money, he is personally liable for the
payment of the taxes, interest, and penalties.
To secure protection from transferee liability the Department must
audit the seller's books and records to determine the actual status of the
business. The Department may contract with private auditors pursuant
to section 213.28, F.S., to perform the audit. The department may
charge the cost of the audit to the person requesting the audit. Either
the seller or buyer may request an audit of the seller’s records.
A business is deemed to have been sold out when the dealer, for
consideration, transfers its stock of goods or other component parts of
the business to another, and no longer continues in the business.
EXAMPLE: A corporation that owns a chain of five department
stores in Florida sells four of them and continues operating one of
them. This would not be a selling out, since the corporation is still in
that type of business.
A business is deemed to have been sold out when a partner sells his
interest in the business and terminates the former partnership and a
new partnership is created. All members of the new partnership are
obligated for taxes, interest, and penalties that accrued under the
former partnership.
A business will be deemed to have been sold out when a business
previously operated under one type of organization is transferred for
consideration to another type of organization, such as from a sole
proprietorship to a corporation from a partnership to a corporation.
A business will also be considered sold out when there is a corporate
reorganization as a result of which the business is owned by a
corporation other than the corporation that previously owned it or
when ownership of a business is transferred from a subsidiary to a
parent corporation or to another subsidiary of the parent or from a
parent to a subsidiary.
The sale of the business or stock of goods, and the issuance of the
receipt or certificate to which reference was made does not terminate
the seller's responsibility to retain records as required by ss. 212.12
and 212.13, F.S. However, if the records are transferred to the
purchasing dealer, the purchasing dealer is required to retain them.
2014
Program Training
4-5
Documentation supporting the auditor's position concerning change of
ownership is to be included in the audit file. Such documentation
would consist of availability of other owner(s), availability of records,
collectability of deficiencies and duration of ownership. Other
documentation such as copies of bulk sales agreements, sales
agreements, court order or federal tax returns is to be included when
necessary.
Transferee Liability Audits
Generally, transferee liability audits are conducted when there is a sale
or an anticipated sale of an existing business. When a business is sold,
the unpaid sales tax liability (if any) of the former owner transfers to
the purchaser of the business, unless the department issues a certificate
indicating no tax due or all tax, penalty and interest has been paid.
The department requires an audit of the business before issuing the
Transfer Liability Certificate. The request for the transferee liability
audit and certificate must be made in writing and may be requested by
the purchaser on the Purchaser's Application for Transferee Liability
Certificate (DR-843) or the seller on the Seller's Application for
Transferee Liability Certificate (DR-842). A signed sales agreement
must be attached to the request.
Due to the short time frame involved with the sale of the business,
transferee liability audits should receive priority treatment. As part of
the audit, the auditor should contact the Collections office in the
Service Center to determine any outstanding billings. When outstanding
billings are discovered follow the steps in GTAPB 07ADM-05. These
billings should NOT be included in an audit assessment.
When field work is complete, the audit should be forwarded to
Compliance Standards for processing.
When the Previous Owner is Assigned for Audit:
If the period under audit involves a change in ownership the auditor
can only audit the legal entity notified on the Notice of Intent to Audit
Books and Records (DR-840). The audit period will start with the
beginning date established on the DR-840 and end on the date of the
change of ownership. A request for assignment may be made on the
current owner if the auditor considers it audit worthy. These issues
should be discussed with the supervisor.
4-6
Program Training
2014
When the Current Owner is Assigned for Audit:
If the period under audit involves a change in ownership the current
owner, owners, or assigns must provide a copy of the Transfer
Liability Certificate to the auditor to verify that the department or a
representative of the department has audited the seller’s books and
records to determine the actual status of the business.
If a Transfer Liability Certificate is provided to the auditor the period
under audit will be split as to the current owner, owners, or assigns and
to the previous owner. The auditor will conduct the audit with the
audit period being, from the date of the change in ownership to the
date established on the DR-840 as the end of the audit period.
If the period under audit involves a change in ownership and the
current owner, owners, or assigns can not produce a Transfer Liability
Certificate the auditor should discuss this with their supervisor to
determine the most appropriate method to conduct the audit.
•
•
Conduct the audit as if there had been no change in ownership
and the assessment shall be levied upon the current owner, or
Conduct two separate audits and make assessments upon both
owners.
Note under s. 213.758(5), F.S and s. 8, Chapter 2010-166, Laws of
Florida the Department may pursue either party to a transaction;
however, the Department only wants the tax due once. Therefore, it is
important for the auditor to consider the facts and circumstances
surrounding the sale of a business before making a decision on how to
proceed.
For example, are the parties related? Is there a
written agreement? What does the sale consists of? Did the liabilities
stay with the seller? Is the tax exposure significant? Are the records of
the previous owners available? What is the financial condition of both
parties? Is statute of limitations an issue? Are the business activities
before and after the sale similar? The answer to these and other
questions will provide the auditor with sufficient information to make
an informed decision on who to audit. If uncertainty still exists the
auditor should consult with his or her supervisor.
2014
Program Training
4-7
TRANSFEREE LIABILITY - When the sale of a business
occurs on or after April 6, 2012
NOTE:
S. 212.10, F.S., was repealed April 6, 2012. When the sale of a
business occurs on or after April 6, 2012, s. 213.758, F.S. applies. At
the time of this update audit procedures have not been determined for
the sale of a business that occurred after April 2012. If your audit
involves a taxpayer that transfers the business, assets of the business,
or stock of goods of the business after April 2012 you must contact
your supervisor for further guidance.
Highlights of s. 213.758, F.S.
Effective 4/6/12 s. 212.10, F.S. was repealed and s. 213.758, F.S. was
amended relating to the transfer of tax liability when a person transfers
or quits a business.
A transferee, or a group of transferees acting in concert, of more than
50 percent of a business, assets of a business, or stock of goods of a
business is liable for any unpaid tax owed by the transferor arising
from the operation of that business unless:
1. The transferor provides a receipt or certificate of compliance
from the department to the transferee showing that;
a. The transferor has not received a notice of audit, and
b. The transferor has filed all required tax returns and has paid
all tax arising from the operation of the business identified
on the returns filed, and
c. There were no insiders (related entities) in common
between the transferor and the transferee at the time of the
transfer; or
2. The department finds that the transferor is not liable for taxes,
interest, or penalties after an audit of the transferor's books and
records.
The audit may be requested by the transferee or the transferor
and, if not done pursuant to the certified audit program under s.
213.285, must be completed by the department within 90 days
after the records are made available to the department.
4-8
Program Training
2014
The transferee or transferees acting in concert who are liable for any
tax shall be jointly and severally liable with the transferor for the
payment of the tax owed to the state from the operation of the business
by the transferor up to the transferee's or transferees' maximum
liability for such tax due.
The maximum liability of a transferee is equal to the fair market value
of the business, assets of the business, or stock of goods of the
business transferred to the transferee or the total purchase price paid
by the transferee for the business, assets of the business, or stock of
goods of the business, whichever is greater.
The fair market value must be determined net of any liens or liabilities,
with the exception of liens or liabilities owed to insiders.
RIGHT TO PRESCRIBE THE RECORDS TO BE
MAINTAINED BY DEALER
Section 212.12(6)(a), F.S., expresses in part that the department is
given the power to prescribe the records to be kept by all persons
subject to taxes imposed by this chapter. It shall be the duty of every
person required to make a report and pay any tax under this
chapter...and preserve suitable records of the sales, leases, rentals,
license fees, admissions, or purchases...as may be necessary to
determine the amount of the tax due hereunder; and other information
as may be required by the department. It shall be the duty of every
such person so charged with such duty, moreover, to keep and
preserve as long as required by s. 213.35 all invoices and...records of
all other subjects of taxation under this chapter.
As an authorized agent of the Department, each tax auditor should note
any deficiencies found during an audit of the taxpayer's record-keeping
system. The deficiencies should be discussed with the taxpayers.
However, the discussion should be limited to those areas that directly
affect the proper collection, recording and remittance of the tax and
should be in the form of a recommendation only. The auditor should
also note the deficiencies in the audit report for future reference.
DEALERS REQUIRED TO MAINTAIN RECORDS
Section 212.13(2), F.S., adds to the department’s right to prescribe the
records to be maintained by the dealer by also expressing in part that
2014
Program Training
4-9
all such records which are located or maintained in this state shall be
open for inspection by the department at all reasonable hours at such
dealer's place of business located in this state. Any dealer who
maintains such books and records at a point outside this state must
make such books and records available for inspection by the
department where the general records are kept.
AUDIT AUTHORITY
The basic authority for the Department to audit the books and records
of dealers is found in s. 212.12(5)(a), F.S., which states:
"The Department is authorized to audit or inspect the records and
accounts of dealers defined herein, including audits or inspections of
dealers who make mail order sales to the extent permitted by another
state, and to correct by credit any overpayment of tax; and, in the event
of a deficiency, an assessment shall be made and collected. No
administrative finding of fact is necessary prior to the assessment of
any tax deficiency."
Audits which result in a net overpayment, after all underpayments are
offset, must be reviewed to determine whether the net overpayment is
within the statute of limitations for refund.
When the net overpayment is refundable, the taxpayer should be
informed of the procedures for obtaining a refund.
If any part of the net overpayment is outside the statute of limitation
for refund, it is barred from any further refund or credit.
Deficiencies in tax reporting are determined after credit is given for
overpayments. If a deficiency exists, then it will be assessed and
collected.
In addition to the basic authority to audit, the Legislature amplified the
audit authority in s. 212.13, F.S., by addressing subsections to various
types of industries (i.e., transportation companies and wholesalers).
The Legislature has not only provided the Department authority to
audit, it has also provided some tools to assist the Department in
exercising that authority.
4-10
Program Training
2014
When Records Are Adequate but Voluminous In Nature
Section 212.12(6)(c)1.,2.,&3, F.S., provides for use of sampling
techniques when the dealer’s records are adequate but voluminous.
Section 212.12(6)(c)1., F.S., expresses, if the records of a dealer are
adequate but voluminous in nature and substance, the department may
sample such records and project the audit findings derived therefrom
over the entire audit period to determine the proportion that taxable
retail sales bear to total retail sales or the proportion that taxable
purchases bear to total purchases. In order to conduct such a sample,
the department must first make a good faith effort to reach an
agreement with the dealer, which agreement provides for the means
and methods to be used in the sampling process. In the event that no
agreement is reached, the dealer is entitled to a review by the
executive director.
Section 212.12(6)(c)2., F.S., expresses, for the purpose of sampling
pursuant to the paragraph above the department shall project
deficiencies and overpayments derived therefrom over the entire audit
period. In determining the dealer's compliance, the department shall
reduce any tax deficiency as derived from the sample by the amount of
any overpayment derived from the sample. In the event the
department determines from the sample results that the dealer has a net
tax overpayment, the department shall provide the findings of this
overpayment to the Chief Financial Officer for repayment of funds
paid into the State Treasury through error.
Section 212.12(6)(c)3., F.S., expresses, a taxpayer is entitled, both in
connection with an audit and in connection with an application for
refund filed independently of any audit, to establish the amount of any
refund or deficiency through statistical sampling when the taxpayer's
records are adequate but voluminous.
Alternatively, a taxpayer is entitled to establish any refund or
deficiency through any other sampling method agreed upon by the
taxpayer and the department when the taxpayer's records are adequate
but voluminous. In either case the completed sample must reflect both
overpayments and underpayments of taxes due. The sample shall be
conducted through:
•
2014
A taxpayer request to perform the sampling through the
certified audit program pursuant to s. 213.285;
Program Training
4-11
•
Attestation by a certified public accountant; or
•
A sampling method that has been submitted by the taxpayer
and approved by the department before a refund claim is
submitted.
Fixed Assets
Sections 212.12(6)(c)1.& 3., F.S., express that in the case of fixed
assets, a dealer may agree in writing with the department for adequate
but voluminous records to be statistically sampled. Such agreement
shall provide for the methodology to be used in the statistical sampling
process. The audit findings derived therefrom shall be projected over
the period represented by the sample in order to determine the
proportion the taxable purchases bear to total purchases. Once an
agreement has been signed, it is final and conclusive with respect to
the method of sampling fixed assets, and the department may not
conduct a detailed audit of fixed assets and the taxpayer may not
request a detailed audit after the agreement is reached.
When Records Are Not Adequate
In those cases where the taxpayer does not maintain adequate records,
the auditor can employ judgmental testing or sampling techniques
utilizing available records without the taxpayer's agreement. The
authority for using judgmental sampling is found in s. 212.12(6)(b),
F.S., which states:
"For the purpose of this subsection, if a dealer does not have adequate
records of his or her retail sales or purchases, the Department may,
upon the basis of a test or sampling of the dealer's available records or
other information relating to the sales or purchases made by such
dealer for a representative period, determine the proportion that
taxable retail sales bear to total retail sales or the proportion that
taxable purchases bear to total purchases. This subsection does not
affect the duty of the dealer to collect, or the liability of any consumer
to pay, any tax imposed by or pursuant to this chapter."
Failure to Make Records Available
Section 212.12(5)(b), F.S., expresses, in the event any dealer or other
person charged herein fails or refuses to make his or her records
available for inspection so that no audit or examination has been made
of the books and records of such dealer or person, fails or refuses to
4-12
Program Training
2014
register as a dealer, fails to make a report and pay the tax as provided
by this chapter, makes a grossly incorrect report or makes a report that
is false or fraudulent, then, in such event, it shall be the duty of the
department to make an assessment from an estimate based upon the
best information then available to it for the taxable period of such
dealer. Then the department shall proceed to collect such taxes,
interest and penalty on the basis of such assessment which shall be
considered prima facie correct, and the burden to show the contrary
shall rest upon the dealer.
Note: Estimate authority limits DOR to use the best information for
the audit period only. When records are inadequate a representative
sample may be taken outside the audit period. (Module 5)
STATUTE OF LIMITATIONS
Previously, we addressed two sections of the statutes, ss.212.12(6)(a)
& 212.13(2), F.S. that authorized the department to prescribe the
records to be maintained by dealers. Both sections of the statutes
expressed that dealers are required to maintain the required records as
long as required by s 213.35, F.S.
Section 213.35, F.S., expresses, each person required by law to
perform any act in the administration of any tax enumerated in s.
72.011, F.S., shall keep suitable books and records relating to that tax,
such as invoices, bills of lading, and other pertinent records and
papers, and shall preserve such books and records until expiration of
the time within which the department may make an assessment with
respect to that tax pursuant to s. 95.091(3), F.S.
Section 95.091(3), F.S., (Limitation on actions to collect taxes.)
expresses in part that the Department “…may determine and assess the
amount of any tax, penalty, or interest due…” for any tax enumerated
in s. 72.011, F.S., (Chapter 212, F.S. is included) as follows:
•
•
2014
Effective July 1, 2002, within three years after the date the tax
is due, any return with respect to the tax is due, or such return
is filed, whichever occurs later;
at any time while the right to a refund or credit of the tax is
available to the taxpayer;
Program Training
4-13
•
•
•
at any time after the taxpayer has failed to make any required
payment of the tax, has failed to file a required return, or has
filed a fraudulent return, the period is limited to 3 years if the
taxpayer has disclosed in writing the tax liability to the
department before the department has contacted the taxpayer;
in any case in which there has been a refund of tax erroneously
made for any reason:
for refunds made on or after July 1, 1999, within 3
years after making such refund, or
at any time after making such refund if it appears that
any part of the refund was induced by fraud or the
misrepresentation of a material fact;
a tax return filed before the last day prescribed by law,
including any extension thereof, shall be deemed to have been
filed on such last day, and payments made prior to the last day
prescribed by law shall be deemed to have been paid on such
last day.
NOTE: The earliest date that an audit can go back to July 1, 1985.
NOTIFYING THE DEALER
Section 213.345, F.S., (Tolling of periods during an audit.) states in
part: The limitations in s. 95.091(3) and the period for filing a claim
for refund as required by s. 215.26(2) shall be tolled for a period of 1
year if the Department of Revenue has, on or after July 1, 1999, issued
a notice of intent to conduct an audit of the taxpayer's account within
the applicable period of time. The department must commence an
audit within 120 days after it issues a notice of intent to conduct an
audit, unless the taxpayer requests a delay. If the taxpayer does not
request a delay and the department does not begin the audit within 120
days after issuing the notice, the tolling period shall terminate unless
the taxpayer and the department enter into an agreement to extend the
period pursuant to s. 213.23.
The term “toll” means to suspend. The tolling acts as a “time-out”
against the running of the clock for the three (3) year limitation. Once
the requirements are met, the limitation period (audit period) will be
tolled for one year. If the tolling period ends without extension, then
the three (3) year limitation period starts to run from where it left off
on the date it was suspended.
4-14
Program Training
2014
Notice of Intent to Audit Books and Records (DR-840)
To comply with the statute, the Department created a form that meets
the requirements of the statute. The form is called a Notice of Intent to
Audit Books and Records (DR-840). It’s a letter notifying the taxpayer
of the department’s intent to conduct an audit.
Establishing the Audit Period
The audit period is determined by the date the DR-840 is issued. The
audit period will normally be 36 months except for situations where it
could be more or less due to the taxpayer’s filing status or legal entity
status, i.e., change in tax return filing frequency, a new business, or the
business closed during the audit period. The Department assesses tax,
penalty, and interest within three years after the date the tax is due and
a tax return filed before the last day prescribed by law is deemed to
have been filed on the last day. Therefore, all tax returns, except those
filed late, are deemed to be filed on the 20th day of the month after the
taxpayer’s filing period (monthly, quarterly, semi-annually or
annually) for audit purposes. The procedure for capturing the audit
period for a monthly filer is expressed in TUB 88(A)1-002, Limitation
on Assessments.
DR-840’s Issued 1st – 20th Day of The Month
All DR-840's issued between the 1st and 20th day of any month will
begin an audit period commencing with the filing period for the first
tax return due on or after the 20th day of the corresponding month 3
years earlier. The audit period ends with the filing period for the last
tax return due on or before the 20th of the month prior to the month
that the DR-840 was issued.
Monthly filer: DR-840 issued December 14, 2006
Audit Period: November 1, 2003 – October 31, 2006
For a monthly filer, a DR-840 issued December 14, 2006, will reflect
an audit period commencing with the filing period for the tax return
due on December 20, 2003. The first month of this audit period is
November 2003 because the November monthly tax return was due on
December 20, 2003, and it is the earliest monthly tax return that was
due within 3 years of the date the DR-840 was issued. The last
monthly tax return due in this audit period is October 2006, which was
due on November 20, 2006, and it is the last monthly tax return due on
or before the 20th of November.
2014
Program Training
4-15
Quarterly filer: DR-840 issued December 14, 2006
Audit Period: October 1, 2003 – September 30, 2006
For a quarterly filer, a DR-840 issued December 14, 2006, will reflect
an audit period commencing with the filing period for the first
quarterly tax return due on or after December 20, 2003. The first
month of this audit period is October 2003 because the October,
November, December, 2003 quarterly tax return was due on January
20, 2004 and it is the earliest quarterly tax return that was due within 3
years of the date the DR-840 was issued. The last month of the audit
period is September 2006, because the July, August, September 2006
return, was due on October 20, 2006, and it is the last quarterly tax
return due on or before the 20th of November.
DR-840’s Issued 21st – Last Day of The Month
All DR-840's issued between the 21st day and the last day of any
month will begin an audit period commencing with the filing period
for the first tax return due on or after the 20th day of the month
following the month that the DR-840 was issued, 3 years earlier. The
audit period ends with the filing period for the last tax return due on or
before the 20th of the month that the DR-840 was issued.
Monthly filer: DR-840 issued December 22, 2006
Audit Period: December 1, 2003 – November 30, 2006
For a monthly filer, a DR-840 issued December 22, 2006, will reflect
an audit period commencing with the filing period for the tax return
due on January 20, 2004. The first month of this audit period is
December 2003 because the December monthly tax return was due on
January 20, 2004, and it is the earliest monthly tax return that was due
within 3 years of the date the DR-840 was issued. The last monthly
tax return due in this audit period is November 2006, which was due
on December 20, 2006, and it is the last monthly tax return due on or
before the 20th of December.
Quarterly filer: DR-840 issued December 22, 2006
Audit Period: October 1, 2003 – September 30, 2006
For a quarterly filer, a DR-840 issued December 22, 2006, will reflect
an audit period commencing with the filing period for the first
quarterly tax return due on or after January 20, 2004. The first month
of this audit period is October 2003 because the October, November,
December, 2003 quarterly tax return was due on January 20, 2004 and
4-16
Program Training
2014
it is the earliest quarterly tax return that was due within 3 years of the
date the DR-840 was issued. The last month of the audit period is
September 2006, because the July, August, September 2006 quarterly
tax return, was due on October 20, 2006, and it is the last quarterly tax
return due on or before the 20th of December.
Overpayments of Tax – Compliance Audits
Section 213.34, F.S., provides that notwithstanding the provisions of s.
215.26, the department shall offset the overpayment of any tax during
an audit period against a deficiency of any tax, penalty, or interest
determined to be due during the same audit period.
Rule 12-26.009(3), F.A.C., expresses in part that when overpayments
and underpayments are found in the filing periods under audit, the
earliest period with an overpayment shall be offset against the earliest
period with an underpayment of tax, interest, or penalty. Any
remaining overpayments shall be carried forward and applied to the
next periods under audit where underpayments are determined to exist.
Because the audit period is determined by the taxpayer’s filing
frequency, it may include periods of time that occur prior to three
years of the date of the DR-840. Overpayments in the audit period that
occur prior to three (3) years of the date of the DR-840 are barred from
refund. However, they can be offset against underpayment in the audit
period.
The previous audit period example was for a quarterly filer and the
DR-840 was issued December 22, 2006. The audit period extended
back 39 months to October 1, 2003. If the taxpayer paid tax in error to
a vendor in November 2003 and the vendor timely remitted the tax to
the state on their November 2003 return filed in December 2003, the
tax paid in error would not be available for refund to the taxpayer
because the payment of tax to the state occurred prior to December 22,
2003, or prior to three (3) years of the DR-840 date. However, if the
audit results in sufficient underpayments the overpayment could be
offset in the audit if the taxpayer obtained an assignment of rights from
the vendor because the tax was paid in error during the audit period.
Tax credits/refunds that are not specified in S. 215.26(1), F.S., such as
bad debts, repossessions and returned merchandise, are not permitted
beyond their specific statute of limitation periods when the taxpayer
has failed to take the credit or request the refund timely. The DR-840
does not toll the statute of limitations for these credits/refunds.
2014
Program Training
4-17
Time Line on Completion of the Audit
When the DR-840 is issued a statutory time clock begins running.
Section 213.345, F.S. (Tolling of periods during an audit) states that
the period (audit period) to determine and assess tax, penalty and
interest is tolled for a period of 1 year from the date the DR-840 is
issued.
The actual assessment of tax, penalty and interest is accomplished
when a Notice of Proposed Assessment (NOPA) has been issued
within the 1-year tolling period established by the issue date of the
DR-840.
Additionally, there are several audit procedures/issues that are very
time sensitive that take place between the issuing of the DR-840 and
the issuing of the NOPA. (Maximum - one year)
•
after issuing the DR-840, a delay of 60 days is required before
beginning the Sales and Use Tax audit (exceptions are:
jeopardy assessment, refund audit, or taxpayer agreed to waive
the 60 days requirement);
•
the auditor must commence the audit within 120 days of the
DR-840 issuance date unless the taxpayer requests a delay;
•
the Notice of Intent to Make Audit Changes (DR-1215) (fully
addressed in the next section) should be issued 3 months prior
to expiration of the one year tolling period. The taxpayer has
30 days after the issuance date of the DR-1215 to protest the
auditor’s findings in the field – Rule 12-6.002, F.A.C. (audit
revisions and requested extensions could lengthen this time by
a minimum of 30 days).
NOPA’s are issued in Tallahassee. The auditor must allow sufficient
time for the audit findings to be processed and for the NOPA to be
issued timely (within the tolling period).
S. 213.23, F.S., permits the Department and the taxpayer to mutually
agree to extend the tolling period to an agreed date using the Consent
to Extend the Time to Issue an Assessment or to File a Claim for
Refund (DR-872).
4-18
Program Training
2014
60 Day Notice: Section 212.13(5)(a), F.S., which states in part: The
department shall send written notification at least 60 days prior to the
date an auditor is scheduled to begin an audit, informing the taxpayer
of the audit. The department is not required to give 60 days prior
notification of a forthcoming audit in any instance in which the
taxpayer requests an emergency audit. The notification contains:
•
•
•
•
the approximate date on which the auditor is scheduled to
begin the audit;
a reminder that all of the necessary records must be made
available to the auditor;
a 60-day Waiver Consent form; and
any other requests or suggestions the department may deem
necessary to complete the audit.
To expedite the audit process the taxpayer and auditor may agree to
waive the 60-day waiting period.
Commencing the Audit
The limitations expressed in s. 213.345, F.S., require the department to
commence an audit within 120 days after it issues the DR-840, unless
the taxpayer requests a delay. If the taxpayer does not request a delay
and the department does not begin the audit within 120 days after
issuing the notice, the tolling period shall terminate unless the taxpayer
and the department enter into an agreement to extend the period. Rule
12-3.0012, F.A.C., expresses that the department has commenced the
audit after it issues the DR-840 and performs an “audit entrance
interview”. The “audit entrance interview” has been performed when
any of the following occur:
•
When the Department contacts the taxpayer to explain and
discuss the specific audit plan or to discuss the nature of the
taxpayer's business operations; or,
•
When the Department requests that specific books, records,
documents, or other information be compiled, provided, or
made available to the Department, other than the books,
records, documents, or other information which were requested
in the attachment to the DR-840; or,
When the Department begins reviewing the accounts, books, or
records of the taxpayer.
•
2014
Program Training
4-19
Documentation
To ensure that the Department fulfills the requirements imposed by
s. 213.345, F.S., the auditor should document audit commencement
activities (audit entrance interview) in the case file. The GT-400815,
Case Activity Record (DR-815), should be used to capture the date of
the audit entrance interview along with a description of the activities
taking place during the audit entrance interview.
Requests for additional records and delays caused by the taxpayer
when obtaining records should be recorded in the Case Activity
Record (DR-815). When delays by the taxpayer appear unreasonable
the auditor’s requests should be put in writing to the taxpayer and
copies of the requests included in the case file. Requests for delays in
conducting the audit that occur during the audit process should be
received in writing from the taxpayer or confirmed in writing to the
taxpayer and documented in the case activity record. The request for a
transfer of the audit to another service center does not necessarily
constitute a request for delay.
The taxpayer bill of rights states that an audit should be conducted in a
timely and efficient manner. For the most part, this means that an
audit should be conducted on a continuous basis until completed.
However, an auditor should work with the taxpayer to make the audit
convenient. A multitude of valid reasons exist for delaying the start of
an audit, (i.e. busy time of year for taxpayer, taxpayer temporarily
short staffed, other states already on location, weather conditions
forbid travel, etc.). When valid delays exist, they must be
documented. Adequate documentation includes a request for delay in
writing from the taxpayer, or the sending of a confirmation letter to the
taxpayer that includes a statement of the taxpayer's desire to delay, any
pertinent reasons for the delay, and an acceptable start date.
EXAMPLE: The auditor and taxpayer meet to discuss the specific
audit plan and nature of the taxpayer's business operations, but the
taxpayer requests that the auditor wait three weeks for their
bookkeeper to return from medical leave. The auditor is to confirm in
a letter to the taxpayer, the specific request for books and records, the
taxpayer's request for delay of three weeks, and the intent to start
review of the books and records on a date certain.
4-20
Program Training
2014
Failure to Commence the Audit Timely (TUB 00(A) 1-002REV)
When the audit is not commenced within 120 days after the DR-840 is
issued and the taxpayer did not request a delay, the tolling ceases.
When the tolling ceases the audit period reflected on the DR-840 is
compromised. Only the returns in the audit period, as reflected in the
DR-840, which are due within 3 years plus 120 days of the date the
Notice of Proposed Assessment (NOPA) may be assessed. (3 year
audit period + 120 days tolling period)
Example: A DR-840 was issued on December 23, 2005, to a taxpayer
that files returns monthly, with an audit period of December 1, 2002 –
November 30, 2005. The auditor commenced the audit on May 3,
2006.
DR-840
Date
Audit Period
12/23/05 12/01/0211/30/05
Audit
120 Day Commencement NOPA
Date
Date
th
04/22/06
05/03/06
10/04/06
Because the audit was not commenced timely (within 120 days) the
audit period on the NOPA includes only those returns reflected in the
DR-840 that are due within three (3) years and 120 days of the NOPA
date.
10/04/06 to 06/06/03 = 3 years and 120 days
Three (3) years and 120 days prior to the NOPA date is June 6, 2003.
The first monthly return due after June 6, 2003, is May 2003, due by
June 20, 2003. The revised audit period on the NOPA is May 1, 2003
through November 30, 2005. Tax returns from December 2002
through April 2003, five (5) months, are no longer included in the
audit because they are beyond the statute of limitations.
Failure to Complete the Audit Timely (TUB 00(A) 1-002REV)
When an audit is commenced timely the auditor has one year from the
DR-840 date to issue the NOPA. When a NOPA is not issued timely
the audit period reflected on the DR-840 is compromised. Only those
returns on the DR-840 which are due within 4 years of the NOPA date
may be assessed. (3 year audit period + 1 year tolling period)
2014
Program Training
4-21
Example: A DR-840 was issued on December 23, 2005, to a taxpayer
that files returns monthly, with an audit period of December 1, 2002 –
November 30, 2005. The auditor commenced the audit on March 13,
2006 and the NOPA was issued on March 1, 2007.
DR-840
Date
Audit Period
12/23/05 12/01/0211/30/05
Audit
120th Day Commencement NOPA
Date
Date
04/22/06
03/13/06
03/01/07
The audit was commenced timely. Therefore the audit period is tolled
for one year from the date of the DR-840. Because the NOPA was
issued March 1, 2007 the tolling terminated on December 23, 2006.
The audit period on the NOPA includes only those returns in the audit
period that are due within four (4) years of the NOPA date.
03/01/07 to 03/01/03 = 4 years
Four (4) years prior to the NOPA date is March 1, 2003. The first
monthly return due after March 1, 2003, is February 2003, due by
March 20, 2003. The revised audit period included on the NOPA is
February 1, 2003 through November 30, 2005. Tax returns from
December 2002 through January 2003, 2 months, are no longer
included in the audit because they are beyond the statute of limitations.
A Consent to Extend the Time to Issue an Assessment or to File a
Claim for Refund (DR-872) may be issued during the audit and prior
to the tolling terminating. The DR-872 extends the tolling period to a
date mutually agreed to by the auditor and the taxpayer. When the
NOPA is issued after the tolling ceases only those returns on the DR840 which are due within three (3) years plus the tolling period of the
NOPA date may be assessed. For example, if a DR-872 was issued
timely and extended the tolling period for one (1) extra year (two years
total). If the NOPA was issued beyond the 2 year tolling period it
would include only those returns reflected on the DR-840 that are
within five (5) years of the NOPA date. (3 year audit period + 2 year
tolling period)
4-22
Program Training
2014
NOTICE OF INTENT TO MAKE AUDIT CHANGES
(DR-1215)
Upon completion of an audit, the tax auditor must notify the taxpayer
of the results of the audit. If the tax auditor uncovered tax deficiencies
the taxpayer is formally notified through the use of form DR-1215,
Notice of Intent to Make Audit Changes. Form DR-1215 also serves
as the tax auditor's opinion on the taxpayer's degree of compliance
with Chapter 212, F.S. The tax, penalty and interest amounts entered
on the form are a summary of the proposed changes to the amounts
reported by the taxpayer during the audit period. The amounts are
supported by the audit work papers.
Form DR-1215 states the kind of tax audited, the audit period covered,
and references the attached Explanation of Items.
The amounts entered on the DR-1215 are obtained from the Summary
of Schedules in the audit work papers (taxes, penalties and interest).
The date entered on the Balance Due or Refund Through line is the
last day through which interest was computed.
How the amount of daily interest is determined is attached to the DR1215. The daily interest rate is calculated based on the annual interest
rate(s) in effect during the audit period up through the time the DR1215 is issued. The interest rate was fixed prior to 1/1/00. Since
1/1/00 the interest rate has been adjustable. See Module 3.
The DR-1215 addresses the taxpayer procedures for complete
agreement, partial agreement and when the taxpayer does not agree
with the audit adjustments. It also states the deadline for the 30 day
informal field conference period following the issuance of the DR1215. If the dealer needs additional time the DR-1215 asks the dealer
to make the request in writing.
The Taxpayer Rights and procedures are enclosed with the DR-1215.
The DR-1215 is signed and dated by the auditor.
If the taxpayer agrees to the audit findings and wishes to waive their
right to an audit conference the taxpayer will also sign, date and return
the DR-1215 to the Department.
2014
Program Training
4-23
EXPLANATION OF ITEMS (DR-803)
When a Notice of Intent to Make Audit Changes is given to a taxpayer,
it must be accompanied by an Explanation of Items (DR-803), audit
exhibits and audit work papers.
The Notice of Intent to Make Audit Changes is the auditor's detailed
opinion on the degree of compliance with the law expressed in dollars.
The Explanation of Items is the auditor's detailed explanation of why
the additional taxes are due. The Explanation of Items informs the
taxpayer, in layman's terms, of the areas in which tax deficiencies were
found and then lists the sections in the statute and the rules that were
used as the basis for the adjustments. Sufficient detail must be used to
adequately inform the taxpayer of the basis of the proposed
assessment.
The Explanation of Items must contain a narrative regarding the reason
or purpose of the exhibit(s) and the source of the information used in
the exhibit(s).
In addition, the Explanation of Items must contain an explanation of
the terms and abbreviations used in the exhibits and a narrative
description of mathematical adjustments for the exhibits.
The tax auditor should carefully select the statutes and rules to be
cited. The statutes and rules should not be so broad or general that the
taxpayer is not able to determine why additional tax is due.
The Explanation of Items must contain the following:
1.
2.
3.
4.
5.
The reason or basis for creation of the exhibit.
The source of the information used within that exhibit.
An explanation of the verbal terms and abbreviations used.
A narrative description of any mathematical adjustments.
A reference to any other exhibit to which the result was
forwarded.
6. The specific statute or rule used as the basis for the adjustment.
4-24
Program Training
2014
COLLECTION OF ASSESSED TAXES
Taxpayers, for various reasons, may or may not make payment when
the DR-1215 is presented. If the taxpayer does not make payment
when the DR-1215 is presented, there are other collection alternatives
available to the Department. Each auditor should be aware of these
collection procedures, as outlined below:
•
if the taxpayer agrees with the audit findings and signs the
Form DR-1215, the audit case file is assembled and
forwarded to the Compliance Standards in GTA; or
•
if the taxpayer does not agree or does not sign the form
DR-1215, the audit file is retained in the service center for
30 days. The taxpayer's right to present additional
documentation or explanations may be exercised during
this time. If the taxpayer takes no action during the 30 days
following the date of the Form DR-1215, the audit case file
is assembled and forwarded to the Compliance Standards.
After the audit case file has been reviewed and accepted by the
Compliance Standards a Notice of Proposed Assessment is issued.
If the taxpayer does nothing during the 60 days following the date of
the Notice of Proposed Assessment, Compliance Standards refers the
case to the Collections Process in GTA for collection.
The statutes provide two alternatives for collecting assessments from
taxpayers.
•
2014
Section 212.15(4), F.S., authorizes the Collections Process
to file a lien warrant on the taxpayer's assets. A series of
forms are prepared and filed in the Circuit Court where the
taxpayer is located. Once the lien is recorded by the Clerk
of the Court, it has the same status as a Court Judgement.
The Department can then have the local sheriff seize
identified property and sell it to settle the taxpayer's
assessment.
Program Training
4-25
•
Section 212.10, F.S., allows the Department to freeze bank
accounts and money held by debtors to the taxpayer. The
Department simply completes certain forms and mails them
to the selected firms (certified mail, return receipt
requested). The Department can deny the taxpayer use of
these funds until settlement of the assessment is made.
The statutes also provide a means of handling dealers that fail to
comply with the statutes and rules. Section 212.18, F.S., provides the
state with the authority to revoke a dealer's certificate of registration.
SUMMARY
For sales and use tax, Florida statutes have aided in determining who
is subject to Florida's tax by defining a dealer. Once a dealer is subject
to Florida tax (nexus), he comes under the basic audit authority that
allows dealers' books and records to be audited. Further, the
Legislature created statutes that reference the procedures to be used to
audit dealers' books and records. These procedures allow for several
audit procedures, such as; sampling of adequate but voluminous
records, sampling when records are inadequate and estimating for
periods when the dealer fails to produce records.
The statute of limitation for the audit period, s. 95.091(3), F.S., is
tolled for 1 year by issuing a Notice of Intent to Audit Books and
Records (DR-840) and the audit must commence within 120 days
unless the taxpayer request a delay.
A Notice of Intent to Make Audit Changes (NOI) is issued upon
completion of an audit. If the audit results in a deficiency, the NOI
will include exhibits which contain the items that contributed to the
deficiency. Each exhibit includes an Explanation of Items that serves
as a guide to understanding the exhibits. The Explanation of Items
includes the pertinent rules and statutes that were used as the basis for
the adjustment.
Dealers that have deficiencies are to be informed how the deficiencies
can be paid or protested. In addition, they must be instructed on how
to prevent the deficiencies in the future.
The NOPA must be issued within the one (1) year tolling period,
unless the auditor and taxpayer agree to extend the tolling period.
4-26
Program Training
2014
SELF-CHECK QUESTIONS
True or False
1. ___ Nexus must be proven before Florida can impose a tax
liability upon an out-of-state vendor.
2. ___ A new owner of an existing business cannot be held liable
for a previous owner's liability, as long as the seller tells the new
owner that there are no existing liabilities.
3. ___ When a taxpayer's records are adequate but voluminous, an
auditor may use sampling, according to s. 212.12(6)(c), F.S..
4. ___ When a taxpayer's records are incomplete, the auditor may
determine a liability for a period in which records are complete
and project this liability over the entire audit period.
Multiple Choice
1. Which vendor activity(s) establishes nexus for Florida?
A.
B.
C.
D.
2014
Locations in Florida.
Goods on Consignment in Florida.
Rental of TPP located in Florida.
All the above.
Program Training
4-27
4-28
Program Training
2014
SELF-CHECK ANSWERS
True or False
1. ___ Nexus must be proven before Florida can impose a tax
liability upon an out-of-state vendor.
Explanation: True. See section titled “NEXUS”. Nexus is that
activity, relationship, connection, link or tie which is necessary to
subject a person, including a business or corporation, to a jurisdiction’s
taxing powers. Nexus is necessary to legally impose sales tax on a
business.
2. ___ A new owner of an existing business cannot be held liable
for a previous owner's liability, as long as the seller tells the new
owner that there are no existing liabilities.
Explanation: False. See “TRANSFEREE LIABILITY”. It is the
duty of the purchaser of the business, stock of goods, to obtain from
the seller a written statement from the Department of Revenue
showing the amount of any unpaid tax, interest or penalty as of the
date of the sale of the business.
3. ___ When a taxpayer's records are adequate but voluminous, an
auditor may use sampling, according to s. 212.12(6)(c), F.S..
Explanation: True. See AUDIT AUTHORITY, “When Records are
Adequate But Voluminous In Nature”. Section 212.12(6)(c), F.S.,
expresses that, if the records of a dealer are adequate but voluminous
in nature and substance, the department may sample such records,
except fixed assets, and project the audit findings derived therefrom
over the entire audit period...
2014
Program Training
4-29
4. ___ When a taxpayer's records are incomplete, the auditor may
determine a liability for a period in which records are complete
and project this liability over the entire audit period.
Explanation: True. See AUDIT AUTHORITY, “When Records Are
Not Adequate”. If a dealer does not have adequate records of his or
her retail sales or purchases, the Department may, upon the basis of a
test or sampling of the dealer’s available records determine the
proportion of taxable retail sales bear to total sales.
Multiple Choice
1. Which vendor activity(s) establishes nexus for Florida?
A.
B.
C.
D.
Locations in Florida.
Goods on Consignment in Florida.
Rental of TPP located in Florida.
All the above.
Explanation:
See “FLORIDA SALES AND USE TAX
GUIDELINES”. Examples of limited activities of a vendor within
Florida’s taxing jurisdiction which could substantiate nexus to exist,
include:
•
•
•
locations in Florida;
goods on consignment in Florida;
rental or license to use TPP or RP located in
Florida…etc.
Choice A is incorrect. See Explanation.
Choice B is incorrect. See Explanation.
Choice C is incorrect. See Explanation.
Choice D is correct. See Explanation.
4-30
Program Training
2014
MODULE FIVE AUDIT PROCEDURES
OBJECTIVES
Upon completion of this module, the participant will be able to:
•
know and apply the DOR’s audit standards;
•
conduct pre-audit preparation & interview of taxpayer;
•
perform financial analysis of records;
•
determine the materiality of tax issues;
•
perform a test of the records;
•
conduct the audit;
•
address special audit procedures for dealers which are
inadvertently unregistered, failed to collect tax due to a
good faith belief, or failed to use the proper tax brackets;
•
select proper audit technique(s);
•
resolve complex audit issue by requesting Internal
Technical Advice (ITA);
•
document the audit findings; and
•
conduct audit-exit interview.
INTRODUCTION
The sales and use tax is a tax on transactions involving certain tangible
personal property, admissions, rentals and services. This is an
introduction to the procedures employed by an auditor in order to
determine the accuracy of taxpayer's compliance level. Generally, the
procedures are dependent upon the taxpayer's method of operating,
record keeping system, internal controls, and the auditor's skill.
2014
Program Training
5-1
Audit Standards For The Department Of Revenue
In response to the Auditor General's Audit Report No. 03-057, which
recommended that the Department "develop a clear summary
statement of the auditing standards that are to be followed by tax
auditors and clearly define each of the auditing standards," the
Department's Audit Standards Team has developed a document
entitled "Department of Revenue Audit Standards." This document
has been included in this module as Exhibit 5-1.
PREPARATION FOR THE AUDIT
Section 212.13(5)(a), F.S., requires the taxpayer to be notified in
writing at least 60 days in advance of the date the auditor intends to
begin the audit. This requirement is met by mailing Form DR-840,
Notification of Intent to Audit Books and Records to the taxpayer. In
addition, an Audit Questionnaire may be mailed to the taxpayer along
with the DR-840.
Normally, before mailing either of these documents, the auditor should
make an attempt to contact the taxpayer to determine the proper
mailing address, whether the documents should be addressed to a
particular person, and to confirm the legal entity status of the business.
The sales tax audit may not start prior to the 60 day notification unless
the taxpayer waives the waiting period.
Using the time available prior to the actual audit interview the auditor
should obtain sufficient information about the taxpayer. This includes,
but is not limited to the following items:
• Examination of DR-15’s
• Business structure and activities
• Profile on Sunbiz.org (Secretary of State corporate website)
• Review of prior audit and results
• Tax Law Library review of possible
issues and procedures
• Standard Industry Guides
• Review of Suntax, including ACM
notes, account balances and available credits
• Information available through the internet
• Review any information included with the file
5-2
Program Training
2014
In addition an analysis of available data is needed to understand the
taxpayer and determine whether to audit or non-pursue the case. This
analysis includes, but was not limited to:
• Taxable sales compared to exempt sales –
taxable sales percentage
• Amount of assets owned by a business
• Results of prior audits
• Florida sales per F1120 vs. Florida sales on Sales
Tax Return
• Method of business operation
• Business industry
• Credits and exemptions taken
• Change in volume of Florida activity
• Tax rates
• Use tax accrued
This research and analysis provides a foundation for the auditor to
prepare an industry specific audit plan and pre-audit interview
questions. Both the audit plan and interview questions are fundamental
in formulating and documenting the steps taken to conduct the audit.
In addition the documents sets the approach towards conducting the
audit, also referred to as the audit scope.
Audit Plan and Interview Questions
The purpose of the audit plan is to provide the auditor with a guide in
performing an audit. The plan is a “living and breathing” document
that changes throughout the audit as information becomes available. In
completing the plan the auditor should prepare the document in a
manner that leads the reader to understand the steps taken in the audit.
The initial draft of the plan should clearly state the steps to initiate,
perform, and complete an audit. One of the important points is to
identify expected issues that may arise during the course of an audit.
Again as mentioned earlier in preparing for the audit the auditor
should be familiar with industry specific issues of the assignment.
Standard industry guides and the DOR training materials can be used
to develop the preliminary audit plan.
Interview questions should be for the specific taxpayer, developed and
linked to the audit plan, and used during the pre-audit interview to
determine the audit scope. The questions are written to verify social
data and inquire into areas that include, but are not limited to, the
2014
Program Training
5-3
method of operations and accounting policies and procedures. They
also include questions from items discovered while preparing for the
audit that need further clarification.
Interview questions should be flexible and adapted to the taxpayer’s
answers received on other questions.
AUDIT ENTRANCE INTERVIEW
The main purpose of the pre-audit interview is for the auditor to learn
about the business's operation and establish a rapport with the
taxpayer. The interview informs the taxpayer of the purpose of the
audit, the period to be covered by the audit, and records to be
examined.
In order to learn more about the taxpayers business operations during
this interview, the auditor may want to ask the taxpayer questions.
Some examples may be:
•
•
•
•
•
•
•
What is the main business activity?
Where are your customers located?
Any out-of state
customers? If so, how do you account for those sales?
Are there any other sources of income?
Who completes the Sales and Use tax returns (DR-15s)?
What control type documents do you maintain? Chart of
Accounts, General Ledger, Sales Journal, Payables
Journal…etc.?
Do you have federal returns and depreciation schedules
available?
Do you own or lease the business property? If leased, who is
the landlord?
Please note, this list is not intended to be all inclusive, but to give the
auditor a sense of the types of questions they should be asking.
The use of sampling during the audit should also be discussed with the
taxpayer. A tour of the taxpayer's facility should also be considered
and/or scheduled at this point.
5-4
Program Training
2014
ANALYZING FINANCIAL DATA
Beginning the field work with an analysis of the taxpayer's financial
data will further the auditor's understanding of the taxpayer's operation
and accounting system. The analysis may begin with a review of the
taxpayer's chart of accounts and/or general ledger. However, if the
general ledger is not available the federal tax returns may provide
valuable information.
Spending time learning the mechanics of the taxpayer’s accounting
system and their methodology for collecting and reporting tax will
help the auditor in determining the scope of their audit and save
additional time when verifying taxpayer compliance.
ADEQUATE BUT VOLUMINOUS RECORDS
The following procedures for determining and documenting whether
the taxpayer’s records are adequate but voluminous are expressed in
GTA Procedure Bulletin 04ADM-004.
Before sampling is used, the auditor must determine if a taxpayer's
records are adequate, but voluminous. Rule 12-3.0012(3), F.A.C.,
defines adequate and voluminous records. Adequate records are
defined as, "books, accounts, and other records sufficient to permit a
reliable determination of a tax deficiency or overpayment. Incomplete
records can be determined to be adequate".
Adequate records must be accurate, inclusive, authentic, and
systematic per Rule 12-3.0012(3)(a), F.A.C.
Records are accurate when they are free from material error.
Example: The auditor compared source documents such as sales and
purchase invoices to the related summary journals. The entries in the
summary journals correctly and completely record information from
the source documents. The auditor was also able to verify entries in the
summary journals with the source documents. Totals in sales,
purchases, and other summary journals reconcile to financial
statements and federal and state tax returns. The auditor concluded that
the taxpayer's records were accurate.
2014
Program Training
5-5
Records are inclusive when they capture transactions that are needed
to determine a tax deficiency or overpayment.
Example: A taxpayer received income from many sources. The
taxpayer had written policies enforced by management to ensure that
all income and expenditures were captured by the accounting system.
The sales and other invoices were sequentially numbered and all
invoices accounted for, even voided invoices. Expenditures and
payments were documented with purchase requisitions, billings, and
invoices; loan documents; or other appropriate documents. Source
documents reconciled to the sales and purchase journals, which in turn
reconciled to financial statements and federal income tax returns.
Using the summary and source documents, the auditor reconciled the
gross, exempt, and taxable sales reported on the taxpayer's monthly
sales and use tax returns to the gross receipts and other income
reported on taxpayer's financial statements and federal income tax
returns. The auditor concluded that the taxpayer's records were
inclusive.
Records are authentic when they are worthy of acceptance as based
on fact.
Example: An auditor was reviewing sales invoices. Valid resale
certificates supported the exempt sales, and out of state sales had
proper shipping documents. The dollar amounts recorded on the
deposit slips tied to the totals on the individual invoices. The auditor
concluded that the taxpayer's records were authentic.
Records are systematic when they organize transactions in an orderly
manner.
Example: An auditor was able to trace a purchase requisition to
purchase order to purchase invoice to purchase journal and check
register to the appropriate expense account, which was reflected in the
financial statements and federal tax return. In addition, the auditor was
able to trace an invoice to a cash payment journal and into the
summary journal. The auditor determined that the records were
systematic.
5-6
Program Training
2014
Voluminous records are defined by 12-3.0012(4), F.A.C.:
"...records maintained by the taxpayer that are so numerous and
extensive that their provision by the taxpayer and review by the
Department would not be practical under the circumstances of the
time, space, and other logistical constraints of the taxpayer and the
Department."
PROCEDURES TO BE EMPLOYED
Per Rule 12-3.0012(3) (b), F.A.C., "The nature of the taxpayer's
business, the nature of the industry, materiality, third-party
confirmations and other corroborating evidence such as related
supporting documentation, and the audit methods that are suitable for
use in the audit, will be used to establish that the taxpayer has
adequate records."
The auditor will determine whether the taxpayer's records are adequate
and whether the records are voluminous by selecting and performing
audit methods that are suitable for use in the audit based on DOR's
standard audit procedures.
Per Section 212.12(5)(a)(b) and (6)(a), F. S, the department is given
the power to prescribe the records to be kept by all persons subject to
taxes. When the taxpayer fails or refuses to make all the records
available for inspection, the auditor has the duty to make an
assessment from an estimate based upon the best information
available.
DOCUMENTATION
The auditor must document whether the taxpayer's records were
adequate or inadequate overall for each exhibit where a sample was
conducted in the:
•
•
•
Standard Audit Report (SAR) between the "Organizational
Structure and Nature of Operations" and the "Audit Summary"
and
Explanation of Items (EOI) for each exhibit.
If the taxpayer refuses to provide the required records:
o The auditor must document that on the SAR and the EOI,
and
o The EOI must include Section 212.12 (5) (a) & (b).
2014
Program Training
5-7
The auditor must describe what audit procedures were employed and
what records were reviewed to determine whether the records are
adequate or inadequate.
The Department's documentation standard must be met. As with any
auditing standard, the case file must stand on its own without need for
further interpretation in order for the auditor's decisions to be
understood and defended. With this information, anyone will
understand the audit, and any experienced Department auditor would
have reached the same conclusion.
MATERIALITY
Materiality is determined, in most cases, by the auditor's knowledge,
skill, and abilities. The auditor is responsible for completing the audit
in the most efficient and effective manner possible. Making cost
effective adjustments means that the amount of work performed can be
justified by the results. In order to do this, the auditor must be
reasonable when deciding to schedule tax liabilities. Auditors must
discuss this issue with their supervisor and if materiality is the reason
not to assess or review an issue it should be noted in the Standard
Audit Report.
Adjustments should be made for items that are material when related
to the taxpayer’s overall liability. Adjustments should also be made if
the dollar amount would be material to the state. Auditors should
document why items that were obviously not material or cost effective
have been included or excluded. The materiality of a single transaction
is not only affected by its taxable or exempt status but many issues.
Some of which include: the amount of the transaction; the time it will
take to enter the transaction(s); how many similar transactions are in
the audit; the audit process (detail or sample); and the availability of
records and other documentation.
The total amount of the taxpayer’s tax, penalty and interest liability is
also a materiality issue. You must always tell the taxpayer the amount
of any issues and/or total amount of your audit findings during your
audit. Never assume that even the smallest liability is not important to
the taxpayer. The taxpayer must never be surprised by your audit
findings.
5-8
Program Training
2014
Also included in the discussion of materiality are cities and counties
which receive revenue sharing money from the state. They are
concerned with how your audit findings were determined and what
affect they will have on their funding through the distribution process.
Your audit findings must be adequately supported consistent with the
facts, established guidelines, and the Florida tax laws.
TESTING
The auditor should concentrate on areas outlined in the Standard Audit
Report, Standard Industry Guides and industry specific audit plans.
Each area should be tested to gain knowledge of the population (size,
value, mean invoice value, etc.), how the population is filed, and
materiality of the errors found.
Testing begins by selecting good control records. A book of original
entry (sales journal, purchase journal, check register, voucher register,
etc.) usually provides a good control to insure examination of all the
records for the audit or sample period.
Conduct the test efficiently with minimal disruption to the taxpayer's
normal business activity. If records are inadequate, request what is
missing on a periodic basis, but continue to examine records while
waiting. The supervisor should be kept informed of the auditor's
progress at all times.
Verification of taxing decision rules and procedures, and related
controls should be part of the testing. If these controls prove to be
reliable, valuable audit time can be saved. Also, included in this
verification process should be a comparison of reported sales,
purchases, and taxes to the appropriate ledger accounts. The plan
should also include a verification of timely tax reporting.
CONDUCT OF THE AUDIT
All audit techniques require the period or transactions that are being
examined, should be reviewed in detail. This requires examination of
all the records that pertain to sales and use tax as discussed below.
2014
Program Training
5-9
Sales
Examine sales invoices and verify with the sales journal, or other
control records for completeness with missing invoices accounted for
by the taxpayer. The invoice amounts should be checked for internal
accuracy and entry into the control document until you are confident
the system is accurate. Invoices not containing sales tax should be
checked to determine if the transactions are supported by
resale/exemption certificates on file. Sales invoices that indicate tax
was charged and collected do not mean that it was remitted. These
entries must also be checked against other appropriate accounts, such
as, sales tax payable, cash receipts, accounts receivable.
If you find that all the sales are being treated properly by the taxpayer,
you may cut your audit short by sampling or testing the remaining
sales portion of the audit without agreement by the taxpayer.
However, if compliance errors are discovered in the records, any
projection of liability other than a detailed audit would require (if
records are adequate but voluminous) the auditor to attempt to obtain a
sampling agreement with the taxpayer.
Annual Resale Certificates
The resale/exemption certificates are examined and the taxpayer is
notified immediately of the defects in each invalid certificate. When it
appears that a taxpayer has accepted in good faith, a fraudulently
issued annual resale certificate (Section 212.085, F.S.) the exemption
provided by the taxpayer is allowed to stand. The dealer issuing the
questionable certificate must be reported to the audit supervisor
(Information/Violation Reports) for possible audit assignment.
Section 212.07(1)(b), F.S., provides that verification by the department
of a purchaser's active registered dealer status at the time of sale shall
be accepted in lieu of a resale certificate when submitted during the
protest period. In furtherance of this provision, the Department takes
the position that such verification shall be performed by the auditor
prior to making any audit changes or assessments. This will reduce the
probability of the taxpayer protesting the assessment and thus reduce
the need to return the case file back to the auditor for revision.
Therefore, for resale transactions where documentation has not been
presented to the seller, the auditor should verify that the purchaser was
an active registered dealer at the time of the sale and that the item
being sold is an item normally resold by the purchaser.
5-10
Program Training
2014
"Normally resold" will be verified by the best information available to
the auditor (i.e., kind code, business name, Internet, etc.). If the item
purchased was an item normally resold by the purchaser and the
purchaser was an active registered dealer at the time of sale, based on
the registration effective date, the item will not be assessed tax. If the
purchaser was an active registered dealer at the time of sale, based on
the registration effective date, but the item purchased does not appear
to be an item normally resold by the business, the department will
assess the tax. Therefore, before making any audit changes or
assessments, the auditor should verify this information. (see the
Special Audit Procedures for Good Faith Belief Issues in this Module
regarding additional consideration for unregistered dealers)
Control Documents
Select the control document (sales, cash receipts journal, general
ledger, etc.) that will be used for the examination. The monthly sales
totals are compared with the sales reported on the tax returns. If the
two figures do not agree, it may be that sales amounts are reported
under a different accounting method (cash, accrual) or a month late
(delayed reporting). If this is the case, a separate schedule will have to
be prepared to recapture the collection allowance (tax) and add penalty
and interest. When it’s difficult to determine how sales amounts are
being reported an attempt should be made to reconcile the annual sales
with the financial statements and the Federal Income Tax Return.
The sales reported in each of the documents should be the same. Be
sure you have taken discounts into consideration when comparing the
amounts reported. Another total to be checked against the tax returns
is the sales tax collected. In addition to verifying that all the tax due is
reported, it may be necessary to verify the tax collection rate.
Tax Collection Rate
The tax collection rate is determined by dividing the tax collected by
the taxable sales. If the rate obtained is less than the statutory rate, the
taxpayer may not be collecting the tax properly or may not be
reporting the tax correctly. An inquiry should be made to determine
which case applies and to make the necessary corrections.
2014
Program Training
5-11
Purchases
Examination of the purchase invoices is accomplished in much the
same manner as the examination of sales invoices. Control must be
established over the invoices to be examined. Internal accuracy and
the taxable status of property purchased should be verified. In some
cases, it may be necessary to refer to other documents, such as the
purchase order, to determine how the property is used.
The control record (purchases journal, voucher register, etc.), should
be examined in the same manner as the sales control record. If tax
accruals are not recorded in the journal in detail, a second control
record for tax accruals is required (these accrual records range from
elaborate computer printouts to hand written notes).
Verify
registration of landlords and review lease agreements for proper tax
payments. (tangible personal property and real property – Mod. 9)
Dual Use
During the examination of purchase invoices, it is essential to know
the reason the property was purchased. In some cases, the taxpayer
will purchase a commodity that is consumed in both a taxable and a
nontaxable manner. The taxpayer may be charging the purchase to a
single account, because it is an expense when used either way. In
these situations, you must apportion the purchases according to the
quantity consumed in taxable and nontaxable operations. This
apportionment may require the use of records, such as production
reports, or it could just be an agreement with the taxpayer based on
knowledge of its use.
Retailers and wholesalers often remove items from inventory and
consume them. On the purchase invoice, these items are charged to an
exempt account (Inventory). These transactions are normally found in
the general journal, inventory account, or work order file. The
depreciation schedule and leasehold accounts should also be checked
for taxable additions.
Keep The Taxpayer Informed
Regardless which account is being examined, the taxpayer should be
allowed to review the work papers as soon as possible to facilitate
settlement of the audit.
5-12
Program Training
2014
AUDITING TECHNIQUES
The auditor should select the audit technique(s), which will enable the
audit to be conducted effectively, yet in the least amount of time. The
technique(s) used should be selected after the auditor has determined
the period(s) which is/are most representative of the taxpayer's
business for the entire audit period. Care must be exercised when using
sampling techniques to insure that the sample is representative of the
entire audit period.
More than one audit technique may be required during an audit. In
fact, depending on the taxpayer's business activities, it may be
appropriate to use different techniques on each activity.
Detail
A detail audit is the basic audit technique used for sales and use tax.
This type of audit requires an examination of all records that pertain to
sales and use tax.
Error Ratio
The Error Ratio method is only used when the transactions entered
into it are from a single-county and that single county experienced a
rate change during the exhibit period.
The Error Ratio technique produces an approximation of the amount of
tax not paid by the taxpayer. This technique is based upon the
assumption that the taxpayer makes errors at about the same frequency
throughout the audit period. It is important that the sample be
representative of the audit period.
The error ratio technique may be employed to determine the tax
liability for either the sales portion or the purchase portion of an audit.
The technique may also be used to reduce writing time in a detailed
audit by summarizing many small errors. An example would be a case
where the taxpayer deducts the early payment discount before accruing
the tax on his purchases. Since the early payment discount is after the
sale, it should be included in the taxable amount. These amounts are
small and numerous and consume valuable audit time. Additionally,
these numerous small entries in the working papers tend to conceal the
errors that should be emphasized. Use of the error ratio technique can
reduce these entries to a single line on the working papers.
2014
Program Training
5-13
Usually, a sample from the middle of the audit period will make
allowance for price changes, but it must also represent the level of
business activity during the audit period. In other words, the sample
should not be selected from a period of extremely high or low business
activity. The continuity and consistency of business activity dictate
the size of the sample.
In addition, care must be exercised to insure that the sample is
representative of the total account activity. If general purchases are
being examined, the auditor must make sure capital expenditures have
not been included in the account. Capital expenditures tend to be very
large and if included in the sample of general purchases would distort
the sample and the error ratio. Since these are not routine
expenditures, the auditor needs to determine how these purchases are
recorded prior to using the error ratio. If capital expenditures have
been included in general purchases, they should be removed and
reviewed in detail or statistically sampled.
After the sample has been selected and the auditor is sure the sample is
pure, the documents are examined and recorded in the same manner as
a detail audit. To obtain the error ratio, the total sales or purchases
not properly taxed in the sample period are divided by the total
sales or purchases for the same period.
EXAMPLE: ERROR RATIO CALCULATION
Sample Period 1
Sample Period 2
Sample Period 3
Audited
Gross
Sales
Errors
(determined to
be taxable)
$31,348
26,335
28,719
$86,402
$1,588
902
2,765
$5,255
Error ratio = $5,255 / $86,402 = .060820 (6 decimal places)
The computed error ratio is used now to determine the total improperly
untaxed sales for the entire audit period. The amount of additional
untaxed sales for each month of the audit period is obtained by
multiplying gross sales by the error ratio.
5-14
Program Training
2014
EXAMPLE: ERROR RATIO CALCULATION (continued)
Month 1
Month 2
Month 3
Month 4
Reported
Gross
Sales
Error
Ratio
$30,555
$29,647
$34,328
$38,912
.060820
.060820
.060820
.060820
Additional
Taxable Amount
$1,858.36
$1,803.13
$2,087.83
$2,366.63
When applying the Error Ratio it is important to only apply the error
ratio to the total of the population examined. In this example gross
sales were examined, therefore the error ratio may only be applied to
total gross sales in the audit period. Likewise, if the population
examined was “shop supplies” the error rate may only be applied to
total “shop supplies” purchased in the audit period, NOT TOTAL
PURCHASES.
Percentage of Error
The Percentage of Error method calculates tax based on the tax due in
the sample period (not taxable amount). It is well suited to projecting
additional tax due on transactions in multiple counties that are entered
into a single exhibit. This is due to the fact that Florida’s counties
have many tax rates (when the county surtaxes are added to the state
sales tax rate) and most dealers’ transactions are effected by these
rates. It is not practical to stratify a dealer’s transactions by the many
different rates and sample and project tax due by every rate. The
Percentage of Error method of projecting the sample results has been
proven to give reliable result. It is an effective and efficient audit tool.
The Percentage of Error method uses the same audit approach as the
Error Ratio method, except that once the exceptions in the sample are
scheduled the error rate is calculated and applied differently.
With the Percentage of Error method the error rate is calculated by
multiplying the tax rate by “Untaxed Sales/Purchases in the Sample”
to determine the “Sample Additional Tax Due” and then dividing the
“Sample Additional Tax Due” by the Total Sales/Purchases in the
Sample Period. The “result or percentage of error” is then multiplied
by the Total Sales/Purchases in the Audit Period.
2014
Program Training
5-15
EXAMPLE: PERCENTAGE OF ERROR CALCULATION
Sample Period 1
Sample Period 2
Sample Period 3
Audited
Gross
Sales
Errors
$31,348
26,335
28,719
$86,402
$1,588
902
2,765
$5,255
Tax
Due
@
6%
7%
7.5%
Additional
Tax
Due
$ 95.28
63.14
207.38
$365.80
Percentage of Error = $365.80 / $86,402 = .004234
(6 decimal places)
Month 1
Month 2
Month 3
Month 4
Reported
Gross
Sales
Percentage
of
Error
Additional
Tax Due
$30,555
$29,647
$34,328
$38,912
.004234
.004234
.004234
.004234
$129.37
$125.53
$145.34
$164.75
When applying the Percentage of Error it is important to only apply
the percentage of error to the total of the population examined. In this
example gross sales were examined, therefore the percentage of error
may only be applied gross sales in the audit period. Likewise, if the
population examined was “shop supplies” the error rate may only be
applied to total “shop supplies” purchased in the audit period, NOT
TOTAL PURCHASES.
Rate and Ratio
The rate and ratio technique is applicable in determining the amount of
tax that has not been reported on sales. This procedure is appropriate
for use when auditing businesses with high volume and relatively low
to moderately priced taxable or exempt sales (grocery/convenient
stores, bars, and restaurants) that do not have dependable sales records.
5-16
Program Training
2014
Rate (effective tax rate)
The bracket system, prescribed by Sections 212.12(9) and (10), F.S.,
used for computing the tax due on amounts less than one dollar, results
in some cases in an effective tax rate in excess of or less than the basic
rate. One extreme is a taxable sale of ten cents with a tax of one cent
that results in an effective tax collection rate of ten percent. On the
other hand, a sale of one dollar and nine cents results in an effective
tax rate that is less than the basic rate. During the 6% tax period, a
sale of $1.09 produces an effective rate of 5.50 percent. When the
total taxable sales and total tax collections (the amounts that should
have been collected) are considered, these extremes modify the basic
tax collection rate. The resulting tax rates are unique to that taxpayer
because they are based on the taxpayer's price structure and sales.
In the ideal situation, the taxpayer has a record of each sale that
reflects the total sale, taxable amount, and the tax collected. In this
situation, a sample is obtained that is representative of the taxpayer's
entire operation, taking into consideration seasonal sales, closing, etc.
Each sale in the sample is examined for proper application of the tax.
The taxable amount is recorded along with the tax collected. If the tax
collected is erroneous, the proper tax is recorded and the error noted.
After all transactions in the sample period are examined, the total tax
that should have been collected is divided by the total taxable sales to
obtain the proper tax collection rate. (Note: consideration may have to
be given to the taxpayer that has rounded the tax to two decimal places
rather than having used the proper tax bracket method on each
transaction. See, Waiver for Dealer’s Failure to Properly apply Sales
Tax Brackets, Special Audit Procedures in this module.)
The absence of detail records requires the auditor to devise a substitute
method that is fair to both the taxpayer and the State. Some of the
methods include:
•
2014
Use a sample from a period where proper records are
maintained (may only be from outside the audit period when
records are inadequate and the taxpayer is trying to provide
records. Not when taxpayer fails to make records available s.
212.12(5)(b), F.S., Mod. 5). Use the data to develop the rate for
the entire audit period. Discuss the plan with your supervisor
prior to its use, due to inherent problems;
Program Training
5-17
•
Establish the retail-selling price of taxable merchandise
purchases. Apply tax to the selling price to obtain the amount
of tax that should have been collected. The rate is obtained by
dividing the tax that should have been collected by the total
taxable sales. If documentation is available to prove any
multiple sales factors, adjust accordingly;
•
Experience factors, such as rates for similar businesses can be
used when no other method is available to determine the tax
collection rate.
Ratio (taxable sales to total sales)
The ratio of taxable sales to total sales is usually easier to obtain than
the tax collection rate. In the ideal situation where complete records
are available, the taxable sales ratio can be obtained at the same time
the tax collection rate is obtained. After the transactions are analyzed
and recorded, the total taxable sales are divided by the total sales to
obtain the taxable sales ratio.
In the absence of detailed records, the most popular technique in use is
the extrapolation (create unknown information from known
information) of sales from the purchase records. This technique does
not produce irrefutable figures so care must be taken to document the
exact procedures used to obtain the final figures. The technique
involves assembling the purchase invoices for the test period into
categories (i.e., beer, paper goods, general grocery, dairy, etc.) and
then into taxable and exempt clusters. The categories in each cluster
are then marked-up to retail selling price. The retail taxable sales are
divided by the total retail sales to produce the taxable sales ratio.
There may be times when purchase records are not available. When
this occurs determine which purchase records you need and for what
period of time the records must cover. Then ask the taxpayer to
request copies of these purchases from their suppliers. If the taxpayer
or suppliers do not cooperate with the request you will need to talk to
your supervisor about what steps to take next. Confidentiality of
taxpayer information must be maintained at all times.
If the retail sales price of the purchases is not available, the purchases
are recorded at the cost price. The taxable purchases/sales ratio is
obtained by dividing the total taxable purchases for the sample period
by the total purchases for the sample period.
5-18
Program Training
2014
The total taxable sales for each month in the audit period are obtained
by multiplying the gross sales by the taxable sales RATIO obtained by
the above sample.
The total tax that should have been collected during each month of the
audit period is obtained by multiplying the total taxable sales by the
tax collection RATE.
The additional tax due for each month in the audit period is obtained
by subtracting the tax reported from the tax that should have been
collected.
EXAMPLE: RATE & RATIO
Taxable
Sales
Sample
Period 1
Period 2
Period 3
Totals
+
$3,250
2,288
2,840
$8,378
Exempt
Sales
$4,281
3,356
115
$7,752
Gross
Sales
=
$ 7,531
5,644
2,955
$16,130
Taxable Sales Ratio = $8,378 / $16,130 = .519405
(must use 6 decimal places)
Transaction
Amount
$1.15
.92
1.53
.38
Totals $3.98
Tax
Due (using 6% tax brackets)
$ .07
.06
.10
.03
.26
Effective Tax Rate = $ .26 / $3.98 = .0654 (must use 4 decimal places)
Audit
Period
Month 1
Month 2
Month 40
Month 60
2014
Gross
Sales
$13,766
$18,211
$15,108
$17,554
Taxable
Ratio
.519405
.519405
.519405
.519405
Taxable
Sales
$7,150.13
$9,458.88
$7,847.17
$9,117.64
Program Training
5-19
Taxable
Sales
Tax
Rate
Tax
Due
Tax
Paid
$7,150.13
$9,458.88
$7,847.17
$9,117.64
.0654
.0654
.0654
.0654
$467.62
$618.61
$513.20
$596.29
$412.68
$542.18
$422.95
$529.30
Additional
Tax Due
$54.94
$76.43
$90.25
$66.99
Averaging
Averaging is an audit technique that works well in audit periods where
there is an absence of sufficient records. When the averaging
technique is used, a period is selected in which all the necessary
records are available. The records for the period selected are then
examined in detail. This detailed information is reviewed for errors.
The total errors or tax calculated on the errors is then averaged. The
averaged amount is then scheduled over the period in which there were
insufficient records. If averaging is to be used during an audit period
when there are sufficient records, the taxpayer's agreement is required.
Use caution when the averaging technique is used on populations that
contain large and infrequent sale or purchase values.
Stratified Statistical Sampling
Stratified statistical sampling has been used by the Department since
July 2001, for taxpayers with adequate electronic records. Items in the
population are classified into separate subgroups or strata based on one
or more important characteristics, such as dollar value. A sample is
randomly selected and audited. The sample results are then projected
over the applicable period with precision calculated. The Stratified
Statistical Sampling course is being delivered to all auditors in their
service centers. Refer to Statistical Sampling manual for further
details.
Non-Statistical Sampling
Historically, the Department has used judgmental block sampling
when stratified statistical sampling could not be performed. Starting in
May, 2003 the Department began using other non-statistical sampling
methods. Non-statistical sampling utilizes random sampling to remove
auditor and taxpayer bias from the sample selection process. The
sample selection process is determined by the form of the taxpayer
records and how those records are physically stored. Refer to NonStatistical Sampling manual for further details.
5-20
Program Training
2014
Preferred Sampling Techniques
Stratified statistical sampling and non-statistical sampling are the
preferred sampling methodology to be used by all auditors because
they are defensible, cost efficient and less burdensome on the taxpayer.
Historical judgmental approaches to sampling may only be used where
the taxpayer is unable or unwilling to provide sufficient documentation
to conduct statistical sample or a random sample using non-statistical
sampling methods.
RESOLVING COMPLEX AUDIT ISSUES
When complex audit issues are encountered during the course of
completing an audit, either the taxpayer or auditor may request a
written statement of the Department’s position.
Internal Technical Advice (ITA)
"Internal Technical Advisements" (ITA) are written statements issued
to Department personnel, in response to a Request for Technical
Assistance (RTA), which state the Department's position on the tax
consequences of a specific transaction or event under applicable
statutes and rules. In order to ensure agreement with the question(s)
and facts, many times RTA's are drafted jointly with the taxpayer (or
taxpayer's representative).
Rule 12-11.011, F.A.C., addresses the Department’s procedures for
Requests for Technical Advice (RTA). RTA’s must be made in
writing and contain the following:
A complete statement of all relevant facts relating to the specific
transaction, including:
1. the taxpayer's name;
2. the audit number or a statement that the taxpayer is under a
compliance review;
3. the taxpayer's identification number; and,
4. a carefully detailed description of the transaction.
If the RTA does not relate to a specific taxpayer, a complete statement
of all relevant facts relating to the transaction, including a detailed
description of the transaction, must be submitted with the request.
2014
Program Training
5-21
True copies of all contracts, wills, deeds, agreements, instruments, and
other documents involved in the transaction must be submitted with
the request. The RTA should include a statement of the relevance of
each document included to the issue or issues, specifying the pertinent
provisions. When the request pertains to only one step of a larger
integrated transaction, the facts, circumstances, etc., should be
submitted with respect to the entire transaction.
If the authorized employee making the request asserts a particular
determination of the issues, an explanation of the grounds for the
determination and a statement of relevant authorities in support of the
position asserted should be furnished.
An RTA should be sent through the requesting employee's Program
Office, to Technical Assistance and Dispute Resolution (TADR).
When a RTA is requested for a taxpayer under audit:
The authorized employee making the request shall mail or handdeliver to the taxpayer a copy of the RTA. This copy shall be mailed
or hand-delivered to the taxpayer at the same time the original request
is mailed to TADR.
The Compliance Enforcement Program
Manager’s office will notify the auditor making the request when the
RTA is put in the mail to TADR. The authorized employee shall not
be obligated to suspend the audit pending issuance of the Internal
Technical Advisement (ITA). No ITA will be issued if a Technical
Assistance Advisement request is pending with respect to the same
taxpayer and issue.
The taxpayer shall have 10 working days from the date of the RTA to
provide TADR any factual information, documents, arguments or
authorities which the taxpayer wants considered or to request
additional time to submit information regarding the RTA. The auditor
making the request must notify the taxpayer and/or taxpayer’s
representative of the 10-working day requirement.
The authorized employee shall provide the taxpayer with a copy of the
resulting ITA. If the ITA is issued after the authorized employee has
submitted the audit file for further review, billing or assessment, any
necessary adjustments to the audit findings and conclusions shall be
made.
5-22
Program Training
2014
Special Audit Procedures
Relief for Inadvertent Sales and Use Registration Errors –
S. 212.07(9)(a)(b), F.S.
A vendor or purchaser can apply for relief from taxes, penalties and
interest due because of inadvertent sales and use tax registration errors
when the dealer meets the following criteria.
At the time of purchase, the purchaser was not registered as a dealer
with the Department of Revenue (DOR) or did not hold a consumer’s
certificate of exemption from DOR. The vendor did not collect or the
purchaser did not pay a tax imposed by Chapter 212, Florida Statutes,
based on a good faith belief that the transaction was a nontaxable sale
or purchase for resale or the transaction was an exempt sale to or a
purchase by an exempt organization.
To qualify, the purchaser must meet the following conditions:
1. At the time of the purchase, the purchaser was not
registered as a dealer with DOR or did not hold a
consumer’s certificate of exemption from DOR.
2. At the time of purchase, the purchaser was qualified to
register with DOR as a dealer or to receive a
consumer’s certificate of exemption from DOR.
3. Before applying for relief of any tax, penalty, or interest,
the purchaser registered with DOR as a dealer or
applied for and received a consumer’s certificate of
exemption from DOR.
4. The purchaser established justifiable cause for failing to
register as a dealer or to obtain a consumer’s certificate
of exemption before making the purchase. The
establishment of justifiable cause will depend on the
facts and circumstances of each case, including, but not
limited to:
•
•
2014
the complexity of the transaction;
the purchaser’s business experience and history;
Program Training
5-23
•
•
whether the purchaser sought advice on his or her
tax obligations, and whether such advice was
followed; and,
any remedial action taken by the purchaser.
5. The transaction would have been exempt except for the
fact that at the time of purchase the purchaser was not
registered as a dealer with DOR or did not hold a
consumer’s certificate of exemption from DOR.
To qualify, the purchaser must apply for relief either:
•
Before DOR initiates any audit or other action or inquires
in regard to the purchaser or the vendor; or
•
If any audit or other action or inquiry of the purchaser or
the vendor has already been initiated, within 7 days after
being informed in writing by DOR that the purchaser was
required to register or to hold a consumer’s certificate of
exemption at the time the transaction occurred. (Note: The
7 day period begins with the date on the letter issued by
DOR. The purchaser’s or vendor’s request for relief must
be postmarked, faxed, or e-mailed within 7 days from the
date on the letter issued by DOR. If the 7th day falls on a
Saturday, Sunday, or state or federal holiday, the postmark
date, the faxed date or the e-mail date should be on the first
working day following the 7th day).
•
Purchasers or vendors with pending sales and use tax
audits or other actions or inquiries, including those
currently under protest or in litigation, have until the later
of the date provided above or 90 days after July 1, 2002
(September 29, 2002), to apply for relief.
In lieu of taxes, penalties, and interest that would normally be
due, DOR must impose and collect mandatory penalties which
cannot be waived:
1. If a purchaser or vendor applies for relief before DOR
initiates any audit or other action or inquiry, the
mandatory penalty is the lesser of $1,000 or 10 percent
of the total tax due on transactions that qualify for
relief.
5-24
Program Training
2014
2. If a purchaser or vendor applies for relief after an audit
or other action or inquiry has already been initiated by
DOR, the mandatory penalty is the lesser of $5,000 or
20 percent of the total tax due on transactions that
qualify for relief.
The Department can impose and collect these penalties from
either the purchaser or the vendor who failed to obtain proper
documentation at the time of the transaction.
For additional assistance regarding the procedures to be
performed during the audit of a dealer that may qualify for
relief under this statute see General Publication Bulletin
02ADM-004. Also, the procedure contains an example of the
written notification that is required to be given to the dealer
under audit.
Relief for Failure to Collect Tax – S. 213.21(9), F.S.
The penalty for failing to collect sales tax shall be settled or
compromised upon payment of tax and interest if a taxpayer failed to
collect the tax due to a good faith belief that tax was not due on the
transaction and, because of that good faith belief, the taxpayer is now
unable to charge and collect the tax from the taxpayer's purchaser.
Waiver for Dealer’s Failure to Properly apply Sales Tax Brackets
– S. 212.12(14), F.S.
When it is determined during an audit that the dealer has been
charging sales tax on transactions by multiplying the taxable amount
due by the appropriate tax rate and then rounding the tax due to the
nearest whole cent rather than using the appropriate tax bracket system
established by law the dealer will not be liable for additional tax,
penalty and interest that would have otherwise been due based on the
tax bracket system if the following criteria are met;
1)
2014
The dealer exercised a good faith belief that rounding to the
nearest whole cent was the proper method of determining the
amount of tax due on each taxable transaction.
Program Training
5-25
The auditor must verify and document in the audit report that
the rounding method was used by the dealer. For example of
the rounding method is when, on a sale of $8.92, when the
dealer charges the customer sales tax of $0.62 ($8.92 x 7% =
.6244) rather than $0.63 that the 7% tax bracket calls for.
The auditor must verify and document in the audit report that
the dealer acted in good faith. This determination will be
made on a case by case basis. The auditor should assume that
the dealer acted in good faith unless the auditor can document
that the dealer knew that the tax brackets should have been
used. Relevant facts the auditor should consider include:
•
•
•
•
2)
was rounding an issue in a prior audit;
how sophisticated is the taxpayer;
did the taxpayer seek advise on tax brackets and
was such advise followed;
what is the taxpayer’s business experience and
history.
The dealer timely reported and remitted all taxes collected on
each transaction.
The auditor must verify and document in the audit report that
taxes were timely reported and remitted.
3)
The dealer agrees in writing to future compliance with the laws
and rules concerning brackets applicable to the dealer's
transactions.
The auditor must document in the audit file that the dealer has
agreed in writing to future compliance with the tax bracket
system by requiring the dealer to sign a statement to that effect.
A copy the taxpayer’s letter agreeing to such compliance
should be included in the audit file. Also see, GTA Procedure
Bulletin 02(A)-003 for further guidelines and suggested format
of taxpayer’s statement regarding future compliance with the
rules.
5-26
Program Training
2014
DOCUMENTATION OF THE AUDIT FINDINGS
The knowledge you gained about the operation and the record keeping
system provides the basis for determining the documents you want to
examine. This same knowledge will help you decide what information
will be recorded in the work papers.
Cover Sheet - Explanation of Items: the Explanation of Items, cover
sheet, is a document placed on top of the work papers for each
schedule developed by the auditor (A01, A02, B03, etc.). The cover
sheet should contain, at a minimum, the following information:
(a)
(b)
(c)
(d)
(e)
(f)
The event being scheduled;
The documents used for the schedule - source through control;
The procedures used – audit techniques;
The period covered by the event;
The conclusion reached by the auditor; and
The statutes and rules citing this event.
All sales and use tax auditors use the Florida Multi-Tax Audit System
(WINFMT). This system guides the auditor and prepares most of the
schedules and exhibits necessary to complete an audit.
In deciding on what information to document, remember the audit may
end up in an administrative hearing and/or the courts. Therefore,
documentation must be adequate to support the audit findings. The
documentation should also be adequate to enable the auditor and/or
taxpayer to locate a particular invoice or document upon request. This
includes reference to agreements or other documentation.
Depending on the type of business being audited, the minimum
requirements may have to be expanded to include additional data. The
work papers should capture the audit objectives and the needs of the
taxpayer. For example, if the taxpayer maintains that the prior audit
should have revealed the error or that discussions regarding a
transaction were conducted, the prior audit should be retrieved. It
should be kept until the conclusion of the taxpayer’s protest rights as
the file may otherwise be destroyed.
Additional information may be considered and entered in the
description field. Information might include the voucher, check
number and the account number, or name to which the amount is
charged.
2014
Program Training
5-27
Conclusions
In many situations it is beneficial to both the auditor and the taxpayer
for the auditor to record the audit conclusions in the work papers.
These conclusions should be recorded immediately upon completing
the work papers and should contain the information that will affect or
support the Notice of Intent to Make Audit Changes.
Comments on Form DR-815, Case Activity Record
The Activity column of form DR-815 should provide a record of the
audit process and reflect the audit plan. Entries should start with the
first reading of the file and include all actions of the auditor.
The DR-815 should be documented for future use as a witness for the
State in a Circuit Court or Chapter 120 Hearing. Every tax auditor
should prepare the audit documentation from the standpoint of having
to present the audit in court. Additionally, the tax auditor should
approach the documentation from the viewpoint that the court
presentation will be three to five years after completion of the audit.
One approach is to document the audit so that a person that has never
heard of the taxpayer can read the file and understand the tax auditor's
reasoning process.
PRESENTATION OF THE AUDIT FINDINGS
Upon completion of the audit, an exit interview should be held with
the taxpayer. Some of the areas that should be discussed in the exit
interview are:
•
•
•
•
5-28
The major areas of the audit;
The types of transactions that cause deficiencies along with
an explanation of why the transactions are taxable;
Documentation needed to be provided by the taxpayer that
would change the audit findings, such as, resale certificates.
The taxpayer should be notified about the time limitations
in presenting the needed documentation;
The amount of penalty and interest imposed in the audit
and the procedure for requesting a reduction in the penalty;
Program Training
2014
•
•
When the taxpayer can expect the Notice of Proposed
Assessment, the assessment total, and the amount of
interest that will be added for each day until the assessment
is paid; and
Any additional information required to complete the audit
report should be obtained at the exit interview. The auditor
should prepare a list of required information to insure that
nothing is overlooked.
AUDIT REPORT
The Standard Audit Report (SAR)
When writing the audit report, the tax auditor should approach the task
with the thought of providing information that would have been
helpful when the audit was assigned. Some areas that should be
covered in detail are:
•
•
•
•
•
2014
taxpayer's method of operation;
taxpayer's accounting system, accounting procedures,
taxing decision rules and procedures and related controls;
taxpayer's method of filing the documents necessary for an
audit, including the storage method of documents for other
than the current year;
extraordinary transactions encountered, and the method for
handling the transactions should be described; and
record objections the taxpayer may have to the audit
results, including the reason(s) for the objections; reasons
why the taxpayer's objections were not resolved in the local
office should also be documented. (These comments are
usually prepared just prior to forwarding unagreed cases to
Compliance
Standards).
Documentation
regarding
taxpayer’s protested transactions should be included.
(Please refer to the Audit Quality and Efficiency manual
for further information.)
Program Training
5-29
THE AUDIT SAMPLING AGREEMENT
When the taxpayer's records are adequate but voluminous the auditor
is required to make a good faith effort to reach agreement with the
taxpayer on the sampling method.
Preparation of the Sampling Agreement
The one page Agreement is standard. The Agreement states the audit
of the taxpayer shall be controlled by the sampling method set forth in
Sampling Plan(s).
Sampling Plans as referenced in the Agreement are generally prepared
for the examination of sales and purchases. The Plans define the
sampling frame, method of sampling, the sample, random selection of
sample points and calculation of additional tax due or overpaid.
Sampling Plans become part of the Agreement.
The specimens of Sampling Agreement and Sampling Plan can be
found in Module 5 of the Non-Statistical Sampling Manual.
Signing the Agreement
After the agreement is completed, it should be reviewed by the
auditor's supervisor. After being approved by the supervisor, the
auditor obtains the taxpayer's signature. The person signing the
agreement should be one that can commit the resources of the firm (an
officer of a corporation, a partner, or the owner of a single
proprietorship). The signed agreement is placed in the audit folder and
a copy should be given to the taxpayer.
Generally, the audit agreement would be prepared prior to beginning
the sampling. However, it is not unusual for a taxpayer to withhold
agreement with a sampling technique until the audit results are known.
In these cases, the agreement can be prepared and approval obtained
from the audit supervisor before being given to the taxpayer. If the
taxpayer agrees after seeing the results, the agreement can be signed at
that time.
5-30
Program Training
2014
COMPLETED CASE FILE
The completed case file is assembled in prescribed order to facilitate
processing. The DR-1215 is issued for assessments and the DR1200R for refund audits. The prescribed order of file is the same for an
assessment as it is for a refund. This is covered in Module 19.
SUMMARY
This module discusses audit procedures used by auditors to process an
audit file from the initial interview through the exit interview. One of
the more important facets is the analysis of the business' financial data.
The analysis provides the auditor an understanding of the business
operation and accounting system. Understanding the operations and
accounting system will enable the auditor to select the audit
technique(s) that will produce the desired results in the least amount of
audit time. Audit techniques are used to measure or determine the
amount of a liability and are based upon a detailed review of
information. The detailed information (data) needed is outlined in the
conduct of the audit section of this module.
Upon completing the necessary steps of an audit the auditor must
record the pertinent information in a manner prescribed by the
Department that is understandable by anyone not involved with the
audit.
2014
Program Training
5-31
5-32
Program Training
2014
SELF – CHECK QUESTIONS
Multiple Choice
1. The auditor should understand the taxpayer’s method of operation,
which includes all of the following except:
A.
B.
C.
D.
Chart of accounts.
Accounting system.
General ledger.
Avoid a test of the records.
2. Among the audit techniques described in this module the
__________________ technique uses averages, and is therefore
sensitive to extreme values.
A.
B.
C.
D.
rate and ratio.
error ratio.
rate
detail.
3. When conducting an audit, sales invoices not containing sales tax
should be:
A. immediately scheduled and taxed appropriately.
B. checked against the annual resale certificate and certificate of
exemption files.
C. considered an exempt transaction.
D. none of the above.
2014
Program Training
5-33
4. In order to obtain the error ratio, the total improperly untaxed sales
or purchases in the sample period should be:
A. multiplied by the total sales or purchases for the same period.
B. divided by the total sales or purchases for the same period.
C. divided by the total taxed sales or purchases for the same
period.
D. divided by the total sales or purchases for the audit period.
5. The rate and ratio audit technique will be more appropriately used
in auditing all the following types of industries, EXCEPT:
A.
B.
C.
D.
5-34
automobile industries
grocery stores
restaurants and bars
supermarkets
Program Training
2014
SELF – CHECK ANSWERS
Multiple Choice
1. The auditor should understand the taxpayer’s method of operation,
which includes all of the following except:
A.
B.
C.
D.
Chart of accounts.
Accounting system.
General ledger.
Avoid a test of the records.
Explanation: See “ANALYZING FINANCIAL DATA”. An
analysis of the taxpayer’s financial data will further the auditors
understanding of the taxpayer’s operation and accounting system.
The analysis may begin with a review of the taxpayer's chart of
accounts and/or general ledger. See “TESTING”. Each area
should be tested to gain knowledge of the population, how the
population is filed, and materiality of the errors found.
Choice A is incorrect. See Explanation.
Choice B is incorrect. See Explanation.
Choice C is incorrect. See Explanation.
Choice D is correct. See Explanation. It is extremely important to
test the records.
2014
Program Training
5-35
2. Among the audit techniques described in this module the
__________________ technique uses averages, and is therefore
sensitive to extreme values.
A.
B.
C.
D.
rate and ratio.
error ratio.
rate
detail.
Explanation: See “AUDIT TECHNIQUES”. The auditor should
select the audit techniques, which will enable the audit to be
conducted effectively, yet in the least amount of time. The error
ratio technique is based upon the assumption that the taxpayer
makes errors at about the same frequency throughout the audit
period. It is sensitive to extremes.
Choice A is incorrect. See Explanation.
Choice B correct. See “AUDIT TECHNIQUES”. The error ratio
uses averages and is sensitive to extremes.
Choice C is incorrect. See Explanation.
Choice D is incorrect. See Explanation.
3. When conducting an audit, sales invoices not containing sales tax
should be:
A. immediately scheduled and taxed appropriately.
B. checked against the annual resale certificate and certificate of
exemption files.
C. considered an exempt transaction.
D. none of the above.
Explanation: See section titled “Tax Collection Rate”. Invoices not
containing sales tax should be checked against the resale/exemption
certificate file.
Choice A is incorrect. Since there are other steps prior to including the
sales invoice as an exception, this choice in incorrect. See section
titled “Tax Collection Rate”. Invoices not containing sales tax should
be checked against the resale/exemption certificate file.
5-36
Program Training
2014
Choice B is correct. See section titled “Tax Collection Rate”.
Invoices not containing sales tax should be checked against the
resale/exemption certificate file.
Choice C is incorrect. Since there are other steps prior to considering
the sales invoice an exempt transaction, this choice is incorrect.
Choice D is incorrect since choice B is correct.
4. In order to obtain the error ratio, the total improperly untaxed sales
or purchases in the sample period should be:
A. multiplied by the total sales or purchases for the same period.
B. divided by the total sales or purchases for the same period.
C. divided by the total taxed sales or purchases for the same
period.
D. divided by the total sales or purchases for the audit period.
Explanation: See “AUDIT TECHNIQUES, Error Ratio”. To
obtain the error ratio, the total sales or purchases not taxed in the
sample period are divided by the total sales or purchases for the
same period.
Choice A is incorrect. See “Error Ratio”. The calculation is
division rather that multiplying.
Choice B is correct. See “AUDIT TECHNIQUES, Error Ratio”.
To obtain the error ratio, the total sales or purchases not taxed in
the sample period are divided by the total sales or purchases for the
same period.
Choice C is incorrect. The denominator is total sales or purchases
for the same period, and not total taxed sales or purchases for the
same period.
Choice D is incorrect. The denominator is total sales or purchases
for the sample period, and not the entire audit period.
2014
Program Training
5-37
5. The rate and ratio audit technique will be more appropriately used
in auditing all the following types of industries, EXCEPT:
A.
B.
C.
D.
automobile industries
grocery stores
restaurants and bars
supermarkets
Explanation: See “AUDIT TECHNIQUES, Rate and Ratio”.
The rate and ratio technique is applicable in determining the
amount of tax that has not been reported on sales. This procedure
is appropriate for use when auditing businesses with high volume
and relatively low to moderately-priced, taxable or exempt sales
(grocery/convenient stores, bars, restaurants) that do not have
dependable sales records.
Choice A is correct. See “Rate and Ratio”. The automobile
industry has high priced sales and the rate and ratio is used more
for low to moderately prices sales.
Choice B is incorrect. See “Rate and Ratio”. Grocery stores have
the type of volume and prices that the rate and ratio would apply
to.
Choice C is incorrect. See “Rate and Ratio”. Restaurants and bars
have the type of volume and prices that the rate and ratio would
apply to.
Choice D is incorrect. See “Rate and Ratio”. Supermarkets have
the type of volume and prices that the rate and ratio would apply to
as well.
5-38
Program Training
2014
Exhibits
Exhibit 5-1 ........................................................... Department of Revenue Audit Standards
2014
Program Training
5-39
5-40
Program Training
2014
Exhibit 5-1
Department of Revenue Audit Standards
DOR Audit Standards are to be followed by all tax auditors.
I.
General Standards
A. Independence:
1. The tax auditor must avoid potential conflicts of interest
and must report promptly the existence or possible
existence of any conflicts of interest to the agency
executive director or designee, pursuant to Department of
Revenue Rule 12-3.011(8)(d), F.A.C. For example, the tax
auditor must not:
a) Have any personal or financial relationship with the
taxpayer, the taxpayer's family, the accountants or
others representing the taxpayer, or the taxpayer's
employees and must not have any personal or financial
interest in a business being audited.
b) Act as an agent, attorney, accountant, bookkeeper,
factor, or representative in any tax or child support
matter before any governmental, judicial, or quasijudicial body, when doing so creates a conflict of
interest or the appearance of a conflict of interest.
c) Directly or indirectly solicit, accept, or agree to accept
for the employee, another person, or entity anything of
value to influence the employee in the performance of
the job.
d) Show, through word or action, any preferential attitude
or treatment to any person, group, or other entity in the
performance of official duties.
2014
Program Training
5-41
Exhibit 5-1 (cont.)
B. Due Professional Care:
1. The tax auditor must perform an objective tax audit of all
relevant, available factual data and apply the Florida tax
laws in a reasonable, practical, fair, and impartial manner.
2. The tax auditor must always treat taxpayers in a fair,
courteous, and professional manner.
3. The tax auditor must provide to the taxpayer the Taxpayer
Bill of Rights and provide the taxpayer opportunity to
resolve any unagreed issues.
4. Tax audit activities and conclusions must agree with
established laws and legal interpretations.
5. The tax auditor must maintain confidentiality of taxpayer
information pursuant to Department of Revenue Rule 123.011(8)(a)2., F.A.C.
C. Quality Control:
1. The tax auditor must keep his or her supervisor and the
taxpayer informed of audit issues as the tax audit
progresses.
2. The supervisory review procedures must contain adequate
detail to prevent misapplication of tax laws and to preclude
the omission of tax law applications.
3. The Department will conduct a survey of taxpayers to
facilitate feedback on the taxpayer's audit experience, the
tax auditor's performance and conduct, and the taxpayer's
suggestions for improvement.
5-42
Program Training
2014
Exhibit 5-1 (cont.)
II.
Field Work Standards
A. Sufficient competent evidential matter:
1. Proposed tax audit findings and compromises, if any, must
be adequately supported consistent with the facts,
established guidelines, and the Florida tax law(s).
Compromises, if any, must be documented and based on
established guidelines.
B. Timeliness:
1. The tax auditor must begin and complete the tax audit in a
timely and expeditious manner with minimum
inconvenience to the taxpayer.
III.
Reporting Standards
A. Tax audit reports must be prepared for each assigned tax
audit to:
1. Document the work performed by the auditor; i.e., what the
tax auditor did, what records were reviewed, which
procedures were used, and any basis for revisions.
2. Support the tax auditor's findings.
3. Identify and explain unagreed issues.
2014
Program Training
5-43
5-44
Program Training
2014
MODULE SIX SPECIAL TAXING CONSIDERATIONS
OBJECTIVES
Upon completion of this module, the participant will:
•
understand the following special tax considerations;
import & export of goods,
transportation charges,
tangible personal property & real property,
packaging & labeling material,
computers (hardware & software),
trade-ins,
discounts, coupons, rebates & gifts
•
be able to determine the correct tax application for these issues.
INTRODUCTION
This module addresses issues related to the import/export of goods,
transportation charges, packaging material, real property versus tangible
personal property, computers, trade-ins, discounts, coupons and gifts.
FOREIGN GOODS, IMPORT, EXPORT AND
TRANSIT
Article I, Section 10, Clause 2 of the Constitution of the United States,
states "No state shall, without the consent of the Congress, lay any
imposts or duties on imports or exports, except what may be absolutely
necessary for executing its inspection laws; and the net produce of all
duties and imposts, laid by any state on imports or exports, shall be for
the use of the Treasury of the United States; and all such laws shall be
subject to revision and control of the Congress."
2014
Program Training
6-1
Point of delivery
The tax impact on transactions involving tangible personal property
occurs at the point of delivery. When the delivery of tangible personal
property occurs in Florida the transaction is subject to Florida sales or
use tax.
When the delivery of tangible personal property occurs outside of
Florida the transaction is not subject to Florida sales or use tax.
Goods in transit
The statutes and rules governing the importation and exportation of
tangible personal property in Florida are ss. 212.06 and 212.16, F.S., and
Rule 12A-1.064, F.A.C.
The courts have held that the tax may be imposed on property involved
in interstate and foreign commerce before its movement begins or after
its movement ends. Once the property is definitely committed into the
channels of interstate or international commerce with a high degree of
certainty, the state will not be able to impose the tax.
The courts have addressed four controlling factors that exempt
transactions from the tax. In general, if all four of the following facts are
present, the tax cannot be imposed:
6-2
•
the agreement of sale contemplated shipment of the goods in
export;
•
from the beginning of the transaction, the goods were committed
to go all the way to a foreign destination;
•
the movement of the goods had actually started when the tax was
sought to be imposed; and
•
the journey was continuous, and unbroken by an action or delay
taken for a purpose independent of the transportation of the
goods.
Program Training
2014
Circumstances when goods temporarily come to rest due to repairs,
alterations, further fabrication, or being prepared for shipment, do not
constitute a break in the journey unless done under the direction and
control of the purchaser.
Section 212.06, F.S., establishes a presumption that tangible personal
property is not considered as being imported, produced or manufactured
for export, unless the importer, producer or manufacturer delivers the
property to one of the following:
•
•
•
a licensed exporter for exporting; or
a licensed common carrier for shipment outside the state; or,
mails the property by U.S. Mail, to a destination outside the
state.
TRANSPORTATION CHARGES
Transportation charges include carrying, delivery, freight, handling,
pickup, shipping, and other similar charges or fees. The method by
which dealers charge their customer for transportation varies from dealer
to dealer and industry to industry. It’s the auditor’s job to determine the
nature of all charges, including transportation charges, charged and paid
by dealers. Transportation charges, sales and expenses, occur in nearly
every audit.
Some dealers do not make a separate charge to their customer for
delivering the goods they sell. Here, the dealer marks-up their product to
cover the costs of the delivery, just as they mark up the price to cover all
their costs (labor, rent, utilities, etc.) and a profit. The sale is taxable or
exempt based on the nature of the sales transaction not the dealer’s costs.
While we are on the subject of dealer costs, it is very important when
analyzing transportation charges, that we do not confuse incoming
transportation charges with transportation charges to deliver goods to the
dealer’s customers. Incoming transportation charges are always part of
the dealer’s costs of doing business. Even when the dealer itemizes this
cost separately on an invoice to their customer it is not a transportation
charge to deliver goods to the dealer’s customers. It is the dealer’s costs
to obtain goods in the dealer’s inventory. For example, when you look at
the window sticker price of a new car, the sticker price normally includes
a freight charge, from the manufacturer to the dealer. This charge is
“incoming freight” and is always part of the total sales price.
2014
Program Training
6-3
The remainder of this section addresses transportation charges to deliver
goods from the selling dealer or the dealer’s supplier, to some designated
place. In Module 2 we learned that “sales price” means the total amount
paid for tangible personal property, including any services that are a part
of the sale. Rule 12A-1.045, F.A.C. provides guidelines for determining
whether transportation charges are considered “part of the sale” of
tangible personal property. These guidelines recognize the decisions in
Department of Revenue v. B & L Concepts, 612 So.2d 720, (Fla. 5DCA
1993).
When the charge for transportation does not involve the sale of tangible
personal property the charge is for a tax exempt service. When a person
ships their piano from one location to another, the transportation charge
is a tax exempt service. When the purchaser of taxable tangible personal
property contracts with a third party carrier at the purchaser's option and
pays transportation charges thereon directly to the third party carrier,
such transportation charges are not subject to tax. The delivery service
is a separate transaction from the sale of the tangible personal property.
Where the dealer agrees to sell and deliver tangible personal property to
some designated place and the purchaser cannot elect to avoid the charge
for transportation services, the transportation services are deemed to be
“part of the sale”. The sale is taxable or exempt based on the nature of
the sales transaction. Therefore, when the sale of tangible personal
property is exempt the delivery charge is exempt. Transportation
charges are never taxable when the goods delivered are exempt.
Where the dealer agrees to sell and deliver tangible personal property to
some designated place the charge for transportation services is not
subject to tax when both of the following conditions have been met:
•
The charge is separately stated on an invoice or bill of sale; and
•
The charge can be avoided by a decision or action solely on the
part of the purchaser. (See F.O.B. origin on the next page.)
Example: B is in the business of renting furniture and appliances. B rents
a refrigerator to Customer C. B's policy is to allow customers to elect
whether to pick up the rental property at B's place of business or to agree
to a $25 delivery fee which B separately states on the customer's invoice.
Since the separately stated $25 delivery fee could be avoided by a
decision or action on the part of C, the $25 delivery fee is not subject to
tax.
6-4
Program Training
2014
Example: D is in the business of selling appliance repair parts. E desires
to purchase a hot water heater element from D. D must order the hot
water heater element for E from a wholesaler. D requires E to pay the
transportation charges only if E elects to have the item shipped directly
from the wholesaler to E's residence. E requests that D instruct the
wholesaler to ship the hot water heater element directly to E's residence.
Since the transportation charge is incurred at the election of E and could
have been avoided by E, the invoice correctly excludes the transportation
charge from the amount subject to tax as follows:
Water Heater Element
Total Taxable Amount
Shipping and Handling Charges
$25.00
$25.00
$ 3.25
If the seller contracts to sell tangible personal property F.O.B. origin, the
title to the property passes at the point of origin. Since the title to the
property passes at the point of origin, transportation services arranged by
the seller and rendered to the buyer are not a part of the taxable selling
price, provided the transportation charges are separately stated. Where
the transportation charges are billed by the seller to the buyer, but
documentation is inadequate to establish the point at which title passes to
the buyer, it is presumed that the tangible personal property was sold
F.O.B. origin and the title to the property passes at the point of origin. In
such instances, the transportation charges are not considered a part of the
selling price of the property, if separately stated.
Example: Company B is in the business of selling large industrial type
generators. Company B is located out-of-state. Due to the size and cost
of the generators and the cost of delivery of the generators, Company B
only sells the generators F.O.B. origin. Company C purchases a
generator for $1 million for its own use and requests that the generator be
shipped to Company C's location in Florida. Since the title to the
equipment passes to Company C at Company B's location, no tax is due
on any separately stated transportation charge.
Example: Company X is in the business of selling widgets at retail.
Company X's customers may order the widgets to be shipped F.O.B.
origin or F.O.B. destination. Customer Z places his order for a dozen
widgets of various sizes to be shipped F.O.B. destination to his business
location in Florida. Since Customer Z could have requested the widgets
to be shipped F.O.B. origin or destination, the separately stated
transportation charge is not considered a part of the sales price of the
widgets and is not subject to tax.
2014
Program Training
6-5
General Transportation Charges Overview –
When the sale of tangible personal property is taxable the related
transportation charge is also taxable, unless the transportation charge is
separately stated on the invoice or bill of sale, and one of the following
conditions applies:
•
the transportation charge can be avoided by a decision, or
action solely on the part of the purchaser; or,
•
the purchaser has the option of designating the transportation
charge f.o.b. point as either origin or destination; or,
•
the transportation charge is f.o.b. origin (seller's location) or
the f.o.b. point is unknown.
Furniture and Appliance Delivery Charges
Effective July 1, 2007, Section 212.08(7)(ddd), F.S., exempts separately
stated charges that can be avoided at the option of the purchaser for the
delivery, inspection, placement, or removal from packaging or shipping
materials of furniture or appliances by the selling dealer at the premises
of the purchaser or the removal of similar items from the premises of the
purchaser. However, if any charge for delivery, inspection, placement,
or removal of furniture or appliances includes the modification,
assembly, or construction of such furniture or appliances, then all the
charges are subject to tax.
REALTY V. TANGIBLE PERSONAL PROPERTY
Section 212.02(19), F.S., defines tangible personal property (TPP) as
personal property, which may be seen, measured, weighed, or even
touched. Section 212.02(10)(h), F.S., defines real property (RP) as the
surface land, improvements and fixtures on such land. Section
212.06(14), F.S., defines real property, fixtures and improvements to real
property.
Sales and use tax applies to the sales, use, lease or rental, storage and
consumption of tangible personal property, and to the lease or rental of
real property, but not to the sale of real property. As a result, an auditor
must be able to distinguish between real and personal property to
correctly determine the taxes due.
6-6
Program Training
2014
By definition, real property is land and permanent improvements to the
land. In the application of Chapter 212, F.S., sales tax auditors must be
concerned when tangible personal property becomes an improvement to
realty and remains realty. Where the classification of the property under
consideration is not clear, the application of a few criteria may help the
auditor arrive at a defensible decision based on the facts. Rule 12A1.051(2), F.A.C., defines the following terms:
Definitions
"Real property" means land, improvements to land, and fixtures. It is
synonymous with the terms "realty" and "real estate."
"Improvement to real property" or "real property improvement"
includes the activities of building, erecting, constructing, altering,
improving, repairing, or maintaining real property.
"Real property contract" means an agreement, oral or written, to
construct, maintain, or development, real property, or to install
tangible personal property that becomes a part of the land or a
structure on the land.
"Fixture" means an item that is an accessory to a building or land that
retains its separate identity upon installation, but that is permanently
attached to the realty. Fixtures include such items as wired lighting,
kitchen or bathroom sinks, furnaces, central air conditioning units,
elevators or escalators, or built-in cabinets.
In order for an item to be considered a fixture, it is not necessary that
the owner of the item also own the real property to which the item is
attached. A retained title provision in a sales contract or in an
agreement that is designated as a lease but is in substance a conditional
sales contract is not determinative of whether the item involved is or is
not a fixture. Similarly, the fact that a lessee or licensee of real
property rather than the lessor/owner enters into a contract for an item
to be permanently attached to the real property does not prevent that
item from being classified as a fixture.
2014
Program Training
6-7
The determination whether an item is a fixture depends upon review of
all the facts and circumstances of each situation. Among the relevant
factors that determine whether a particular item is a fixture are:
Method of attachment. Items screwed or bolted in place, buried or
when removal would cause substantial damage
are likely to be classified as fixtures.
Intent of the parties. Intent of the property holder in having the item
attached, including how the item is treated for
purposes of ad valorem tax, income tax, and
depreciation purposes.
Real property law.
When title passes with the land the item is
likely to be classified as a fixture.
Customization.
Customization indicates intent that the item
would remain in place following installation.
Permits and licensing. When installation of an item requires a
construction permit or licensing of the
contractor the item is likely a fixture.
Legal agreements.
The terms of any legal document regarding an
item may be relevant in determining whether
the item is a fixture of real property.
The term "fixture" does not include “titled property” or “industrial
machinery and equipment”, whether or not such items are attached to
real property in a permanent manner.
"Titled property" means property that must be registered, licensed,
titled, or documented by this state or by the United States, such as
airplanes, boats, and motor vehicles.
"Industrial machinery or equipment" means and includes property that
is intended to be used in manufacturing, fabricating, packaging,
moving, or otherwise handling personal property for sale or other
commercial use, in the performance of commercial services, or for
other purposes not related to a building or other fixed real property
improvement. Machinery or equipment serves a particular commercial
activity that is carried on at a location rather than serving general uses
of land or a structure.
6-8
Program Training
2014
Caution and good judgement must be exercised when using these
criteria. There is no substitute for personal inspection of the property.
The classification assigned to property (TPP or RP) being
improved/repaired determines whether or not labor for repairs to the item
is taxable. If the property is realty, the tax applies only to the materials
consumed. When a contractor makes repairs to real property the
contractor pays the tax when he purchases the repair materials.
(Fabrication of tangible personal property by a real property contractor
for use in a contract to improve real property will be discussed in Module
14.)
If the property being improved/repaired is tangible personal property, the
contractor's charge to the customer, for both labor and material, is
taxable. When a contractor makes repairs to tangible personal property
the contractor purchases the repair materials tax exempt for resale. (The
contractor must register as a retail dealer and issue an annual resale
certificate to the supplier and report taxable sales on the DR-15.)
PACKAGING AND LABELING MATERIAL
Section 212.02(14)(c), Florida Statutes, states in pertinent part, "...'retail
sales', 'sale at retail', 'use', 'storage', and 'consumption' do not include
materials, containers, labels, sacks, bags, or similar items intended to
accompany a product sold to a customer without which delivery of the
product would be impracticable because of the character of the contents
and be used one time only for packaging tangible personal property for
sale..." In an attempt to clarify this section of statutes, rules 12A-1.029
and 12A-1.040, F.A.C., were written.
WRAPPING MATERIALS include paper, plastic, cloth, metal and
combinations of these materials. Regardless of the type of material or the
shape of the material, if it is used to secure or protect the goods
(accompanies the product, when sold), and is intended for one time use,
these items may be purchased tax free as long as the purchaser extends to
the seller a valid resale certificate.
BOXES are also considered packaging materials. Boxes that are used to
transport goods for resale, from one dealer to another, and intended for
one time use are exempt when purchased.
2014
Program Training
6-9
PALLETS are portable platforms usually constructed of wood. Items
are placed on the pallets with machinery such as a forklift, to allow easy
handling. The pallets may be purchased tax exempt if they are intended
for one time use. Otherwise, pallets that are required to be returned are
taxable because they will be used again.
If a manufacturer purchases pallets for the purpose of shipping the
products to its customers with no charge to the customer for the pallets,
and does not desire or expect the pallets to be returned, the purchase of
such pallets would not be subject to the tax.
If a manufacturer uses the pallets for storage of products, and not for
shipment, the purchase of the pallets would be subject to the tax.
If a manufacturer sells pallets to its customers, tax must be collected on
the amount charged to the customer. If the manufacturer requires return
of the pallet and charges the customer a deposit, the deposit is exempt.
The manufacturer would pay tax on the purchase price of the pallet.
TYING MATERIALS are items such as string, cord, rope or any other
similar material used to secure a package. These materials are granted
the same tax exemption as other packaging materials.
BANDING MATERIALS are usually steel, plastic or nylon straps used
to secure boxes and crates. They could be used to hold the items to a
pallet. Banding materials include the devices used to hold the two ends
of the straps in place. Both tying and banding materials are treated in the
same manner as boxes and other previously discussed items, and when
these items are purchased for one time use, they may be purchased tax
exempt.
DUNNAGE is lumber or other materials, such as air bags, that are
placed under the bottom layer, and between succeeding layers of goods
loaded into trucks and rail cars. Dunnage is used to protect the goods
during transit. The taxable or exempt status of dunnage materials is
determined in the same manner as pallets. If returnable, and intended for
more than a one-time use, they are taxable at the time of purchase.
TAXABLE ITEMS
Brochures, catalogs, price lists, point-of-sale advertising that accompany
products being sold to advertise other products for sale, and displays and
display containers used to display items for sale are not materials used
for packaging tangible personal property for sale and are subject to tax.
6-10
Program Training
2014
COMPUTERS AND RELATED SYSTEMS
Computers and computer-related systems are defined in Rule 12A-1.032,
F.A.C. The rule categorizes the computer and its related systems as
hardware and software. Hardware consists of the central processing unit
(CPU), and all its components/peripherals (hard drive, CD ROM reader,
tape drive, etc.). Software consists of the various applications run on the
computer (data base manager, spread sheet, word processor, application
programs, etc.).
The software may be considered canned or customized. Customized
software is designed based on the particular needs of an individual or
business. Canned software can be purchased ready for use right off the
shelf from your local retailer.
A computer's central processing unit may be used by different people by
allowing them to access information through a terminal connected to the
CPU. This process is known as time sharing. Time sharing enables a
customer to compile programs, run computations, print results, and store
data. Time sharing is viewed as the rental of the computer.
Charges for computer time-sharing are usually based upon one or more
of the following:
•
•
•
average amount of computer storage used;
computations performed by the computer; or
length of time connected to the computer.
Special Tax Considerations
The sale of computer equipment and related components is taxable when
delivered to a customer in this state.
The rental of a computer and related components, including terminal
equipment (hardware) which is physically located in this state, is taxable.
Time-sharing:
•
if both the computer and the terminal are located in Florida,
charges for their use are considered rental and subject to tax.
•
if the computer is located outside Florida, and the terminal is
located in Florida, the charge for time-sharing is not subject to
2014
Program Training
6-11
tax, but any lease payment for the terminal is taxable. If the
terminal is owned by the customer, who pays a connection fee,
the fee is not taxable;
•
if the computer is located in Florida and the terminal is located
outside Florida, the charge for time-sharing is taxable, and the
lease of the terminal would be exempt. If the customer owns
the terminal and pays a connection fee, the fee is taxable.
Retail sales of prepackaged programs for use with audio/visual
equipment or other computer equipment, where the programs are fully
usable by the customer without modifications and the vendor does not
perform a detailed analysis of the customer's requirements in selecting or
preparing the programs, are taxable as sales of tangible personal
property.
The license of canned software in tangible form is subject to tax,
pursuant to ss. 212.05, F.S., and Rule 12A-1.032, F.A.C.
Canned software that qualifies as tangible personal property (not sold
electronically) is taxable when purchased or sold. When a canned
program is customized to fit a customer's specific needs the sale of the
customized program is exempt from tax. Customization does not mean
changes, such as simply adding the customer’s name to the application.
Customized software is exempt when purchased or sold. For software to
be considered customized the vendor must perform detailed analysis of
the customer's requirements in selecting or preparing the software
programs. The charge that a computer technician makes for a customized
software package that includes inconsequential elements of tangible
personal property, for which no separate charges are made, is construed
to be a service charge and is exempt.
The charge for a license to use canned software, which is downloaded
electronically is not subject to tax, pursuant to Chapter 212, F.S. as there
has been no tangible personal property provided. Likewise, the charge
for additional licenses, renewal or updates, which are downloaded
electronically, of a license to use canned software (which was
downloaded electronically) is not subject to sales tax.
It is the Department’s position that additional licenses, renewals or
updates of taxable software are taxable even when the additional
licenses, renewals or updates are downloaded electronically.
6-12
Program Training
2014
TRADE-INS – Rule 12A-1.074, F.A.C.
When used items are taken in trade on the purchase of new or used
items, the tax should be collected on the price of the new or used item
after deducting the value of the item or items traded in. The item
traded in must be intended for resale and accepted as credit or part
payment by the dealer. A separate or independent sale of an item is
not a trade-in, even if the proceeds from the sale are immediately
applied by the seller to a purchase of another product.
EXAMPLE: Mr. Rye, owner of Easy Z mowers, engaged in an
advertising campaign which allowed prospective buyers a
trade-in allowance for old mowers when purchasing a new
riding mower. Mr. Weed, a new buyer, was given an invoice
that contained the following information:
New Model 1212 Riding Mower
Grass Catcher
Extended Warranty (1 year)
Sub-Total
Trade-in allowance (less)
Taxable Amount
Sales Tax @ 6%
$1,684.00
189.54
99.10
$1,972.64
(450.00)
$1,522.64
91.36
Total due
$1,614.00
Discounts - Rule 12A-1.018(1)(2)(4), F.A.C.
Discounts are reductions in the price of goods and may be effective
either at the time of sale or after the sale.
Any discounts effective at the time of sale, such as quantity discounts
or price incentives reduce the selling price and the taxable amount.
Discounts for prompt payment of an invoice (2/10 Net 30 or 2%
discount if paid in 10 days, total amount due in 30 days) occur after
the sale and do not affect the taxable amount. The tax auditor should
always examine these discounts closely. It is not uncommon to see the
tax applied to the amount paid after the early payment discounts rather
than the sales price. This is particularly true when the tax is accrued
by the purchaser.
2014
Program Training
6-13
EXAMPLE: Mr. Rye, after reviewing the financial data
regarding the advertising campaign, reached the conclusion
that accepting trade-ins was not very profitable. Instead of
trade-ins, he decided to give customers a 10% cash discount.
Mrs. Flower purchased the following equipment:
New lawn mower
Grass Catch bag
Sub-Total
Less 10% cash discount
$ 999.95
24.95
$1,024.90
(102.49)
Taxable Amount
Sales Tax @ 6%
$ 922.41
55.35
Total Due
$ 977.76
Coupons
Manufacturer’s Coupons
The manufacturer, distributor or franchiser may make coupons
available to potential customers to promote products or improve sales.
When a consumer uses the coupon to make a purchase at a
participating retail location, the selling price is not reduced and the tax
is due on the normal retail price. The coupon is treated like cash when
the consumer pays for the item purchased. The retailer is reimbursed
for the cash value of the coupon when submitted to the issuer (mfg.).
Retailer’s Coupons
Retailers may make coupons available to potential customers for the
same reasons as manufacturers. When a consumer presents these
coupons to the retailer, the selling price is reduced. The tax is
collected on the reduced price.
EXAMPLE: A consumer has a coupon for a fifty cent
reduction in the price of a 48 oz. box of brand X soap. The
retail price of a 48 oz. box of brand X soap is $1.50.
6-14
Program Training
2014
If the coupon was issued by a manufacturer of brand X soap,
the tax due on the sale would be nine cents. The consumer
would surrender the coupon and pay the retailer $1.09;
If the coupon was issued by a retailer, the tax due on the sale
would be six cents. The consumer would surrender the coupon
and pay the retailer $1.06.
Rebates
Rebates provided by manufacturers to purchasers of tangible personal
property are not discounts allowed between the seller and the
purchaser. The initial purchase of the item and the honoring of a
rebate claim by the manufacturer are two separate and distinct
transactions. Sales tax is computed on the total sales price, without
any deduction for the manufacturer's rebate. The fact that the rebate is
assigned by the purchaser to the seller does not change the taxability of
the transaction.
Retailer rebates, given by the selling dealer at the time of the sale,
when the selling dealer does not receive reimbursement from another
third party, are considered dealer discounts and are excludable from
the sales price. However, when the retailer’s rebate occurs after the
sale (mail in certificate) tax is due on the full selling price.
Gifts (TIP 03A01-20)
Retailers may engage in promotional activities that result in various
products being given away, such as "two for the price of one" sales,
"buy one get one free" sales, and other similar offers. In many cases,
the "free" item is transferred only in connection with the purchase of
other tangible personal property. In cases where the item is transferred
as part of a sale of other taxable tangible personal property, it is
actually being sold. The retailer in such cases may purchase the item
for resale without paying tax.
Sometimes a retailer transfers tangible personal property at no charge
to a customer, where such transfer is not in connection with such a
promotional sale. The retailer must pay sales or use tax on its
purchases of items given away that are provided at no charge and that
are not in connection with a sale of taxable items.
2014
Program Training
6-15
SUMMARY
This module has discussed several common issues that will be a
consideration in auditing many different kinds of businesses. The issues
covered include import/export, transportation, realty v. personalty,
packaging materials, computers, trade-ins, discounts, coupons and gifts.
6-16
Program Training
2014
SELF-CHECK QUESTIONS
1. If a customer in Florida purchases a television and the dealer charges
$50 extra to deliver the television to the customer’s home in Florida
and the delivery charge is separately stated on the invoice,
A. The delivery charge is taxable because the television is taxable.
B. The delivery charge is exempt, because it only requires labor.
C. The delivery charge is exempt if the purchaser could have taken
the television home themselves and they would not have been
charged for the delivery.
D. Delivery charges are always taxable.
2. How should the following transaction be taxed? A customer
purchased a computer in Florida and the dealer delivered it to the
customer’s home in Georgia. The computer and the delivery charge
were separately stated on the invoice.
A. The total bill is taxable.
B. The total bill is exempt.
C. The computer is exempt and the “no option” delivery charge is
taxable.
D. If the customer could avoid the delivery charge only the delivery
charge would be exempt.
3. Does “industrial machinery” that has been permanently attached to
real property become a “fixture”?
A. Yes.
B. No.
C. Yes, but only if the owner of the real property is also the owner
of the machinery.
D. Yes, but only if the machinery remains an accessory to the real
property.
2014
Program Training
6-17
4. John received a coupon in the mail from a battery manufacturer for a
free 9 volt battery. When he went to pick up the battery he
discovered that the store was having a buy one get one free special
on the battery. John purchased one battery for $3.00 and got one
battery free and he used his coupon for another free battery. John
went home with three batteries and paid a total of $3.00. A 9 volt
battery cost the store $1.00. How much sales and/or use tax is due to
the state on this transaction?
A.
B.
C.
D.
6-18
$ .18
$ .30
$ .36
$ .42
Program Training
2014
SELF – CHECK ANSWERS
1. If a customer in Florida purchases a television and the dealer
charges $50 extra to deliver the television to the customer’s
home in Florida and the delivery charge is separately stated on
the invoice,
A. The delivery charge is taxable because the television is
taxable.
B. The delivery charge is exempt, because it only requires
labor.
C. The delivery charge is exempt if the purchaser could have
taken the television home themselves and they would not
have been charged for the delivery.
D. Delivery charges are always taxable.
Explanation: See “TRANSPORTATION CHARGES”. Where the
dealer agrees to sell and deliver tangible personal property to some
designated place the charge for transportation services is not subject to
tax when both of the following conditions have been met:
•
•
The charge is separately stated on an invoice or bill of sale; and
The charge can be avoided by a decision or action solely on the part
of the purchaser.
Choice A is incorrect. The delivery charge would have been taxable if,
(see TRANSPORTATION CHARGES) the purchaser cannot elect to
avoid the charge for transportation services, the transportation services
are deemed to be “part of the sale.”
2014
Program Training
6-19
Choice B is incorrect. See explanation. Also see TRANSPORTATION
CHARGES, which states in part, ‘When the charge for transportation
does not involve the sale of tangible personal property the charge is for a
tax exempt service.’ This transaction involved the sale of tangible
personal property.
Choice C is correct. See explanation. Since the delivery charge was
separately stated, and the customer could have elected to take the
television home, the delivery charge is exempt.
Choice D is incorrect. See explanation.
2.
How should the following transaction be taxed? A customer
purchased a computer in Florida and the dealer delivered it to the
customer’s home in Georgia. The computer and the delivery
charge were separately stated on the invoice.
A. The total bill is taxable.
B. The total bill is exempt.
C. The computer is exempt and the “no option” delivery
charge is taxable.
D. If the customer could avoid the delivery charge only the
delivery charge would be exempt.
Explanation: See “FOREIGN GOODS, IMPORT, EXPORT AND
TRANSIT, Point of Delivery”. The tax impact on transactions involving
tangible personal property occurs at the point of delivery. When the
delivery of tangible personal property occurs outside of Florida, the
transaction is not subject to Florida sales or use tax.
Choice A is incorrect. See explanation. Since the delivery occurred in
Georgia, the transaction is not subject to Florida sales and use tax.
Choice B is correct. See explanation.
6-20
Choice C is incorrect. See explanation.
determines that the entire sale is not taxable.
The point of delivery
Choice D is incorrect. See explanation.
determines that the entire sale is not taxable.
The point of delivery
Program Training
2014
3. Does “industrial machinery” that has been permanently attached
to real property become a “fixture”?
A.
B.
C.
D.
Yes.
No.
Yes, but only if the owner of the real property is also the
owner of the machinery.
Yes, but only if the machinery remains an accessory to
the real property.
Explanation: See “REALTY V. PERSONALTY, Definitions”. The
term fixture does not include the following items, whether or not such
items are attached to real property in a permanent manner, titled property
and industrial machinery or equipment.
Choice A is incorrect. See explanation. Industrial machinery is an
exception that does not become a fixture when permanently attached to
real property.
Choice B is correct. See explanation.
Choice C is incorrect. See explanation.
Choice D is incorrect. See explanation.
4. John received a coupon in the mail from a battery manufacturer for a
free 9 volt battery. When he went to pick up the battery he
discovered that the store was having a buy one get one free special
on the battery. John purchased one battery for $3.00 and got one
battery free and he used his coupon for another free battery. John
went home with three batteries and paid a total of $3.00. A 9 volt
battery cost the store $1.00. How much sales and/or use tax is due to
the state on this transaction?
E.
F.
G.
H.
$ .18
$ .30
$ .36
$ .42
Explanation: See “Manufacturer’s Coupons” and “Gifts”
Regarding John’s coupon. When a consumer uses a manufacturer’s
coupon the selling price is not reduced and the tax is due on the normal
2014
Program Training
6-21
retail price. The coupon is treated like cash when the consumer pays
for the item purchased. John owes .18 sales tax on this battery.
Regarding John’s buy one get one free purchase. In cases where the
item is transferred as part of a sale of other taxable tangible personal
property, it is actually being sold. The retailer in such cases may
purchase the item that was given away exempt for resale without
paying tax. John owes another .18 sales tax on this battery. No use
tax is due on the free battery.
Choice A is incorrect. See explanation.
Choice B is incorrect. See explanation.
Choice C is correct. See explanation.
Choice D is incorrect. See explanation.
6-22
Program Training
2014
MODULE SEVEN
SLEEPING AND DWELLING ACCOMMODATIONS
OBJECTIVES
Upon completion of this module the participant will:
•
understand the business operations and registration
requirements for the rental of living accommodations;
•
be able to determine when living accommodations are
taxable or exempt; and
•
be able to determine if the dealer has a “bona fide written
lease agreement”.
INTRODUCTION
This module focuses on rentals of sleeping and dwelling
accommodations. The tax impact will vary depending upon whether
the transaction is classified as a transient rental (lease of six months or
less) or as a rental of a permanent residence (lease is longer than six
months). The most common facilities that rent sleeping and dwelling
accommodations include houses and apartments, hotels, motels,
rooming-houses and trailer parks.
These transactions are primarily regulated by Sections 212.02, and
212.03 of the Florida Statutes and Rule 12A-1.061 of the Florida
Administrative Code.
The term “transient accommodation” is defined in Rule 12A1.061(2)(f), F.A.C., and means each living quarter or sleeping or
housekeeping accommodation in any hotel, motel, apartment house,
multiple unit structure (e.g., duplex, triplex, quadraplex,
condominium), roominghouse, tourist or mobile home court (e.g.,
2014
Program Training
7-1
trailer court, motor court, recreational vehicle camp, fish camp), single
family dwelling, garage apartment, beach house or cottage,
cooperatively owned apartment, condominium parcel, timeshare
resort, mobile home, or any other house, boat that has a permanent,
fixed location at a dock and is not operated on the water away from the
dock by the tenant (e.g., houseboat permanently moored at a dock, but
not including cruise liners used in their normal course of business),
vehicle, or other structure, place, or location held out to the public to
be a place where living quarters or sleeping or housekeeping
accommodations are provided to transient guests for consideration.
Each room or unit within a multiple unit structure is an
accommodation.
HOUSES AND APARTMENTS
Houses and apartments are primarily built for the purpose of providing
a permanent place of residence for a single family. Houses and
apartments may be rented to individuals, corporations, etc. They may
be rented by the owners direct to the lessee, or through agents. The
rented facilities may be furnished or unfurnished. Full maintenance
coverage is normally provided by the landlord as a condition of the
lease.
The auditor must determine on a case by case basis whether tenants
have leases and if so, the nature of the leases. The auditor must keep
in mind that with a written bona fide lease agreement of longer than
six months, the rent is not subject to tax from day one. If a significant
change in circumstances occurs, a lease does not cease to be a bona
fide written lease should the lessor release the lessee, with or without
penalty, from the lease. See Rule 12A-1.061, F.A.C.
Special Tax Considerations
Tax applications for transient rentals generally apply to all types of
facilities as well as most tenants (some exemptions apply), including
facilities owned by foreign nationals.
As expressed in ss. 212.02, and 212.03, F.S., and Rule 12A-1.061,
F.A.C., any person who rents, leases, lets, or grants a license to others
to use, or occupy, any living quarters or sleeping/dwelling
accommodations in apartment houses, rooming-houses, tourist camps
or trailer camps is exercising a taxable privilege.
7-2
Program Training
2014
Tax is due and payable when the rental payment is received, rather
than the rent due date or invoice date, as required in the case of the
sale or rental of tangible personal property.
It is the legislative intent that rentals which are used as principal places
of residence are exempt from sales and use tax. The law expresses that
the landlord must establish in their records that the rented living
accommodations are the principal place of residence by one of two
methods.
•
•
Tax will not be due if a tenant enters into a bona fide written
lease for longer than six months in duration, for continuous
residence at any one hotel, apartment house, rooming house,
etc.
Or, if there is no written lease or the lease is for six months or
less, tax will be due only on the rental charged for the first six
months of continuous occupancy.
Other exempt living accommodations include rentals to transient
guests who:
•
•
•
•
•
Is a federal employee in pursuit of his employer's affairs;
Are full time post-secondary students;
Are traveling under military orders;
Have a diplomatic sales tax exemption;
Have a Florida Consumer's Certificate of Exemption.
The lessor must obtain documentation from the tenant as evidence
when rentals of living accommodations are exempt. The evidence
must be maintained in the books and records of the landlord.
Tax is computed on the total rental charged to the lessee for the use or
possession or the right to use or possess the accommodation. See Rule
12A-1.061(3), F.A.C.
When the rental of living accommodations includes furniture, the
furniture is never considered to be rented to the tenant/guest. The
furniture was purchased to be used with the living accommodation,
similar to a hotel room rental. As such, the furniture is taxable when it
is purchased and the total charge for the furnished living
accommodation, including any separately stated charge for the
furniture, is subject to tax as a transient rental.
2014
Program Training
7-3
Charges for the use of the club house and tennis courts are normally
included as part of the base rental. If separate charges are made for
their use, they should be taxed under other provisions of the statutes
and rules, and not as rental of living quarters. This is also true for
additional storage and parking spaces.
Deposits required to protect the landlord in case of damage to his/her
property by the tenant are exempt, if refundable at the expiration of the
lease and are at no time applicable as rent.
The purchase of electric power or energy is exempt when furnished
through a master-meter and billed direct to the landlord, as long as
there is no use of the power or energy for a taxable purpose. In large
apartment complexes separate meters are normally provided for each
apartment and for the taxable use of the apartment complex. See Rule
12A-1.053, F.A.C.
Any separate charges (i.e., cleaning services, garbage pick up,
lifeguard services, security, etc.) that are required to be paid by the
tenant as a condition of the rental agreement for the rental of living
accommodations, even when described as pass through charges, are
part of the “total rental consideration” and shall be subject to tax.
Leases of transient accommodations by city, county, and state
employees, as well as employees and representatives of tax exempt
organizations (i.e., s. 501(c)(3), I.R.C., organizations) who use their
personal funds, including cash, checks, or credit cards, are taxable
even if the employee is subsequently reimbursed by the governmental
entity or exempt organization.
REGISTRATION REQUIREMENTS
Every person, whether an owner, agent, representative, or management
company, that rents, leases, lets, or grants a license to use any transient
accommodation must file an Application to Collect and/or Report Tax
in Florida (form DR-1) with the Department of Revenue for a separate
dealer's certificate of registration for each place of business where
transient accommodations are provided.
Any agent, representative, or management company may collectively
register transient accommodations, including time-share units, under
the following conditions:
7-4
Program Training
2014
a. The agent has obtained a dealer's certificate of registration;
b. The agent is authorized by means of a written agreement with the
property owner to collect rental charges, and
c. The written agreement contains the following provisions
acknowledged by the property owner:
1. The property owner is ultimately liable for any sales tax due the
State of Florida on rentals of the owner's property; and
2. In the event that the State is unable to collect any taxes,
penalties, and interest due, a warrant for such uncollected
amount will be issued and will become a lien against the
owner's property until satisfied.
The agent, representative, or management company may collectively
register properties described that are located in a single county by
filing an Application for Collective Registration for Rental of Living
or Sleeping Accommodations (form DR-1C) for each county.
BONA FIDE WRITTEN LEASE REQUIREMENTS
Transient accommodations that are leased under the terms of a bona
fide written lease for periods longer than six months for continuous
residence by the individual or entity leasing the transient
accommodations to which the written lease applies are exempt. A
"month" is defined as follows:
For leases commencing on the first day of a month, the term "month"
means a calendar month.
To be considered a lease for periods longer than six months, a
bona fide written lease agreement effective the first day of a
month must run through the first day of the seventh
consecutive month. For example, a lease agreement that is
effective July 1, 2003, through January 1, 2004, will qualify as
a lease for periods longer than six months.
2014
Program Training
7-5
For leases commencing on a day other than the first day of a month,
the term "month" means the time period from any day of any month to
the corresponding day of the next month, or if there is no
corresponding day in the next month, the last day of the next month.
To be considered a lease for periods longer than six months, a
bona fide written lease agreement effective at some other date
than the first day of a month, must be in effect through the day
after the corresponding day of the sixth month. For example, a
lease agreement that is effective July 28, 2003, through January
29, 2004, will qualify as a lease for periods longer than six
months.
For the purposes of this subsection, a "bona fide written lease" is a
written document that clearly demonstrates that the parties' intent is
that the lessee will have the exclusive use of the transient
accommodations to which the lease applies.
The written lease must contain:
•
the length of time for which the transient accommodations are
being occupied, including both the exact commencement and exact
termination dates; and
•
a statement that the lessor is giving the lessee the right to complete
and exclusive use or possession of the transient accommodations
for the entire duration of the lease period.
A "bona fide written lease" is executed in or with good faith, without
deceit or fraud. The Department will examine the lease document, as
well as all surrounding facts and circumstances, to determine the
parties' objective intent at the time of execution of the lease. In
examining the lease document, the Department will consider and be
guided by the following lease contents:
7-6
•
language that indicates the written document is a lease;
•
a sufficient description of the leased transient accommodations;
•
a statement that the lease contains the complete and sole agreement
between the parties for occupying the transient accommodations;
Program Training
2014
•
a provision that the lessee will pay an agreed amount of rental
charge or room rate;
•
a statement containing the due date, the frequency, and the
remittance address for payment of each rental charge or room rate;
•
a statement specifying what conditions or acts will result in early
termination of the lease, the rights and obligations of the parties
upon the occurrence of the terminating conditions or acts, and any
penalties that will result from early termination; and
•
the signatures of the named parties, or in the case of corporate
parties, the signature of the authorized corporate representatives.
A lease does not cease to be a bona fide written lease when the
lessor or lessee has experienced a significant change in
circumstances and the lessor releases the lessee, with or without
penalty, from the obligations under the lease.
A lease does not cease to be a bona fide written lease when:
•
the lessor has evicted the lessee;
•
the lessor is in violation of a fire or safety code;
•
For the purposes of this paragraph, the term "significant change in
circumstances" means the occurrence of an event, not
contemplated at the time of the signing of the lease, such as an
illness, death, bankruptcy, significant change in business
circumstances (e.g. long-term strike or the ceasing of doing
business in the locality), loss of job, or job transfer, that would
cause the lessor or lessee to suffer a hardship if the lessor or lessee
were forced to honor the lease until its stated termination date.
A "bona fide written lease" for periods longer than six months for
continuous residence by the individual or entity leasing the transient
accommodations to which the written lease applies will not be
constituted when:
•
the lease contains a provision that would entitle the lessor of the
leased transient accommodations to lease the accommodations
back from the lessee during the lease period for the purpose of
leasing the same accommodations to other lessees;
2014
Program Training
7-7
•
the lease contains a provision that would entitle the lessor of the
leased transient accommodations to sublease the accommodations
to other persons for periods of six months or less;
•
the lease does not provide the lessee with the right to occupy the
transient accommodations for the entire duration of the lease
period;
•
the lease contains a provision that allows the lessee to cancel the
lease, without penalty, at any time when the lessee has had no
significant changes in circumstances; or
•
the lease contains a provision that would allow the lessee to avoid
full payment of the stated amount of the rental charge or room rate.
The Department will presume that the parties to the lease did not in
fact intend to enter into a bona fide written lease for a period of more
than six months for continuous residence when:
•
the leased transient accommodations are leased more than two
times in a calendar year with each lease issued during that calendar
year containing statements indicating that the lease period is for
longer than six months; and
•
no lessee leased the transient accommodations for more than six
months.
This presumption can be rebutted by documentary evidence (i.e.,
notarized statements, eviction documents, etc.) that provides, for each
lease terminated prior to its stated termination date, that:
7-8
•
a significant change in circumstances of the lessee existed; or
•
the lessor evicted the lessee for cause.
Program Training
2014
HOTEL AND MOTELS
Hotels and motels generally cater to the traveling public. These
businesses provide rooms, and in most cases, will have a restaurant,
and/or a cocktail lounge. Usually, separate records are maintained for
the room rental, restaurant and the cocktail lounge operation. In some
locations, the restaurant and lounge operations will be leased to a
separate business enterprise. Also, vending machines are common at
hotels and motels, and the ownership of the machines and servicing
arrangements may vary between locations.
Some hotels and motels may have permanent residents or guests who
have occupied the hotels or motels for longer than six months.
Some records are unique to the hotel and motel industry. Below are
some activities and records that you will find:
•
lodging accommodations are recorded on guest ledger cards, daily
cash reports, cash receipts journal (night auditor's cash report) and
the general ledger;
•
space rentals are recorded in the city ledger (collection of accounts
belonging to non-registered guests, such as, meeting room space,
guest credit card charges and deposits), and the general ledger;
•
banquet and conference rooms are recorded in the daily cash
reports, cash receipt journal, city ledger and the general ledger;
•
restaurants use the guest checks, daily cash report, cash receipts
journal, general ledger;
•
catering, banquets and extraordinary income from other activities
are often recorded in the city ledger;
•
bar sales and snack bar sales are usually recorded on cash register
tapes; and
•
vending and amusement machines require determination of
ownership and/or lease agreements, service contracts, and
maintenance contracts. When necessary, use the cash receipts
journal and general ledger, to verify proper remittance of tax based
on type of goods sold from the machines, or income from license
to use real property.
2014
Program Training
7-9
Special Tax Considerations
Rental Charges or Room Rates
Rental charges include any charge for the use of items or services that
are required for occupancy of a transient rental accommodation. Such
charges are included even when the charges to the guest are separately
itemized on a guest's bill or made by the owner or the owner's
representative to the guest for items or services provided by a third
party.
Example: A guest rents a beach cottage for three months. The owner
of the cottage requires the cottage to be cleaned by Company X and
separately itemizes the cleaning services on the guest's bill. Because
the charges for the cleaning services provided by Company X are
required to be paid as a condition for the right to use the beach cottage,
the charges are subject to tax. The charges are subject to tax even
though the cleaning services are provided by a third party and the
charges are separately stated on the guest's bill.
Rental charges do not include charges to guests for the use of items or
services when the charges are separately itemized on a guest's bill and
the items or services are withheld when a guest or tenant refuses to pay
the charge or surcharge.
Room rates include charges for the use of items or services when all
guests receive the use of such items or services. Such charges are
subject to tax even though the charges to an individual guest may be
adjusted to waive the charge or the charges are separately itemized on
a guest's bill. Any waiver of a charge to an individual guest is
considered an adjustment to the rental charge.
Example: A guest rents a room in a resort hotel that charges each guest
a $5 resort fee to receive daily newspapers and use of its health club
facilities. When a guest objects to the fee, the hotel will waive the fee
for that individual guest. All guests receive the newspaper and may use
the health club facilities, whether or not the guest pays the fee. The $5
resort fee charged by the resort hotel to its guests is included in the
room rates subject to tax. When the resort hotel waives the fee for an
individual guest, the waiver of the fee is considered an adjustment to
the room rate.
7-10
Program Training
2014
Deposits & Prepayments
The taxability of a deposit or prepayment is contingent on whether the
taxpayer (hotel, motel, etc.) merely holds a reservation for a guest's
arrival by a certain time, or instead guarantees that an accommodation
will be held available to the guest during the length of the guest's
planned stay.
Deposits Subject to Tax
Rental charges that are subject to tax include deposits or prepayments
that guarantee the guest the use of transient accommodations during a
specified rental period under the provisions of an agreement when the
transient facility is required to provide transient accommodations to
any guest that enters into such an agreement and pays the required
prepayment or deposit, even when the guest does not occupy the
accommodation. (When the reservation is made the hotel removes a
room from there available inventory of rooms.)
Example: A hotel guarantees that it will provide room
accommodations on a designated date to potential guests that make
reservations and pay a required room deposit. To receive a refund of
the required room deposit, the potential guest must cancel his or her
reservations by 4:00 p.m. of the designated date. A potential guest that
has made reservations and has paid the required room deposit fails to
cancel the reservations and fails to arrive at the hotel on the designated
date to use the reserved room accommodations. Because the potential
guest fails to cancel the reservations, the guest forfeits the room
deposit. Even though the guest did not occupy a room at the hotel, the
forfeited room deposit is subject to tax.
Deposits Not Subject to Tax
Deposits or prepayments that are required to be paid to secure a
potential guest the right to rent a transient accommodation by a time
certain are not subject to tax. Such deposits do not guarantee the guest
the use or possession, or the right to the use or possession, of transient
accommodations. (When the reservation is made the hotel does not
remove a room from there available inventory of rooms.)
Example: A potential guest makes reservations at a hotel for a
designated night. The hotel requires a deposit equal to the room rate to
hold a room until a time certain, such as 6:00 p.m., on the designated
night. The guest does not arrive at the hotel and fails to cancel the
2014
Program Training
7-11
reservation. The hotel retains the deposit. Because payment of the
deposit did not provide the potential guest the right to the use of the
room and the hotel did not collect any tax from the potential guest, the
room deposit is not subject to tax.
Security Deposits
Security deposits that are refundable at the expiration of any
agreement for the use of a transient accommodation are not subject to
tax, unless the security deposits are withheld by the owner or owner's
representative and applied to unpaid rental charges at the expiration of
the agreement.
Fees
Charges for the processing of a registration application for approval to
rent a particular transient accommodation are not subject to tax, unless
the charges are used to offset or reduce rental charges that are charged
to a guest who has been approved to rent that accommodation.
Real Property Rentals
Auditors must be alert to room rentals at hotels that are not for living
accommodations (i.e., sales display rooms, offices, etc.). These are
taxable as commercial property rentals and are subject to county local
option discretionary surtaxes and school capital outlay surtaxes (such
rentals are not subject to county local option "bed taxes"). See module
18.
Meals – S. 212.08(7)(jj), F.S.
Public lodging establishments which advertise that they provide
complimentary food and drinks are not required to pay sales or use tax
on food or drinks furnished as part of a packaged room rate, provided
all the following conditions are met:
7-12
•
the food or drinks are furnished as part of a packaged room rate;
•
a separate charge or specific amount is not stated to the guest for
such food or drinks;
•
the lodging establishment is licensed with the Division of Hotels
and Restaurants of the Department of Business and Professional
Regulations; and
Program Training
2014
•
the lodging establishment rents or leases transient lodging
accommodations that are subject to sales and use tax.
If the hotel or motel gives away free meals and beverages as
promotional items, tax is due on the total cost price.
Hotel Reward Points (TIP 06A01-01)
Hotel chains offer reward points programs where members can earn
points by staying at participating hotels and making purchases.
Members accumulate points and then redeem them for rooms or room
upgrades at no charge.
Participating hotels contribute a percentage of revenues and fees to a
program fund each time a member stays at the hotel and earns program
points. When members redeem their points at participating hotels for
rooms or room upgrades the points are redeemed through the program
fund. The program fund reimburses the participating hotel when a
member uses reward points. A credit is issued against the hotel's
monthly obligation to the program fund. “Hotel” means a single
operation at one location.
Receipts from Reward Points Members
When a member redeems points at a participating hotel for a room or a
room upgrade the hotel is not required to collect Florida tax from the
member on the value of the room or upgrade. The hotel is required to
collect Florida state sales tax, local surtax, and locally-imposed
transient rental tax on the base room rent paid (cash, check or charge)
by the member.
Tax Application for Reward Points Programs -prior to June 2011
No tax is due when a participating hotel contributes more to the
program fund in any given month than it receives in reimbursements
for the same month. However, in any given month, when the
participating hotel receives more in reimbursements from the fund
than it is required to contribute, tax is due on the amount by which the
total reimbursements from the fund exceed the total contributions paid
to the fund.
2014
Program Training
7-13
Tax Application for Reward Points Programs –effective June 2011
( Rule 12A-1.0615 Hotel Reward Points Programs, New 5-23-11 )
Calculation of Taxable Reimbursements for a Hotel’s Initial
Twelve Months of Participation in a Reward Points Program
At the end of a hotel’s initial twelve months of participation in a
reward points program, the hotel must determine the percentage to be
applied to reimbursements received during the initial twelve months of
participation using the following calculation:
Total Reimbursements Received During the Initial Twelve Months
- Total Annual Contributions Paid During the Initial Twelve Months
÷ Total Reimbursements Received During the Initial Twelve Months
= Percentage to be Applied to Reimbursements Received in the Initial
Twelve Months
If the resulting percentage is zero or less, then no transient rental tax is
due on reimbursements received in the initial twelve months of
participation. The full amount of reimbursements received by the hotel
in the initial twelve months of participation must be multiplied by the
percentage to determine the amount of reimbursements subject to
transient rental tax for the initial twelve months. The full amount of
any tax due must be remitted with the hotel’s first tax return due
following the end of the initial twelve months of participation.
The hotel must keep a supplemental schedule allocating the remittance
to the appropriate reporting periods of the initial twelve months of
participation in the hotel’s books and records kept in the normal course
of business. This schedule must be made available to the proper taxing
authority upon request.
The percentage calculated for the initial twelve months of participation
must also be used to calculate taxable reimbursements for all
remaining reporting periods in the calendar year in which the
calculation is made.
Example: A hotel begins participating in a reward points program in
June 2010. In June 2011, the hotel must calculate the percentage using
the total reimbursement and contribution amounts for June 2010
through May 2011. The resulting percentage must be applied to all
reimbursements received from June 1, 2010, through May 31, 2011, to
determine the amount of reimbursements subject to transient rental tax
for that period. The hotel must report any taxable reimbursements for
7-14
Program Training
2014
June 2010 through May 2011 on the hotel’s first tax return due
following May 2011. The hotel must also apply the June 2010 through
May 2011 percentage to all reimbursements received each reporting
period for the remainder of calendar year 2011.
In January 2012, the hotel must recalculate the annual percentage
using the total reimbursement and contribution amounts for January
through December, 2011.
If a hotel ceases to participate in a reward points program before the
completion of a full twelve month period, then the hotel must
determine the percentage to be applied to reimbursements received by
using the period of time that the hotel participated in the reward points
program. Any tax due must be reported on the hotel’s first tax return
due following the date on which the hotel ceases to participate in the
reward points program.
Calculation of Taxable Reimbursements for Periods Other than a
Hotel’s Initial Year of Participation
Each January, a hotel must determine the percentage to be applied to
reimbursements received during the subsequent calendar year using
the following calculation:
Total Reimbursements Received in Prior Calendar Year
- Total Contributions Paid in Prior Calendar Year
÷ Total Reimbursements Received in Prior Calendar Year
= Percentage to be Applied to Reimbursements Received in Current
Calendar Year
If the resulting percentage is zero or less, then no transient rental tax is
due on reimbursements received in the current calendar year. The full
amount of reimbursements received by the hotel in the current
reporting period must be multiplied by the percentage to determine the
amount of reimbursements subject to transient rental tax for that
reporting period.
Example: A hotel’s total reimbursements and contributions in the
preceding calendar year are $10,000 and $7,500, respectively. The
hotel’s percentage for the current calendar year will be calculated in
January as ($10,000 - $7,500)/$10,000 or 25%. If the current reporting
period’s reimbursements are $1,000, the amount of reimbursements
subject to tax in the current reporting period is $250.
2014
Program Training
7-15
Recreational Resort Membership Agreements
The sale of memberships in this State for the right to be a member of a
recreational resort providing transient accommodations and other
recreational facilities in this State is a taxable lease of transient
accommodations.
The membership agreement is subject to tax because the agreement
allows the member to use certain resort facilities located in this State,
even though the agreement may also allow the member to use a
resort's facility located outside the State of Florida.
Tax is due on the rental charges when the charges are due, whether the
charges are paid in full at the time of agreement or financed over a
period of time. When the rental charges are financed over a period of
time as an installment sale or deferred payment plan, tax is due when
the agreement is executed. All charges required to be paid by the
lessee to the owner, lessor, or the lessor's representative under the
terms of the agreement, such as maintenance fees, membership dues,
or similar charges, are subject to tax at the time payment is due.
Membership agreements entered into with resort facilities located
outside this State that also allow a member to use resort facilities
located in Florida are not subject to tax, unless the out-of-state seller of
the membership allocates or distributes a portion of the proceeds to the
Florida resort. Any proceeds allocated or distributed to the Florida
resort are taxable. In addition, any charge made by the owner or lessor
of a Florida resort to an out-of-state membership holder for the right to
use its Florida resort is subject to tax.
TRAILER PARKS
A tenant of a trailer park or mobile home park will rent either actual
living accommodations or space to place a trailer, mobile home or
recreational vehicle.
Mobile homes, travel trailers, motor homes, recreational vehicles, or
any other vehicle are transient accommodations when the mobile home
or vehicle is placed where living accommodations are provided to
guests for a consideration and the mobile home or vehicle has a fixed
location and is not to be operated over the roads of this State.
7-16
Program Training
2014
Special Tax Considerations
Rental charges for mobile homes or recreational vehicles rented as
transient accommodations are subject to tax. (unless an exemption
discussed previously in this module applies)
Rental charges for the rental of space in trailer camps, mobile home
parks, and recreational vehicle parks (e.g., trailer court, motor court,
R.V. camp, fish camp, or other similar camps and parks) are subject to
tax. (Unless an exemption discussed previously in this module
applies) Mobile home lots regulated under Chapter 723, F.S. (requires
1 year lease minimum), are exempt from tax on the lot rental amount.
If a tenant continues to pay rent at the prevailing rate and maintains the
right to occupy a space at a trailer or mobile home park, the rental will
be considered to be a continuous rental even though the mobile home
is removed and returned it at a later date. Once the exempt status is
achieved, either by a long term lease agreement or by staying longer
than six months, the rental remains exempt.
A mobile home purchased by a trailer park owner, which is to be
provided along with a space as a unit to a tenant is taxable at the time
of purchase as tangible personal property. This is referenced in Rule
12A-1.007, F.A.C. When a mobile home is installed at a fixed
location and is rented for living accommodations, tax will be due on
the rental charges, as specified under Rule 12A-1.061, F.A.C. This
should not be regarded as double taxation, but a taxable sale of
tangible personal property under Section 212.05, F.S., and a taxable
transient rental under Section 212.03, F.S.
Utility connections are provided for a charge in parks catering to the
traveling public. These utility connections are normally not separately
metered, and are included in the rental charge and become part of the
total rental consideration. Trailer Parks catering to permanent residents
may, or may not, have separate meters for the spaces. When separate
meters are not provided, the same master meter considerations
discussed for apartments applies. If separate meters are provided, the
amount charged the tenant should not be taxed. The landlord should be
paying a gross receipts tax.
2014
Program Training
7-17
EXEMPT FACILITIES
Trailer Camps, Mobile Home Parks & Recreational Vehicle Parks
The following facilities’ living accommodations may be exempt from
tax:
•
•
•
trailer camps;
mobile home parks (not regulated under Ch. 723, F.S., (long term
occupancy); and
recreational vehicle parks.
The Department must be notified via Form DR-72-2 when one of the
above listed facilities becomes exempt or taxable. A facility becomes
exempt when more than half of its total available rental units are
occupied by tenants who have continuously resided there for more
than 3 months. The facility's taxable or exempt status is determined
annually at its accounting year-end, using a consecutive three month
period with at least one month in the applicable accounting year. All
leases for sleeping or dwelling accommodations at an exempt facility
are exempt, regardless of the lessee's lease.
Migrant Labor Camps & Housing Authorities
Charges for living accommodations by migrant labor camps, as
defined in s. 212.03, F.S., and housing authorities that are specifically
exempt under s. 423.02, F.S., are exempt and are not required to
register with the Department.
Homes for the Aged
Institutions designed and operated primarily for the care of persons
who are ill, aged, infirm, mentally or physically incapacitated or for
any reason dependent upon special care or attention are not providing
transient accommodations to the patient, as provided in s. 212.03, F.S.,
and are not required to register with the Department. Charges made for
living accommodations to the patients in such facilities are not subject
to the tax imposed under s. 212.03, F.S. Charges made for transient
accommodations to any person other than the patient by the institution
are subject to tax under the provisions of this rule and any institution
that makes such charges is required to register with the Department.
7-18
Program Training
2014
Day Nurseries, Kindergartens and Custodial Camps
Day nurseries, kindergartens, and church-operated or other custodial
camps that primarily provide professional and personal supervisory
and instructional services are not required to register with the
Department or collect tax on their charges for lodging to the students
or campers.
Timeshare Estates
Consideration paid by a timeshare owner for the purchase of a
timeshare estate is exempt. A timeshare estate means the right to
occupy a timeshare unit coupled with a freehold estate or an estate for
years with a future interest.
OTHER TAX ISSUES -Communication Services Tax
Most facilities
that
offer
living
accommodations provide
communication services such as telecommunication, satellite and cable
services to their guests. Revenues from communication services are
subject to Communication Services Tax (CST) in Florida. During the
audit preparation period the auditor should determine if the dealer is
registered and reporting CST in SAP. When the dealer is not
registered for CST the auditor, while performing the sales tax
audit, should determine whether the dealer should be registered for
CST. If they need assistance the auditor should contact their
supervisor.
SUMMARY
A large portion of Florida's sales tax revenues are derived from leases
of sleeping and dwelling accommodations. These facilities range from
small, individually owned beach cottages to large, corporate owned
resort communities. The tax application for transient rentals is
different from commercial property rentals when you consider the
impact of county bed taxes and the exemption granted to places of
permanent residency (i.e., leases longer than six months). Generally
with transient rentals, it is the tenant, on a case by case basis, that
establishes the tax application. The most common exception is for
trailer camps, mobile home parks, and recreational vehicle parks,
which may qualify as exempt facilities.
2014
Program Training
7-19
When auditing these facilities it should be verified that Florida tax was
paid on purchases of furniture, linens, toiletries, office equipment,
cleaning supplies, and so forth. The Hotel and Motel Association
questioned whether purchases of tangible goods contained in a guest's
room could be purchased as an exempt sale for resale. The First
District Court of Appeal upheld the Department's position that such
purchases were not for resale. See Florida Hotel and Motel
Association, Inc. v. State, Department of Revenue, 635 So.2d 1044
(Fla. 1DCA, 1994).
7-20
Program Training
2014
SELF – CHECK QUESTIONS
1. Which one of the following lessees of living accommodation is
taxable when they are billed directly for the accommodation?
A. A U.S. postal employee’s hotel room while they are working
away from home.
B. A DOR employee’s hotel room while they are working away
from home.
C. A DOR employee’s hotel room that has a one year written
lease.
D. A full time Florida State University student’s off campus
housing.
2. What is one of the sales tax options a recreational vehicle park
dealer has if more than half of the total units available at the park
are occupied by tenants who have been continuously residing there
for more than three months?
A.
B.
C.
D.
2014
They may cancel their sales tax registration.
They qualify for exemption on all their transient rentals.
They qualify for exemption on all their sales tax transactions.
They may purchase recreational vehicles tax exempt.
Program Training
7-21
3. How are transient rental charges and security deposits charges to
protect the landlord handled for tax purposes?
A. Both charges are taxable at the time of payment.
B. The security deposit charge is exempt and if tax is due on the
rental charge, it’s due to the state at the time of payment.
C. The security deposit charge is exempt and if tax is due on the
rental charge, it’s due to the state on the rental agreement due
date.
D. The security deposit charge is taxable when it is billed to the
tenant and if tax is due on the rental charge, it’s due to the state
at the time of payment.
4. If a tenant without a lease has continuously resided at an apartment
complex from January 1, through December 31 and promptly paid
their lease payments on the first of each month, what is the tax
obligation of the following lease periods?
A. January - June period is taxable and July - December period is
exempt.
B. January – March period is taxable and April – December
period is exempt.
C. January – March period is exempt and April – December
period is taxable.
D. January – December period is taxable.
7-22
Program Training
2014
SELF – CHECK ANSWERS
1. Which one of the following lessees of living accommodation is
taxable when they are billed directly for the accommodation?
A. U.S. postal employee’s hotel room while they are
working away from home.
B. A DOR employee’s hotel room while they are working
away from home.
C. A DOR employee’s hotel room that has a one year
written lease.
D. A full time Florida State University student’s off
campus housing.
Explanation: See “Special Tax Considerations”. Exempt living
accommodations include transient guests, such as; federal employee in
pursuit of his employer's affairs, full time post-secondary students, and
any person with a bona fide written lease for longer than six months
durations. State employees are not included in the exemption of
transient rentals.
Choice A is incorrect. See explanation.
Choice B is correct. See explanation.
Choice C is incorrect. See explanation.
Choice D is incorrect. See explanation.
2014
Program Training
7-23
2. What is one of the sales tax options a recreational vehicle park
dealer has if more than half of the total units available at the
park are occupied by tenants who have been continuously
residing there for more than three months?
A. They may cancel their sales tax registration.
B. They qualify for exemption on all their transient rentals.
C. They qualify for exemption on all their sales tax
transactions.
D. They may purchase recreational vehicles tax exempt.
Explanation: See “EXEMPT FACILITIES”. When more than half
of a recreational vehicle park’s total available rental units are occupied
by tenants who have continuously resided there for more than 3
months, and the facility notifies the DOR on form DR-72-2 about their
status, the facility qualifies as an exempt facility. The facility’s
taxable or exempt status is determined annually at its accounting yearend, using a consecutive three month period with at least one month in
the applicable accounting year. All leases for sleeping or dwelling
accommodations at an exempt facility are exempt.
Choice A is incorrect. See explanation.
Choice B is correct. See explanation.
Choice C is incorrect.
See explanation.
Only dwelling
accommodations are exempt not all sales transactions.
Choice D is incorrect. See explanation.
3. How are transient rental charges and security deposits charges
to protect the landlord handled for tax purposes?
A. Both charges are taxable at the time of payment.
B. The security deposit charge is exempt and if tax is due on
the rental charge, it’s due to the state at the time of
payment.
C. The security deposit charge is exempt and if tax is due on
the rental charge, it’s due to the state on the rental
agreement due date.
D. The security deposit charge is taxable when it is billed to
the tenant and if tax is due on the rental charge, it’s due to
the state at the time of payment.
7-24
Program Training
2014
Explanation: See “HOUSES AND APARTMENTS, Special Tax
Considerations”. Tax is due and payable when the rental payment is
received, rather than the rent due date, or invoice date … Deposits
required to protect the landlord in case of damage to his/her property
by the tenant are exempt, if refundable at the expiration of the lease
and are at no time applicable as rent.
Choice A is incorrect. See explanation. Deposits for damages are not
taxable.
Choice B is correct. See explanation. Deposits to protect the landlord
are exempt and transient rental taxes are due at the time of payment.
Choice C is incorrect. See explanation. Tax is due and payable when
the rental payment is received, rather than the rent due date.
Choice D is incorrect. See explanation. Security deposits for damages
are not taxable.
4. If a tenant without a lease has continuously resided at an
apartment complex from January 1, through December 31 and
promptly their lease payments on the first of each month, what
is the tax obligation of the following lease periods?
A. January - June period is taxable and July - December period
is exempt.
B. January – March period is taxable and April – December
period is exempt.
C. January – March period is exempt and April – December
period is taxable.
D. January – December period is taxable.
Explanation: See “HOUSES AND APARTMENTS”. It is the
legislative intent that rentals, which are used as principal places of
residence, are exempt from sales and use tax. The law expresses that
if there is no written lease or the lease is for six months or less, tax will
be due only on the rental charged for the first six months of
occupancy.
Choice A is correct. See explanation. The payments for January
through June are taxable, but the remainder of the year is exempt from
sales and use tax.
Choice B is incorrect. See explanation. The first six months are
taxable.
Choice C is incorrect. See explanation.
Choice D is incorrect. See explanation. June – December period is
exempt.
2014
Program Training
7-25
7-26
Program Training
2014
DR-72-2
R. 06/13
Rule 12A-1.097
Florida Administrative Code
Declaration of Taxable Status Trailer Camps, Mobile Home Parks, and Recreational Vehicle Parks
General Information and Instructions
Determination of Exemption and Filing
Requirements
Trailer Camps, Mobile Home Parks, or Recreational
Vehicle Parks
Transient rental accommodations at trailer camps,
mobile home parks, and recreational vehicle parks are
exempt from tax when more than 50 percent of the
total rental spaces available are occupied by tenants
who have continuously resided there for more than 3
months. The owner must complete and file Form
DR-72-2 with the Department to declare that the
camp or park qualifies for exemption from the
transient rental taxes.
Mobile Home Lots Regulated Under Chapter 723,
Florida Statutes (F.S.)
Mobile home lots regulated under Chapter 723, F.S.,
are tax-exempt. Owners of these mobile home lots
should not file Form DR-72-2.
This exemption only applies to rental spaces in trailer
camps, mobile home parks, or recreational vehicle parks.
Owners who sell taxable items or rent parking spaces,
docking spaces, or storage facilities must continue to
collect and remit tax.
Local Option Transient Rental Taxes
When the owner of a camp or park located in a county
imposing a local transient rental tax declares the camp or
park tax-exempt, the rental spaces at the camp or park
are also exempt from the local transient rental taxes. The
Department will provide a copy of the completed form to
the appropriate local county tax official.
Annual Determination of Exemption Required
– Return to Taxable Status
Owners who filed Form DR-72-2 and declared a camp or
park exempt from the transient rental taxes are required
to re-determine their taxable status at the end of each
accounting year. When a camp or park no longer qualifies
for the exemption, the owner must complete a new Form
DR-72-2 to notify the Department that the transient rentals
at the camp or park are now taxable. The form must be
filed no later than the 20th day of the first month of the
owner’s next succeeding accounting year. No form is
required when there is no change to the taxable status of
the camp or park.
This form is a declaration, not an application.
The Department will not send any notice of approval to the taxpayer.
Resources and Reference Materials
Information, forms, and tutorials are available on our Internet site: www.myflorida.com/dor
To speak with a Department of Revenue representative, call Taxpayer Services, Monday through Friday, 8 a.m. to 7 p.m.,
ET, at 800-352-3671.
For a written reply to tax questions, write:
Taxpayer Services Mail Stop 3-2000
Florida Department of Revenue
5050 W Tennessee St
Tallahassee FL 32399-0112
Our Forms and Publications Page provides a Standard Industry Guide for Hotels and Transient Rental Industries (GT300126P) which can be viewed or downloaded. Our Online Revenue Law Library contains all the rules and statutes
referenced in this form: https://revenuelaw.state.fl.us
Declaration of Taxable Status Trailer Camps, Mobile Home Parks, and Recreational Vehicle Parks
DR-72-2
R. 06/13
Business/Facility Name________________________________________________________________________________
Owner Name_________________________________________________________________________________________
Owner Address_______________________________________________________________________________________
Owner City___________________________________________ State_______________ZIP Code____________________
Telephone #___________________________________ Email address ________________________________________
Certificate or Business Partner Number:_________________________________________________________________
Location Address (if different than above):_______________________________________________________________
Address City_________________________________________ State_______________ZIP Code __________________
The above named facility is a:
Trailer Camp
Mobile Home Park
Recreational Vehicle Park
I have determined that the rental spaces at the named facility is:
Exempt under Section 212.03(7)(c), F.S.
Taxable under Section 212.03, F.S.
I previously filed Form DR-72-2 with the Florida Department of Revenue on _________________________(date)
and declared the above named facility exempt from the transient rental taxes. This determination was made in accordance with the provisions of section 212.03(7)(c), F.S., and Rule 12A-1.061,
Florida Administrative Code.
Under penalties of perjury, I declare that I have read the foregoing Declaration and that the facts stated in it are
true.
__________________________________________ _____________________________________ ___________________
Signature of Authorized Person Title
Date
Mail This Completed Form to:
Account Management MS 1-5730
Florida Department of Revenue
5050 W Tennessee ST
Tallahassee FL 32399-0160
MODULE EIGHT REAL PROPERTY RENTALS, LEASES
AND LICENSES
OBJECTIVES
Upon completion of this module, the participant will be able to:
•
identify taxable and exempt uses of real property;
•
identify total rental consideration;
•
understand the terms rental, lease and license; and
•
explain when tax is due on rentals, leases, and licenses of real
property.
INTRODUCTION
The rental, lease or license of real property is subject to sales and use tax.
S. 212.031, F.S. and Rule 12A-1.070, F.A.C. regulate the application of
sales and use tax on the rental, lease and license to use real property.
This module will examine “total rental, lease or license considerations”
that apply to the use of real property. It will also address real property
sales and improvements as well as real property rentals and leases for rerental and re-leasing.
LEASE OR RENTAL OF OR LICENSE IN REAL
PROPERTY
Method of Operation
The rental or lease period for buildings and offices are normally covered
by a written contract. These contracts may be written for any period of
time.
2014
Program Training
8-1
The property owner may improve his realty to meet the specifications of
prospective or current tenants or may improve the property to his own
specifications and then advertise for prospective tenants.
The property owner (lessor) may improve the property to meet the
desires of a lessee and then bill the lessee for the total cost of the
improvements. The lessor may also allow the lessee to improve the
property and have the lease contract specify that title to the
improvements will be transferred to the lessor upon termination of the
lease, or the lessor may require the lessee to restore the property to its
original state.
The lease contract may include an option that allows the lessee to
purchase the property on or after a given date at a specified price.
The property owner may provide utilities and various services as an
inducement to obtain tenants, or may require a lessee to provide all
utilities and services, or the tenant may be allowed to select the services
desired.
Lessees may be required to pay the real property taxes directly to the tax
collector, reimburse the owner after payment of the taxes or the property
owner may pay the taxes and not charge the tenant.
The rent may be set at a fixed amount, be based on a percentage of sales,
a combination of both or in any manner agreed to by the parties.
Registration Requirements
A real property rental registration may include a number of locations
under a single roof, such as a shopping center. If a taxpayer has multiple
registrations, the Department, upon request by the taxpayer, may
inactivate all registrations except for one in each county where the
taxpayer has rental locations. These registration numbers are referred to
as county control numbers. All rental transactions in the county are
reported under one county control number. These responsibilities were
covered in detail in Module 3 and Module 5.
Special Tax Considerations
It is declared to be the legislative intent that every person is exercising a
taxable privilege who engages in the business of renting, leasing, letting
or granting a license for the use of any real property unless the real
property is:
8-2
Program Training
2014
The following list of exempt rental of real property is taken from s.
212.031(1)(a), F.S. It is only a reference and not intended to
capture the actual statute language.
•
Assessed as agricultural property under s.193.461;
•
Used exclusively as dwelling units;
•
Properties subject to tax on parking, docking, or storage spaces
under s. 212.03(6);
•
Recreational property or the common elements of a condominium
when subject to a lease between the developer or owner thereof
and the condominium association;
•
Public or private street or right-of-way occupied or used by a
utility for utility purposes;
•
Public Street or road used for transportation purposes;
•
Property used at an airport exclusively for the purpose of aircraft
landing or taxiing or property used for the purpose of loading or
unloading passengers or property onto or from aircraft or for
fueling aircraft;
•
Property used at a port authority exclusively for the purpose of
ocean going vessels for the purpose of loading or unloading
passengers or cargo onto or from such a vessel or property used at
a port authority for fueling such vessels.
•
Property used as an integral part of the performance of qualified
production services in connection with the production of a
qualified motion picture;
•
Leased to a person providing food and drink concessionaire
services within the premises of a convention hall, arena or publicly
owned recreational facility;
•
Property occupied pursuant to an instrument calling for payments
which the department has declared, in a Technical Assistance
Advisement issued on or before March 15, 1993, to be nontaxable
pursuant to rule 12A-1.070(19)(c), F.A.C.;
2014
Program Training
8-3
•
Property used or occupied predominantly for space flight business
purposes.
•
Property used by persons providing telecommunications, data
systems management, or internet services at a publicly or privately
owned convention hall, civic center, or meeting space at a public
lodging establishment as defined in s. 509.013, F.S. This
exemption applies only to the portion of the rental, lease, or license
payment that is based on a percentage of sales, revenue sharing, or
royalty payments.
Total Rental Consideration is Subject to Tax
The tax is due on the total rental, lease or license fee paid for the right to
use or occupy real property. When the rental or license fee of any such
real property is paid by way of money, property, goods, wares,
merchandise, services, or other things of value, the tax is due on the
value of the total consideration given.
Intrinsically Valuable Personal Property is Not Subject to Tax
Payments for intrinsically valuable personal property such as franchises,
trademarks, service marks, logos, or patents are not subject to tax under
this section. In the case of a contractual arrangement that provides for
both payments taxable as total rent or license fee and payments not
subject to tax, the tax shall be based on a reasonable allocation of such
payments and shall not apply to that portion which is for the nontaxable
payments.
Tax Due at Time of Receipt
The tax is in addition to the rental, lease or license fee and must be
collected by the person granting the privilege to use or occupy any real
property from the person paying the rental, lease or license fee. Unlike
transactions involving tangible personal property where the tax is due at
the time of the sale, the tax on rentals, leases and licenses of real property
is due and payable at the time of receipt of the consideration (Section
212.031(3), F.S.).
Rentals and Leases of Real Property
Rental and lease agreements describe real property where the tenant has
an exclusive right of usage and control. Offices, stores and buildings are
examples of property that is normally rented or leased. The rental or
8-4
Program Training
2014
lease agreement describes the boundaries and activities permitted and not
permitted on the property. The space is often defined by the number of
square feet on the property and stated as an amount (consideration) per
square foot.
Licenses of Real Property
License agreements permit the tenant very limited use of real property.
A license does not create an interest in real property. A carnival using a
mall parking lot, a soda vendor that distributes sodas throughout a sports
arena, or a cigarette vendor using space in a restaurant for his vending
machine are examples of licenses to use real property.
A license to use real property agreement permits the licensee to operate
in a general area and only at times when the licensor either permits or
requires the licensee's presence. The space used by the licensee is
generally defined.
RENTAL CONSIDERATION
Ad Valorem Taxes
Real property or ad valorem taxes are assessed by the county against the
owner of the property. If the lease requires the lessee to pay the tax
directly to the county tax collector, the lessee is making a payment to the
account of the landlord. The payment is part of the total consideration
being paid for the right of occupancy and is subject to the commercial
rental tax. The landlord may pay the real property tax and bill the lessee
for reimbursement. This billing is also rental consideration and subject
to the tax.
The rental of governmental real property to a non-governmental or
commercial entity is subject to sales tax. The governmental entity
must register as a landlord, collect and remit sales tax to the
Department. Also, the lessee is subject to Governmental Leasehold
Intangible Personal Property Tax (GLIPPT) levied by section
196.199(2)(b), F.S., and administered under Rule 12C-2, F.A.C. If the
lessee is not filing a GLIPPT annual return, the auditor should obtain a
copy of the lease and notify his or her manager of the situation
and determine the appropriate action needed.
2014
Program Training
8-5
Real Property Improvements
Real property improvements completed or funded by a tenant are never
part of the total taxable rental consideration if the improvements are not
required by the lease or license or permanently remain the property of
the tenant. Trade fixtures that remain the property of the tenant are never
part of the total taxable rental consideration.
Tenant improvements required to be completed by the lease or license
and that become the property of the landlord are not part of the total
taxable rental if:
• the improvements are made in order to put the premises in a
condition suitable for the operation of the tenant’s business,
• there is no requirement to spend a specific or minimum amount
of money on the improvements,
• there is no credit given against rental payments,
• the improvements are not classified as rent, additional rent, rentin-kind, or in lieu of rent, and
• there is no evidence that there was an attempt to reclassify rental
payments to avoid the tax.
Tenant improvements required to be completed by the lease or license
that become the property of the landlord and do not meet the conditions
in the previous paragraph are taxable as part of the total rental charged.
Tax is due on the consideration received.
Utility Charges
Utility charges paid by a tenant to the lessor for the privilege or right to
use or occupy real property are taxable, unless the lessor has paid the
sales tax to the utility company on such utilities consumed by the tenant,
and the utilities billed by the lessor to the tenant are separately stated on
the lessor's invoice to the tenant at the same or lower price as that billed
by the utility company to the lessor.
Lease Termination Charges
Rule 12A-1.070(4)(g), F.A.C., states that when determining whether or
not a lease termination charge is subject to tax as rental consideration the
Department will first determine if sufficient documentation exist, such as
a lease or other tangible evidence, to establish whether the payment was
or was not for the use of the real property. If the payment is for the use
of real property it is subject to tax.
8-6
Program Training
2014
If the lease or other tangible evidence is not sufficient to determine
whether or not the charge is rental consideration, the Department will
look at how the charge or payment was recorded by the lessor or lessee.
When the amount is recorded in the lessor's or lessee's books and records
as rental income or expense it is taxable as rental consideration. If
recorded otherwise, the charge is considered a payment to cancel or
terminate the lease agreement and is not subject to sales tax.
If the lessee records the payment as a rental expense, but does not remit
tax to the lessor on such payment, then the lessee is required to remit the
tax on such charge directly to the Department of Revenue.
Common Area Maintenance Charges
Common area maintenance charges paid by a tenant to the lessor for the
right to use or occupy real property are taxable. However, any separately
itemized component of a common area maintenance charge that is
exempt from tax under Section 212.031, F.S., does not become taxable
solely because of inclusion in the common area maintenance charge. For
example, if the common area maintenance charge includes separately
itemized electric utility service or insurance, then the electric utility
service and insurance components would not be subject to tax.
Liability and Casualty Insurance
A common lease agreement issue is liability and casualty insurance
required of the tenant by the landlord. If the lease agreement requires
that the insurance exclusively or primarily protect the landlord, the cost
of the insurance to the lessee is subject to tax as additional rental
consideration. If the insurance is primarily for the protection of the
lessee (name as loss payee) and the lessor obtains secondary protection
(because the lessee is insured), the insurance payments are not subject to
tax as additional rental consideration.
Merchant Association Fees
Payments to a merchant association by a lessee or licensee are taxable if
the payments are a part of the consideration for the right to use or occupy
the real property (required by the lease agreement). If the payments are
not part of the consideration for the right to use or occupy the real
property the payments are not taxable.
2014
Program Training
8-7
Optional Components of Rent
Any component of the lease that is not a condition of occupancy in the
lease and offers the lessee the option of using either lessor furnished
services, utilities, etc., or providing his own is not taxable as rent. The
charge for the optional components must be separately stated in both the
contract and billing to be exempt rental consideration(s). The charge is
taxable if it is a condition of occupancy (tenant can be evicted if the
charge is not paid).
While separately stated charges and services fees may not be taxable
as additional rental consideration, these charges may still represent
taxable sales or uses.
Subleasing Real Property
When a business has leased a building or office space in excess of its
needs, the subletting of the space not needed by the lessee is one method
of reducing rent expense. Some firms lease more space than required
with the intent of generating additional income by subletting the extra
space at a higher rental rate than they pay to the property owner.
Subleases of real property are common and the correct tax application
can be complex. Sometimes dealers lease real property and sublease
some or all of it to one or more other persons. Department stores use
subleasing as a means of attracting vendors that will provide goods or
services which the department store is not in the business of providing.
Only One Tax on Each Property
Rule 12A-1.070(5), F.A.C., provides that only one tax on the rental or
license fee payable from the occupancy or use of any real property from
which the rental or license fee is subject to taxation under s. 212.031,
F.S., shall be collected, and the tax shall not be pyramided by a
progression of transactions; however, the amount of tax due the State of
Florida shall not be decreased by any such progression of transactions.
Pyramiding
Pyramiding of the tax occurs when more than the prescribed tax is
collected due to a series of transactions. Pyramiding of the tax is
forbidden by Sections 212.031(2)(b), 212.081(3)(b) and 212.12(12),
Florida Statutes. Pyramiding happens when there’s a rental of real
property from the property owner by a Tenant with payment of the tax to
8-8
Program Training
2014
the property owner. Then the Tenant subleases the property at a rate
equal to or greater than that paid to the property owner and collects and
remits tax on the sublease.
When Property Is Re-rented at the Same or Greater Amount
Rule 12A-1.070(8), F.A.C., provides that when a tenant sublets some
portion of the leased or licensed property (at an amount that is the same
or greater than the cost), he may take credit on a pro-rata basis for the tax
that he paid to his landlord on the space that he subleases. The proration
of the taxable and exempt portions of the total rental charge or license
fee should be based on a reasonable allocation as determined from the
lease or license and such other information as may be available.
Example: Tenant leases 200 square feet of floor space for $400 and pays
Landlord $24 rental tax. Tenant subleases 100 square feet, or one half, of
the space to Subtenant for $300 and collects $18 tax which he remits to
the State, less a credit of $12 for tax that he paid to his landlord on the
space that he subleased to Subtenant. (One half of $400 is $200 and 6
percent of this amount is $12.)
Rule 12A-1.070(9), F.A.C., provides that when a tenant sublets (at an
amount that is the same or greater than the cost) all of the leased
premises or retains only an incidental portion, then such tenant may elect
not to pay tax on the prime lease or license, provided that such tenant or
other person shall register as a dealer and collect and remit tax due on the
sub-rentals and pay the tax due to the department on the portion of the
rental charges pertaining to any taxable space which he retains. If the
tenant elects not to pay the tax to his landlord he should extend to his
landlord a resale certificate.
Clarification: Tax is due to the State on the cost of the portion of rental
space that the Tenant retains because this portion is not being re-rented.
Paragraph (5) of Rule 12A-1.070, F.A.C., does not permit a decrease in
the tax by a progression of transactions. This is true even if the revenue
generated on the portion of space re-rented is greater than the total cost
of the entire space in the prime lease. Tax is due on the cost, on a
prorated basis, on any portion of the original space not re-rented. Real
property law does not permit renting and holding real property tax
exempt for re-rental. Anytime rented real property is not actually
generating rental income (equal to or greater than the prime lease on that
portion of space) for the landlord the landlord owes tax on the cost of the
prime lease.
2014
Program Training
8-9
Example: Lessee leases 5,000 square feet of office space for $50,000
and gives his landlord a resale certificate. Lessee subleases 4,500 square
feet, or 90%, of the space to Sub-lessee for $67,500 and collects and
remits $4,050 tax to the State. Lessee’s re-rental to Sub-lessee was at a
rate greater than cost of $45,000 (90% of $50,000) so no use tax is due
on that portion of the prime lease. Lessee owes $300 use tax to the state
on the 10% of space he does not re-rent to a Sub-lessee. ($50,000 x 10%
= $5,000 x 6% = $300 use tax)
Area A 90%
Area B 10%
Total area
4,500 sq. ft.
500 sq. ft.
5,000 sq. ft.
Total cost
$50,000
LslslB = 10%
Lslslkdk
500 sq. ft.
dkdk
($5,000 cost)
$0 rental
income
A = 90%
4,500 sq. ft. (cost $45,000)
$67,500 rental income
Sales Tax Returns (DR-15)
8-10
Gross
Sales
Exempt
Sales
Taxable
Sales
Tax
Collected
Landlord
Sales
$50,000
$50,000
$0
$0
Lessee
Sales
Purchases
$67,500
$0
$0
$0
$67,500
$5,000
$4,050
300
$4,350
Program Training
2014
Inverse Pyramiding
Inverse pyramiding is the opposite of pyramiding. Inverse pyramiding is
forbidden in Section 212.031(2)(b), Florida Statutes.
Inverse pyramiding occurs when the rental of real property by a Tenant
who issues the property owner a resale certificate (no tax paid) and then
subleases the property to a Subtenant at a rate that is less than the tenant
paid to the property owner and then collects and remits tax to the State
only on the sublease.
Because tax is due to the State on the original lease amount, unless the
property is re-rented at the same or greater amount, the Tenant that
issued the resale certificate still owes the State the difference in the tax
collected and remitted from the Subtenant and the amount of tax due on
the original lease amount. The auditor would assess the Tenant that
issued the resale certificate, the difference in rental amounts as use tax.
The Tenant should have paid tax on the original lease from the property
owner because the re-rental was less than the original lease. Any tax
collected on the re-rental to the Subtenant could be retained by the
Tenant and not remitted to the State.
Inverse pyramiding frequently results when there is a sublease between
closely held corporations. Sales between parent and subsidiary or
between subsidiary corporations could result in inverse pyramiding. Tax
auditors should always compare prime rental values to the re-rented
values (price per square foot or a reasonable allocation) when real
property is sublet to insure the sublease price is equal to or greater than
the prime lease for the same premises.
2014
Program Training
8-11
Example: Lessee, a real property management company, leases 5,000
square feet of office space for $50,000 and gives the landlord a resale
certificate. Lessee subleases 4,500 square feet, or 90%, of the space to
Sub-lessee A for $67,500 and collects and remits $4,050 tax to the State.
Lessee’s re-rental to Sub-lessee A was at a rate greater than cost of
$45,000 (90% of $50,000) so no use tax is due on that portion of the
prime lease. Lessee also subleases the remaining 500 square feet of space
to Sub-lessee tenant B for $3,000 and collects and remits $180 tax to the
State. Lessee owes $120 use tax to the state on the re-rental to Sublessee B, the difference in the Lessee’s cost of $5,000 (10% of $50,000)
and the $3,000 re-rental to Sub-lessee B. ($5,000 - $3,000 = $2,000 x 6%
= $120 use tax)
Area A 90%
Area B 10%
Total area
4,500 sq. ft.
500 sq. ft.
5,000 sq. ft.
Total cost
$50,000
LslslB = 10%
Lslslkdk
500 sq. ft.
dkdk
($5,000 cost)
$3,000 rental
income
A = 90%
4,500 sq. ft. (cost $45,000)
$67,500 rental income
Sales Tax Returns (DR-15)
8-12
Gross
Sales
Exempt
Sales
Taxable
Sales
Tax
Collected
Landlord
Sales
$50,000
$50,000
$0
$0
Tenant
Sales
Purchases
$70,500
$0
$0
$0
$70,500
$2,000
$4,230
120
$4,350
Program Training
2014
Inter-Company Rentals
It is not uncommon for auditors to review rental or leasing arrangements
between parent companies and their subsidiaries. Most of these
arrangements are oral and can involve many different considerations
other than the base rent. Many of these considerations have been
previously discussed and others could range from the sharing of office
personnel or equipment to the payment of the mortgage, or include other
charges for the benefit of the parent.
Whether you are dealing with a parent-subsidiary, stockholder-sub S
corporation or a business, husband renting from his wife, all these
transactions are taxable if there is a consideration paid for the right of
occupancy.
The auditor should not be swayed by the method utilized by these
entities to file their Federal Tax returns (consolidated, joint or flowthrough).
Common Areas
Common areas are those areas provided for use by all, such as the public
promenade of a shopping mall, the open parking facilities, and the public
rest rooms. When common areas are leased they are subject to tax, like
any lease of real property.
In a ground lease of unimproved real property where the lessee
(developer) builds and sublets store space (developer must register as a
landlord), use tax is due from the developer on all space not sublet on the
ground floor and sales tax is due on all space sublet to tenants.
(unimproved real property only includes land) Use tax is due from the
developer on all the common areas located on the ground floor. When
common areas are located on any floor above the ground floor no use tax
is due from the developer. (This property is owned, not leased, by the
developer.)
In a lease of improved real property where all of the space was sublet,
such as an office building, except for the common area, the prime lessee
would be responsible for use tax on the common area located on any of
the floors of a multistory building. The prime lessee owes use tax on any
portion of the leased property not re-rented.
2014
Program Training
8-13
Common Areas at Motels and Hotels
Real property leases of common areas at motels and hotels are treated
differently under the law than common areas in other commercial rental
situations, such as, malls, shopping centers and office space. The lease of
real property that is common areas in motel or hotel leases are NOT
subject to tax because they are included with the dwelling units at motels
and hotels. The lease or rental of real property used exclusively for
dwelling units is not taxable under s. 212.031, F.S. The following
common areas at motels and hotels are not subject to tax.
•
•
•
•
•
guest rooms;
lobby area;
pool area;
parking area;
hall space and elevator space.
Other Tax Considerations
The majority of statutory exceptions are located in s. 212.031(1)(a), F.S.
The first three exceptions cited are agricultural property, dwelling units
and property subject to tax on parking or docking.
Section
212.031(1)(b), F.S., expresses that when a lease involves multiple use of
these real properties, wherein a part of the real property is subject to the
tax and a part of the property would be excluded from the tax, the
Department shall determine from the lease or license and such other
information as may be available, that portion which is exempt from the
tax.
Outdoor Signs (Billboards)
The rental, lease, sublease, or license for the use of real property to
display advertising, including billboards, is subject to tax if the lessee or
licensee receives control or access to the real property as to the
placement of the advertising. If the lessee or licensee does not receive
access to place, assemble, mount, or repair the display, then the charge
for the real property is not taxable rental consideration.
The charge made for displaying the advertisement on the billboard is
exempt as an advertising service.
8-14
Program Training
2014
Parking, Docking and Storage of Motor Vehicles, Boats and
Airplanes
S. 212.03(6), F.S., expresses, “It is the legislative intent that every person
is engaging in a taxable privilege who leases or rents parking or storage
spaces for motor vehicles in parking lots or garages, who leases or rents
docking or storage spaces for boats in boat docks or marinas, or who
leases or rents tie-down or storage space for aircraft at airports. For the
exercise of this privilege, a tax is hereby levied at the rate of 6 percent on
the total rental charged”.
When a person leases land or a facility for the purpose of parking or
docking and collects the tax on charges for parking or docking, the prime
lease of the land or parking or docking facility is not taxable. If any
areas are used for free parking the entire consideration paid by the lessee
to the lessor is taxable (Rule 12A-1.073(3), F.A.C.). If the prime lessee
uses any portion of the property for other than parking or docking that
portion must be addressed separately (used or re-rented). It should be
noted that parking and docking are subject to tax under s. 212.03(6),
F.S., and not s. 212.031, F.S.
Submerged (Underwater) Land
The bottoms of certain lakes, rivers, creeks, etc., are owned by the state.
Commercial use of the bottom land requires a lease from the state, which
is a commercial rental.
Bookstore Operation
Payments made by a bookstore operator to a postsecondary educational
institution for the right to conduct bookstore operations on real property
owned or leased by the postsecondary educational institution are exempt
from the commercial rent tax.
A “bookstore operation” means a person with activities that consist
predominately of sales, distribution, and provision of textbooks,
merchandise, and services traditionally offered in college and university
bookstores for the benefit of the institution’s students, faculty, and staff.
2014
Program Training
8-15
SUMMARY
The rental of real property is possibly the most common sales and use tax
transaction in Florida. Almost every business involves a lessor/landlord,
lessee/tenant or licensor/licensee. You must be capable of distinguishing
the contractual relationship of the parties, be able to describe the real
property, describe how it is used, and identify consideration involved.
The consideration given for the use of real property is subject to sales or
use tax when the consideration is given, unless the transaction is
specifically exempt from tax. When real property is partially exempt,
partially taxable or where pyramiding or inverse pyramiding occurs; a
reasonable allocation, based on the intent of the parties as expressed in
the contract, will determine the proper portion of the transaction that
remains taxable.
8-16
Program Training
2014
SELF – CHECK QUESTIONS
(1. & 2.) Landlord A leases 1,000 square feet of building space to sublessee B for $800.00 per month. B pays $48.00 a month in real property
rental tax to A. B sublets 250 square feet of floor space to sub-sub-lessee
C for $500.00 per month. C pays $30.00 a month in real property rental
tax to B.
1. How much tax should be remitted to the state by the landlord A?
2. How much tax should be remitted to the state by the sub-lessee B?
(3. & 4.) Landlord A leases 1,000 square feet of building space to sublessee B for $800.00 per month. B issues a resale certificate to A. B
sublets 400 square feet of floor space to sub-sub-lessee C for $800.00 per
month. C pays $48.00 a month in real property rental tax to B. B also
subleases 500 square feet of the property to sub-sub-lessee D for
$1,000.00 per month plus $60.00 tax.
3. How much tax should be remitted to the state by the landlord A?
4. How much tax should be remitted to the state by the sub-lessee B?
(5. & 6.) Landlord A leases 1,000 square feet of building space to sublessee B for $800.00 plus $36.00 in tax. B issues a resale certificate to A
for the 250 square feet of space subleased to sub-sub-lessee C. B collects
$500.00 in rent and $30.00 in tax from C.
5. How much tax should be remitted to the state by the landlord A?
6. How much tax should be remitted to the state by the sub-lessee B?
2014
Program Training
8-17
(7. & 8.) Landlord A leases 1,000 square feet of building space to sublessee B for $800.00 and $48.00 in tax. B subleases 250 square feet to
sub-sub-lessee C for $150.00 plus $9.00 tax and 500 square feet to subsub-lessee D for $300.00 plus $18.00 tax.
7. How much tax should be remitted to the state by the landlord A?
8. How much tax should be remitted to the state by the sub-lessee B?
The following scenario applies to questions 9, 10, 11, & 12.
A car dealer is paying $30,000 per month to lease properties (A) & (B)
for his car lot. The car dealer is paying $1,800 sales tax to the landlord
on the lease payments. An auto body repair dealer agreed to pay the
car dealer $8,000 to sub-lease (B) or 20% of the total property of (A)
& (B).
(B)
(A)
20%
80%
$8,000
Properties (A) & (B) = 100% for $30,000 / month + sales tax
9. Should the car dealer charge the auto body repair dealer any sales
tax on the $8,000 monthly rental charge?
10. If the auto body repair dealer’s rental payment is taxable, how
much tax should the car dealer charge?
11. Does the car dealer owe the state any sales tax on the sub-lease to
the auto body repair dealer?
12. If the car dealer owes sales tax, how much tax should the car
dealer remit to the state before the collection allowance?
8-18
Program Training
2014
13. An outdoor advertising company leases agricultural property from
a landowner along an interstate highway. The outdoor advertising
company constructed a billboard on the agricultural property and
charged its customers for advertising on the billboard. Which of the
following statements is correct?
A.
B.
C.
D.
2014
The charges for advertising on the billboard are taxable.
The lease of the agricultural property is taxable.
Both charges (advertising & land lease) are taxable.
Both charges (advertising & land lease) are exempt.
Program Training
8-19
8-20
Program Training
2014
SELF – CHECK ANSWERS
(1. & 2.) Landlord A leases 1,000 square feet of building space to sublessee B for $800.00 per month. B pays $48.00 a month in real property
rental tax to A. B sublets 250 square feet of floor space to sub-sub-lessee
C for $500.00 per month. C pays $30.00 a month in real property rental
tax to B.
1. How much tax should be remitted to the state by the landlord A?
2. How much tax should be remitted to the state by the sub-lessee B?
Explanation: See “Subleasing”: When a tenant sublets some portion of
the leased property at a value that is greater than the cost to the tenant, he
may take credit on a pro-rata basis for the tax that he paid to his landlord
on the space that he subleases.
1. Landlord A should remit $48. A charged $800 rent and $48 tax.
The tax collect must be remitted to the state.
2. Sub-lessee B should remit $18. B sub-leased 25% of his leased
property for $500. B paid $200 for 25% of the total property
rented from A, therefore B is charging more rent than was paid to
A on the same property and qualifies for a tax credit on the rerented property. B has already paid tax of $12 (25% of $48) to A
on this space. B must charge C $30 tax on the $500 rent but B is
permitted to take a lawful deduction on his tax return of $12 for
tax paid to A and remit the balance of $18 to the state.
(3. & 4.) Landlord A leases 1,000 square feet of building space to sublessee B for $800.00 per month. B issues a resale certificate to A. B
sublets 400 square feet of floor space to sub-sub-lessee C for $800.00 per
month. C pays $48.00 a month in real property rental tax to B. B also
subleases 500 square feet of the property to sub-sub-lessee D for
$1,000.00 per month plus $60.00 tax.
2014
Program Training
8-21
3. How much tax should be remitted to the state by the landlord A?
4. How much tax should be remitted to the state by the sub-lessee B?
Explanation: See “Subleasing”: If a tenant sublets all of the leased
premises or retains only an incidental portion, then such tenant may elect
not to pay tax on the prime lease. To qualify for the exempt property
rental for re-rental the tenant must charge the sub-lessee a rental charge
that is more than the cost to the prime tenant on the same portion of
property.
3. Landlord A should remit $0. A accepted a resale certificate from
B on the total rental consideration so no tax is due from A.
4. Sub-lessee B should remit $112.80. B used 10% of the space and
owes use tax of $4.80 (10% of $800 = $80 x 6% = $4.80) on the
cost of the space used. B paid $320 for 40% of the total property
rented that was re-rented to C for $800. B paid $400 for 50% of
the total property rented that was re-rented to D for $1,000.
Since B is charging more rent on each re-rental than was paid to
A on the same property, B is correct to have issued a resale
certificate to A. B sub-leased 90% of the space and collected
$108 sales tax. B owes the state $108 sales tax and $4.80 use tax
for a total tax due of $112.80.
(5. & 6.) Landlord A leases 1,000 square feet of building space to sublessee B for $800.00 plus $36.00 in tax. B issues a resale certificate to A
for the 250 square feet of space subleased to sub-sub-lessee C. B collects
$500.00 in rent and $30.00 in tax from C.
5. How much tax should be remitted to the state by the landlord A?
6. How much tax should be remitted to the state by the sub-lessee B?
Explanation: See “Subleasing”: The tenant may issue a resale certificate
on property that will be sub-leased at a value greater than its cost. The
tenant owes tax to the landlord on any property used (not re-rented) by
the tenant.
5. Landlord A should remit $36. A accepted a resale certificate for
25% of the rented property, therefore A must collect tax on 75%
of the rent. ($800 x 75% = $600 x 6% = $36).
6. Sub-lessee B should remit $30. B paid $200 for 25% of the total
property rented from A and charged C $500 for the same
property. Since B is charging more rent than was paid to A on
the same property, B is correct to have issued a resale certificate
to A on 25% of the property.
8-22
Program Training
2014
(7. & 8.) Landlord A leases 1,000 square feet of building space to sublessee B for $800.00 and $48.00 in tax. B subleases 250 square feet to
sub-sub-lessee C for $150.00 plus $9.00 tax and 500 square feet to subsub-lessee D for $300.00 plus $18.00 tax.
7. How much tax should be remitted to the state by the landlord A?
8. How much tax should be remitted to the state by the sub-lessee B?
Explanation: See “Subleasing, Inverse Pyramiding”: Inverse pyramiding
is forbidden by statute. When property is re-rented for less than it was
rented, the total tax due to the state is not reduced. The state is still
permitted to the full amount that was due on the original rental.
Therefore, it is inappropriate to issue a resale certificate for the original
rental.
7. Landlord A should remit $48. A charged $800 rent and $48 tax.
The tax collect must be remitted to the state.
8. Sub-lessee B should remit $ 0. B does not have to remit the
$27 collected from C and D because B paid tax on the rental
from A and charged less rent on his re-rental of space than
what B paid to A for the same space. B is not permitted to take
a tax credit on the space re-rented. B re-rented 25% of the
space to C for $150. B paid A $200 for the same space. ($800
x 25% = $200) B also re-rented 50% of the space to D for
$300. B paid A $400 for the same space. ($800 x 50% =
$400).
NOTE: Had B inappropriately given A a resale certificate and not
paid tax to A, B would owe the state $48. The $27 sales tax collected
from C and D plus $21 use tax on the difference between tax collected
and the $48 that should have been paid on the original rent amount.
Dealers are not permitted to reduce the amount of tax due to the state
by inverse pyramiding.
2014
Program Training
8-23
The following scenario applies to questions 9, 10, 11, & 12.
A car dealer is paying $30,000 per month to lease properties (A) & (B)
for his car lot. The car dealer is paying $1,800 sales tax to the landlord
on the lease payments. An auto body repair dealer agreed to pay the
car dealer $8,000 to sub-lease (B) or 20% of the total property of (A)
& (B).
(B)
(A)
20%
80%
$8,000
Properties (A) & (B) = 100% for $30,000 / month + sales tax
9. Should the car dealer charge the auto body repair dealer any sales
tax on the $8,000 monthly rental charge?
Explanation: Yes, this rental consideration is subject to tax.
10. If the auto body repair dealer’s rental payment is taxable, how
much tax should the car dealer charge?
Explanation: $480 tax. ($8,000 x 6% = $480)
11. Does the car dealer owe the state any sales tax on the sub-lease to
the auto body repair dealer?
Explanation: Yes, because the car dealer is re-renting the property (A)
for more than it cost, tax is due to the state on the additional value
charged by the car dealer.
8-24
Program Training
2014
12. If the car dealer owes sales tax, how much tax should the car
dealer remit to the state before the collection allowance?
Explanation: The car dealer should remit $120 to the state. The car
dealer paid $360 tax to the landlord on property (B). The car dealer
charged the auto repair dealer $480 tax on property (B). The
difference of $120 is due to the state each month. The car dealer’s tax
return should include the rental activity by indicating on Line C,
Commercial Rentals, sales of $8,000 and $480 tax collected. The car
dealer is permitted to reduce the tax due to the state by taking a Line 6
Lawful Deduction of $360 for tax paid on the property to the landlord.
13. An outdoor advertising company leases agricultural property from
a landowner along an interstate highway. The outdoor advertising
company constructed a billboard on the agricultural property and
charged its customers for advertising on the billboard. Which of the
following statements is correct?
A.
B.
C.
D.
The charges for advertising on the billboard are taxable.
The lease of the agricultural property is taxable.
Both charges (advertising & land lease) are taxable.
Both charges (advertising & land lease) are exempt.
Explanation: See “Lease or Rental of or License in Real Property”: The
rental, lease or license of real property that is assessed as agricultural
property under s. 193.461, F.S. is exempt. Also, see “Other Tax
Considerations, Outdoor Signs”: The charge made for displaying the
advertisement on the billboard is an exempt advertising service.
Choice A is incorrect. See Explanation.
Choice B is incorrect. See Explanation.
Choice C is incorrect. See Explanation.
Choice D is correct. See Explanation.
2014
Program Training
8-25
8-26
Program Training
2014
MODULE NINE FOOD AND BEVERAGE DEALERS
OBJECTIVES
Upon completion of this module the participant will be able to:
•
calculate the tax application of food and beverage dealers;
•
calculate the tax application of bars and package stores that
do not separately charge sales tax on sales; and
•
describe how vending and amusement machine dealers
operate and the respective tax applications.
INTRODUCTION
This module introduces the participant to the special taxing
considerations of food and beverage dealers. These special taxing
considerations range from unprepared food sold by grocery stores, to
prepared food sold by restaurants and food and beverages sold from
vending machines. This module also addresses activities of bars and
cocktail lounges as well as vending and amusement machine operators.
GROCERY STORES
Method of Operation
Retail grocery stores range from the Ma and Pa corner store to the
independent supermarket, from convenience store chains, to national
supermarkets.
Although they differ in size, all grocery stores have common areas of
interest to an auditor:
•
2014
the inventory is composed of many different items, some
are taxable and some are exempt;
Program Training
9-1
•
sales are fairly predictable because customers tend to return
to the same store and purchase the same items;
•
profitability is based on the sales of many items at a low
gross margin, which results in a rapid turnover in inventory
(a complete inventory turnover can occur within one week
to three months).
The volume of records maintained by grocery stores varies with the
size of the store. Most grocery stores maintain purchases and sales
records, along with cash register tapes or computer printouts of the
store's operation. Some of the major supermarkets have an excellent
inventory system, including computer connected cash registers that
reorder merchandise automatically as it is sold.
Special Tax Considerations
Any testing performed on sales should be considered representative of
the taxpayer’s business and include at least one inventory cycle
(turnover).
Representative also means that consideration and
appropriate adjustments (if required) have been made relative to all
unusual and/or seasonal activity/fluctuation that may artificially effect
the test result.
EXAMPLE: (Inventory Turnover)
Inventory
Turnover =
Cost of Goods Sold
= # of times per year
Average inventory
Inventory
Turnover =
64,000
= # of times per year
Beginning 7100 :
End 8000
Inventory
Turnover =
64,000
(7100 + 8000)/2
9-2
Program Training
= 8.477 times per year or
every 1.416 months
2014
The Florida Statutes grant an exemption for general grocery items.
Because the language in the statute does not define every item by
name, nutritional value or ingredients the Department works closely
with the grocery industry to determine whether food products qualify
for exemption. As a means of determining what is taxable and
exempt, a handy reference is the Rules and Regulations and the Florida
Statutes. In addition form DR-46NT, Nontaxable Medical and
General Grocery List is on the Department’s internet site (see exhibit
at the end of this module). A copy should be given to the dealer either
at the beginning or during the audit. Specific examples of taxable and
exempt items are listed next.
Exempt Food Products Sold by a Grocery Store
The term "food products" means edible commodities, whether
processed, cooked, raw, canned, or in any other form, which are
generally regarded as food. Many food products for human
consumption are exempt from tax unless they are sold for immediate
consumption.
EXAMPLES: cereal products; baked goods; oleomargarine;
meat products; seafood products; frozen foods and dinners;
poultry; eggs and egg products; vegetable products; fruit
products; spices; salt; sugar products; dairy products; and
products intended to be mixed with milk; baby food; butter;
honey; jams, jellies, and preserves; liquid food supplements
and other foods advertised and generally sold as meal
replacements or nutritional supplements; salad dressing and
dressing mixes; shortening; syrups; cake mixes and frosting.
Snack foods that are not included in the category of "candy and
similar products" and therefore are not subject to sales tax are:
EXAMPLES: Breakfast bars, cereal bars, granola bars,
nutritional food bars, popcorn, potato chips, and pretzels,
whether or not such products are candy-coated or chocolatecoated; glazed or sugar-coated fruit not advertised as candy or
confection (fruit roll-ups, fruit snacks, dried fruit); honeyroasted nuts.
2014
Program Training
9-3
Items advertised and normally sold for use in cooking, baking, and
decorating baked goods.
EXAMPLES: chocolate morsels; candied fruits; marshmallow
or marshmallow bits; chocolate, carob, or candy-coated
cookies; donuts; snack cakes or similar bakery products.
Fruit or vegetable juices which may be called "juice," without the
words "drink," "ade," or "beverage" preceding or following the word
"juice," will be considered to be natural fruit or vegetable juices.
EXAMPLES: natural fruit or vegetable juices or their
concentrates or reconstituted natural concentrated fruit or
vegetable juices (whether frozen or unfrozen, dehydrated,
powdered, granulated, sweetened or unsweetened, seasoned
with salt or spices, or unseasoned); and coffee or coffee
substitutes; cocoa; and tea (except when sold in liquid form).
The sale of drinking water in bottles, cans, or other containers is
exempt, except when carbonation or flavorings have been added.
Ice cream, frozen yogurt, and similar frozen dairy or nondairy products
sold in units larger than one pint for consumption off the premises.
EXAMPLE: half-gallon of ice cream.
Taxable Food Products Sold by a Grocery Store
Soft drinks including any nonalcoholic beverage, any preparation or
beverage commonly referred to as a "soft drink," or any noncarbonated drink made from milk derivatives, or tea (when sold in
liquid form).
EXAMPLES: milkshakes; malts; soda water; gingerale; colas;
lemonade; limeade; orangeade; orange drinks; fruit drinks;
fruit punch; root beer; tonic; beverage powders; fizzies; iced
tea drinks in bottles or cans; and cocktail mixes.
9-4
Program Training
2014
Candy and any similar product regarded as candy or confection, based
on its normal use, as indicated on the label or advertising.
EXAMPLES: candy apples; chewing gum and breath mints
(except those containing aspirin, laxative, or anti-acidity
qualities); chocolate or carob (plain or mixed with other
products); cotton candy; glazed or sugar-coated fruits, or
other products; fruit drops, fruit flavored sticks; halvah; jelly
beans; licorice; lollipops; marshmallow candy; marzipan; and
preparations of fruits, nuts, or other ingredients in
combination with chocolate, carob, sugar, honey, or other
natural or artificial sweeteners.
Ice cream, frozen yogurt, and similar frozen dairy or nondairy products
in cones, small cups, or pints; Popsicle, frozen fruit bars, or other
novelty items, whether sold separately as units or in multiples.
EXAMPLE: box of Popsicle.
The following are examples of when food products are taxable because
of how or where they are sold:
2014
•
When the food products are sold as meals for consumption
on or off the seller's premises;
•
When the food products are furnished, prepared, or served
for consumption at tables, chairs, or counters or from trays,
glasses, dishes, or other tableware, whether provided by the
seller or by a person with whom the seller contracts to
furnish, prepare, or serve food products to others;
•
When the food products are ordinarily sold for immediate
consumption on the seller's premises or at a nearby
location, such as at a parking facility, provided primarily
for the use of patrons in consuming the products purchased
at the location, even though such products are sold on a
"take out" or "to go" order and are actually packaged or
wrapped and taken from the seller's premises (cookies at
the mall food court);
Program Training
9-5
•
Sandwiches sold ready for immediate consumption,
whether refrigerated or heated by the customer or by the
retailer, are subject to tax. Sandwiches that are not sold
ready for immediate consumption, and not subject to tax,
would be frozen sandwiches or sandwiches with a frozen or
partially frozen filling, even when heated on the seller's
premises by the customer.
•
When the food products are sold ready for immediate
consumption within a place, the entrance to which is
subject to an admission charge (movie theater);
•
When the food products are sold for immediate
consumption, either on or off the premises. This does not
apply to food prepared off the premises and sold in the
original sealed container, or the slicing of products into
smaller portions (deli food products at grocery stores);
•
When the food products are sold through a vending
machine, pushcart, motor vehicle, or any other form of
vehicle (juice sold from a vending machine);
•
Bakery products sold by bakeries, pastry shops, or like
establishments which have eating facilities, except when
sold for consumption off the seller's premises (donuts to-go
are exempt);
•
When food products are served, prepared, or sold in or by
restaurants, lunch counters, cafeterias, hotels, taverns, or
other like places of business;
•
Food sold as hot prepared food products.
Explanation of Premises and Hot Prepared Food
Here are some basic definitions for the food and beverage industry.
9-6
•
For consumption off the seller's premises means the food or
drink is intended by the customer to be consumed at a place
away from the seller's premises.
•
For consumption on the seller's premises means the food or
drink may be immediately consumed on the premises
Program Training
2014
where the seller conducts his or her business.
In
determining whether an item of food is sold for immediate
consumption, consider the customary consumption
practices at the selling facility.
•
Premises shall be construed broadly, and includes the
lobby, aisle, or auditorium of a theater; the seating, aisle, or
parking area of an arena, rink, or stadium; or the parking
area of a drive-in or outdoor theater. The premises of a
caterer with respect to catered meals or beverages are
where meals or beverages are served.
•
Hot prepared food products are the products, items, or
components prepared for sale in a heated condition and
sold at any temperature higher than room temperature of
the room or place where sold. This includes a "combos"
with both hot and cold items sold for a single price.
Food Stamps
Food and drinks for human consumption when purchased with food
stamps issued by the United States Department of Agriculture, or
Special Supplemental Food Program for Women, Infants, and Children
vouchers issued under authority of federal law are tax exempt.
When a purchase of food and drink is made with both food stamps and
cash the food stamps are applied first to the purchase of food and
drinks that are generally taxable but exempt when purchased with food
stamps, e.g., soda. The balance of the purchase is paid with food
stamps or cash at the option of the purchaser.
2014
Program Training
9-7
Example: A customer with cash and $10 of food stamps brings to the
counter of a supermarket the following to purchase:
a. Milk
$ 2.59
b. Bread
1.88
c. Meat
4.23
d. Canned vegetables
2.67
e. Fresh fruit
2.09
f. Eggs
.79
g. Soap and detergent
3.49
h. Candy
2.91
i. Soft drinks
2.29
j. Sandwiches for immediate consumption 3.20
Total $26.14
Items a. through f., total cost of which is $14.25, are exempt from sales
tax, whether purchased with stamps, vouchers, or cash. Item g. cannot
be purchased with stamps or vouchers and is taxable. Items h. through
j., total cost of which is $8.40, are exempt when purchased with
stamps or vouchers but taxable when purchased with cash. Assume
that the customer decides to use the entire $10 of his or her food
stamps to apply to the total bill. The $8.40 due on items h. through j.
would first be paid from the $10 stamps submitted, and the remaining
$1.60 of the stamps submitted would be applied toward the cost of the
food in items a. through f. (None of it could be applied toward the cost
of item g.) The remaining $16.14 due on the total bill includes soap
and detergent in the amount of $3.49 (item g.), tax is due and payable
on the soap and detergent.
Exempt Samples
Any food or drink, whether or not cooked or prepared on the premises,
provided without charge as a sample or for the convenience of
customers by a dealer primarily selling food products at retail.
Exempt Donations to Food Banks
Any food or beverage donated by a dealer that sells food products at
retail to a food bank or an organization which holds a current
exemption from federal corporate income tax pursuant to s. 501(c) of
the Internal Revenue Code, 1986, as amended.
9-8
Program Training
2014
EXEMPT MEDICAL PRODUCTS
Medical products and supplies or medicine dispensed according to an
individual prescription written by a pre-scriber authorized by law to
prescribe medicinal drugs.
Common household remedies recommended and generally sold for use
in the cure or treatment of illness or disease in human beings, such as,
aspirin, epson salts and band-aids.
DELICATESSENS
Many stores have delicatessens where prepared food is sold. Care
must be taken when reviewing their sales due to the mix of taxable and
exempt status of these items. When a supermarket slices meats or
cheeses and sells them without any other preparation, other than
wrapping, the supermarket is deemed not to have prepared the meat or
cheese and the sale is exempt. Also exempt are sales of deli salads and
deserts prepared off the seller's premises and sold in the original sealed
container (including locations owned by the supermarket). Deli salads
prepared off-premises and delivered in bulk and separated into smaller
containers are taxable.
Taxable food cooked or prepared for immediate consumption by a
person who does not provide eating facilities include:
2014
•
All food sold in a heated state (heated by the dealer).
•
All food or drinks, sold with eating utensils provided,
including plates, knives, forks, spoons, glasses, cups or
straws.
•
All heated or unheated food, or a combination on platters,
or as dinners.
Program Training
9-9
RESTAURANTS & BAKERIES
Restaurants are similar to grocery stores. They range in size from the
small hot dog stand to the national chain. They generally operate in
the same manner, selling prepared food for consumption on or off the
premises.
A large number of restaurants also operate lounges, in connection with
the restaurant. These restaurants may operate in a number of different
ways. Some serve alcoholic beverages with the food, as a part of the
restaurant and some operate lounges that are completely separate
operations from the restaurant, while some also offer entertainment
and dancing, and a cover charge is sometimes imposed.
In addition, some restaurants pay certain classes of their employees an
agreed amount of money per day and furnish them with meals. Also,
the owner and his family may be furnished meals at the restaurant.
Special Tax Considerations
The sale of food products served, prepared or sold in or by restaurants;
lunch counters; cafeterias; hotels, taverns other like places of business
is subject to tax, including meals sold to employees.
The sale of food products that are ordinarily sold for immediate
consumption on the seller's premises or at a nearby location, at which
parking facilities are provided primarily for the use of patrons in
consuming the products purchased at the location is subject to tax.
Many restaurants, bakeries and other like places of business have
seating facilities. Because they have seating facilities the sale food
products is taxable unless the dealer documents the sales of tax exempt
food products (groceries and bakery goods to-go).
Two for one sale
When a dealer sells two meals for the price of one meal, the tax should
be collected on the total amount charged. No use tax is due on the free
meal. (see Module 6)
9-10
Program Training
2014
Meals served without a charge
A dealer that provides prepared food products without charge to
customers for immediate consumption is required to pay tax on the
cost price of food products provided. (i.e., meals, chips, nuts, pretzels
and popcorn)
When a restaurant furnishes food products free of charge to
employees, the owner, or the owner’s family, no sales or use tax is
due. However, when the assigned value of the food products is
required to be reported as income to the employee for federal income
tax purposes the food products are subject to tax.
Exempt packaging materials
Materials, containers, labels, sacks, bags, or similar items that
accompany a food product or drink sold to a customer and are used
one time only for packaging the food product or for the convenience of
the customer are not subject to tax. Examples of items:
Bags for bread or produce; bag ties; skewers; ice, dry ice, and salt
placed directly into the packaging container of perishable food;
Paper, plastic, plastic-coated, styrofoam bags, boxes, plates, platters,
trays, and other similar food and beverage containers;
Aluminum foil served with food products; butter chips; single-use
baking dishes; steak markers, toothpicks, toothpick frills, film wrap;
disposable utensils, straws, stirrers, napkins, leftover bags, boxes, or
other containers.
Taxable packaging materials
Cups, straws, plastic stirrers, and similar items used to provide
beverages or other food products free to customers are subject to tax.
Such items are not used for furnishing or service food products or
beverages for sale.
2014
Program Training
9-11
Bakeries
Rule 12A-1.011(3), F.A.C. states in part: "Food or beverages are
subject to tax when served, prepared or sold in or by restaurants…or
other like places of business; or by any business or place required by
law to be licensed by the Division of Hotels and Restaurants of the
Department of Business Regulations, except bakery products sold in or
by pastry shops, doughnut shops, or like establishments for
consumption off premises. Bakery products sold in or by pastry shops,
doughnut shops or like establishments for consumption on the seller's
premises, while sitting, or while standing at or near the seller's
premises are taxable...”
The sale of bakery products are exempt only when the food is not
prepared to be sold as a hot prepared food product and the food is sold
for consumption off the premises. Dealers that claim to have made tax
exempt sales of bakery products must document the exempt sales in
their records, such as, by using a separate register and register tapes,
separate register keys or scanned entries of the exempt sales.
Bakery products that are sold while still warm from the initial baking
are not hot prepared food products and are exempt from tax when sold
for consumption off the premises. However, bakery products that are
kept warm by a heat source used to maintain them in a heated state, or
to reheat them, are subject to tax as hot prepared food products
whether or not they are sold for consumption off the premises.
Caterers
The total charge made by caterers for furnishing food products is
subject to tax. Separate charges for waiters, bartenders, or other
services and/or service personnel, dishes, glasses, chairs, tablecloths
and similar items, are subject to tax.
Tax does not apply to charges for services unrelated to the furnishing
and serving of meals and beverages, such as entertainment charges,
when the charges are separately itemized to the customer on the
customer’s bill.
Caterers are required to pay tax on the purchases or rentals of all
dishes, tables, chairs, silver, linens, kitchen utensils, and other items
used by them in the conduct of their business. However, caterers may
purchase or rent items tax exempt in those instances where the caterer
is purchasing or renting items exclusively for re-rental and for which
9-12
Program Training
2014
the caterer makes a separate charge to the customer. Only items
whose function it is to be used by guests at a catered event qualify for
re-rental (chairs, plates, silverware, etc.), not items whose function it is
to be used by the caterer (steam trays, burners, chafing dishes, etc.).
Meals / Fund Raising Events
Barbecues, fish fries and similar dinners are taxable even if the entire
proceeds are used for charitable purposes, except when sold by
churches.
If a club or similar organization charges its members or guests a
greater amount at their luncheon meetings and dinners than it pays the
caterer or restaurant which furnishes the meals, the tax may be
computed on the charge made by the caterer or restaurant.
In the case of fund raising events when the charge to the patron or
customer bears no relationship to the actual value of that which is
received, such as a $50 per plate dinner, the tax base shall be the total
amount charged by the caterer or restaurateur to the sponsoring
organization.
Gratuities
Any charges made by a dealer to a customer for gratuities, tips, or
similar charges is taxable as part of the total sales price unless the
following conditions are met:
The charge is separately stated as a gratuity, tip, or other similar
charge on a guest's bill; and the dealer does not receive, either directly
or indirectly, any economic benefit from the charge. (Fees imposed by
a credit card company on gratuities paid by credit card are not
construed as the retention of the gratuities by the dealer.)
2014
Program Training
9-13
BARS and LOUNGES
Method of Operation
A bar/lounge will offer drinks for consumption on the premises.
Method of Reporting the Tax (Rule 12A-1.057, F.A.C.)
S. 212.07(2), F.S. expresses that sales tax must be separately stated
from the sales price except for certain industries. The statute also
expresses that when dealers in these certain industries do not
separately state sales tax the department may establish an effective tax
rate. Bars and package stores are permitted to include sales tax in the
total charge. When they choose not to separately charge sales tax the
bar or package store is, by rule, given the choice of whether or not to
post signs concerning sales tax. Their choices and effective tax rates
are expressed in Rule 12A-1.057, F.A.C.
1. The dealer may record each sale and add the tax based on the tax
bracket system to the selling price. All tax collected must be reported.
2. The dealer may inform customers that the selling price includes
the tax (putting them on notice). Signs/notices must be posted
throughout the establishment or information listed on the menu or
other public place that can be seen by all customers when ordering
drinks. If the dealer selects this method, the tax to be reported will be
calculated in the following manner:
a) Bars and/or cocktail lounges should divide their gross receipts by
1.0659, in a 6% state sales tax location. (see table below for other
rates) The result is the gross sales amount. The difference between the
gross receipts amount and the gross sales amount should be reported
as tax collected.
State & Co.
Rate Combined*
6%
6.5%
7%
7.5%
8%
9-14
Program Training
Divide By
1.0659
1.0697
1.0751
1.0795
1.0839
2014
EXAMPLE: A bar has gross receipts of $32,545.50
including tax, and signs are posted. Therefore tax due
would be computed as follows: $32,545.50 divided by
1.0659 = $30,533.35 gross sales...$32,545.50 less
$30,533.35 = $2,012.15 tax due.
b) A combined bar and package store (operated as a single unit),
would use the same method as bars and lounges.
3. The dealer may choose to set drink prices that do not include tax.
No signs are posted to inform customers the tax is being collected,
thus excluding tax from the price, as in #2 above. If this method is
selected, the dealer would calculate and report the tax as follows:
a) Bars and/or cocktail lounges should multiply their gross receipts
by 0.0659, in a 6% state sales tax location (see table below for other
rates) and report the results as tax due.
State & Co.
Rate Combined*
6%
6.5%
7%
7.5%
8%
Multiply By
.0659
.0697
.0751
.0795
.0839
EXAMPLE: No signs are posted and gross receipts are
$32,545.50. Computation would be $32,545.50 x .0659 =
$2,144.75 tax due.
b) A combination bar and package store where the operations are not
separated, would use the same method as bars and lounges.
Special Tax Considerations
Where the books and records of a dealer can clearly demonstrate
without exception a lesser tax rate, the dealer shall apply the lesser tax
rate in a manner consistent with this subsection.
Purchases of popcorn, peanuts, etc., by bars and/or cocktail lounges,
that will be placed on the bar or tables, without charge to the
customers, are taxable to the dealer at the time of purchase.
2014
Program Training
9-15
Purchases of items by bars or cocktail lounges that are to be included
with the mixed drinks are not taxable to the dealer. Some examples of
these items are mixes, ice, fruit, stirrers, etc. Purchases of plastic or
paper cups in which to serve mixed drinks are also exempt to the
dealer. Glassware intended to be used more then one time is taxable.
PACKAGE STORES
Facilities/Operations that do not sell by the drink for consumption on
the premises will be considered a package store. These type
operations offer only items to be taken out. In addition to alcoholic
beverages they will offer items such as picnic supplies, food, ice, Tshirts, hats and party items for sale.
Method of Reporting Tax (Rule 12A-1.057, F.A.C.)
1. The dealer may record each sale and add the tax based on the tax
bracket system to the selling price. All tax collected must be reported.
2. The dealer may inform his customers that the selling price
includes the tax (putting them on notice). Signs/notices MUST be
posted throughout the establishment which can be seen by all
customers when making purchases. If the dealer selects this method,
the tax to be reported will be calculated by dividing their gross
receipts by 1.0635, in a 6% state sales tax location (see table below
for other rates). The result is the gross sales amount. The difference
between the gross receipts amount and the gross sales amount should
be reported as tax collected.
State & Co.
Rate Combined*
6%
6.5%
7%
7.5%
8%
9-16
Program Training
Divide By
1.0635
1.0677
1.0730
1.0776
1.0822
2014
3. The dealer may choose to set prices that do not include tax. No
signs are posted to inform customers the tax is being collected, thus
excluding tax from the price, as in #2 above. If this method is
selected, the dealer would multiply their gross receipts by 0.0635, in a
6% state sales tax location (see table below for other rates) and report
the result as tax due.
State & Co.
Rate Combined*
6%
6.5%
7%
7.5%
8%
Multiply By
.0635
.0677
.0730
.0776
.0822
* The application of county surtaxes will be discussed in Module 18.
Special Tax Considerations
Where the books and records of a dealer can clearly demonstrate
without exception a lesser tax rate, the dealer shall apply the lesser tax
rate in a manner consistent with this subsection.
VENDING MACHINES
Method of Operation
Since vending machines are so prevalent in our society, it is necessary
for an auditor to know how the tax is applied to these transactions.
There are two types of vending machines that will be of concern to an
auditor.
The first is referred to as a full service machine. A full service machine
means the machine is provided and serviced by the machine owner.
The owner of the machine places the machine on location and provides
all products for the machine and in addition, removes all receipts from
the machine.
2014
Program Training
9-17
EXAMPLE: A soft drink bottling company places one of its machines
on location at a bowling alley. The bottling company supplies the
machine, keeps the machine properly stocked with soft drinks, and
removes the money. Once the money is removed from the machine,
the machine owner/operator may pay the bowling alley owner/operator
a percentage of the receipts. All repairs and maintenance is furnished
by the soft drink company. The soft drink company reports all taxable
sales and the tax due, at the applicable rate, for all items sold at a sales
price of $.10 or more.
An agreement by the owner of the real property (bowling alley)
granting the machine owner permission, or a license, to install and
maintain a full service coin operated vending machines on the
premises is a taxable license to use real property.
The location owner (bowling alley) is required to collect sales tax on
the “receipts” from the soft drink bottling company and report the real
property rental (license to use) income and sales tax on their DR-15
filed with the Department.
The other type of vending machine is referred to as a non-full service
machine. This means the machine owner rents the machine to the
location owner/operator for a monthly fee. The machine owner may or
may not sell the items vended, to the location owner. The location
owner services the machine and collects the money and reports all
taxable sales and the tax at the applicable rate, for all items sold at a
sales price of $.10 or more. Machine repairs and maintenance are
normally furnished by the machine owner. The lease of a vending
machine by the owner to the location owner/operator is a taxable rental
of tangible personal property.
EXAMPLE: A vending machine company rents one of its machines to
a bowling alley. The bowling alley keeps the machine stocked with
cigarettes, and removes the money. Once the money is removed from
the machine, the bowling alley/operator pays the vending machine
company/owner a percentage of the receipts. All repairs and
maintenance is furnished by the vending machine company. The
bowling alley reports all taxable sales and the tax due, at the applicable
rate, for all items sold at a sales price of $.10 or more.
An agreement by the owner of the vending machines renting vending
machines to the bowling alley is a taxable rental of tangible personal
property.
9-18
Program Training
2014
The vending machine company is required to collect sales tax on the
“receipts” form the bowling alley and report the vending machine
rental (tangible personal property) income and sales tax on their DR15 filed with the Department.
Registration Requirements
Operators of vending machines are required to register with the
Department of Revenue for sales and use tax purposes. A separate
Sales and Use Tax Certificate of Registration is required for each
county (not each machine) in which machines are located.
Operators of food and/or beverage vending machines are required to
place a notice on each of their machines operated in this state.
FLORIDA LAW REQUIRES THIS NOTICE TO BE POSTED ON
ALL FOOD AND BEVERAGE VENDING MACHINES. Report any
machine without a notice to 1-800-352-9273. You may be eligible for
a cash reward. DO NOT USE THIS NUMBER TO REPORT
PROBLEMS WITH THE VENDING MACHINE SUCH AS LOST
MONEY OR OUT-OF-DATE PRODUCTS.
A penalty of $250 will be imposed on the operator of each vending
machine without proper notice being affixed.
Full Service / Non-Full Service Determination
Full service and non-full service vending machines are areas that need
special attention. The full service taxable transaction occurs between
the machine owner and the purchaser of items from the machine. The
machine owner would report the tax on all taxable sales through the
machine. The purchase and repairs by the owner of these machines is
taxable. Additionally, all consideration given to the location operator
is taxable as a license to use real property.
The non-full service taxable transaction occurs when the machine
owner rents the machine to the location owner. The location owner
would be responsible for reporting the tax on all taxable sales through
the machine. The purchase and repairs by the owner of these
machines are exempt if the machines are for exclusive re-rental.
Proceeds derived from vending machines rented or leased by the
machine owner to an operator, are taxable as the rental or lease of
TPP.
2014
Program Training
9-19
For the purpose of Rule 12A-1.044, F.A.C., Vending Machines,
possession of a vending machine means both actual or constructive
possession and control. To determine if a person has constructive
possession and control the following criteria shall be considered: right
of access to the machine; duty to repair; title to the machine; risk of
loss from damages to the machine; and the party possessing the keys to
the moneybox.
If, based on the criteria set out above, the owner of the machine has
constructive possession and control, but the location owner has
physical possession of the machine, then the operator shall be
determined by who has the key to the money box and is responsible
for removing the receipts. If both the owner of the machine and the
location owner have the keys to the moneybox and are responsible for
removing the receipts, then they shall designate in writing who shall be
considered the operator. Absent such written designation, the owner
of the machine shall be deemed to be the operator.
Special Tax Considerations
The sale of drinking water in containers, including water that contains
minerals or carbonation in its natural state or water to which minerals
have been added at a water treatment facility regulated by the
Department of Environmental Protection or the Department of Health,
is exempt.
Sales of food and drinks from vending machines located in the
lunchroom, dining room or cafeteria of schools with grades
kindergarten through twelve are exempt. Vending machines located at
any other place in these schools and in institutions of higher learning
do not receive this exemption.
The amount of the tax to be paid on food, beverages, or other items of
tangible personal property (TPP) that are sold in vending machines
shall be calculated by dividing the gross receipts from such sales by a
divisor, provided below, to compute gross taxable sales, and then
subtracting gross taxable sales from gross receipts to arrive at the
amount of tax due. The applicable tax rate is affected by counties
imposing a discretionary sales surtax. The “effective rates and
divisors” are as follows:
9-20
Program Training
2014
Product Sold
State & Co.
State & Co.
From Machine
Rate Combined Effective Rate
FOOD INCLUDING
6%
6.45%
MILK AND MILK
6.5%
6.86%
PRODUCTS,
6.75%
7.06%
NATURAL FRUIT
7%
7.26%
AND VEGETABLE
7.5%
7.67%
JUICES AND
8%
8.08%
BEVERAGES
TPP SOLD
THRU VENDING
MACHINES
6%
6.5%
6.75%
7.0%
7.5%
8%
6.59%
7.07%
7.27%
7.49%
7.91%
8.33%
Divisor
1.0645
1.0686
1.0706
1.0726
1.0767
1.0808
1.0659
1.0707
1.0727
1.0749
1.0791
1.0833
Example: Gross receipts of $1,000 for one month from a soda
vending machine in a county with no discretionary sales surtax.
Combined state (6%) and county rate (0%) is 6%. The “food &
beverage vending effective rate” is 6.45% and the divisor is 1.0645.
$1,000 / 1.0645 = $939.41 Gross Taxable Sales
$1,000 - $939.41 = $60.59 Sales Tax Due
Example: Gross receipts of $1,320 for one month from a
“transportation map” vending machine in a county with a 1%
discretionary sales surtax. Combined state (6%) and county rate (1%)
is 7%. The “TPP vending effective rate” is 7.49% and the divisor is
1.0749.
$1,320 / 1.0749 = $1,228.02 Gross Taxable Sales
$1,320 - $1,228.02 = $91.98 Sales Tax Due
AMUSEMENT MACHINES ( S. 212.05(1)(h), F.S. )
Income generated from amusement machines is taxable. The state tax
rate on income generated from amusement machines is 4%. Like
vending machines, the amount of tax due on receipts from amusement
machines shall be calculated by dividing the gross receipts by 1.04, to
compute gross taxable sales, and then subtracting gross taxable sales
from gross receipts to arrive at the amount of tax due. The applicable
tax rate is affected by counties imposing a discretionary sales surtax.
This is accomplished by adding the county rate to the state rate. For
2014
Program Training
9-21
example, if a county has a 1% surtax rate the total amusement machine
rate will be 5% and the divisor will be 1.05.
S. 212.05(1)(h)2.c., F.S., expresses that absent a written agreement, the
Department will deem the agreement between the location owner and
the machine owner to be for a rental of tangible personal property and
the location owner will be considered the machine operator. As the
machine operator, the location owner is responsible for removing the
receipts from the machine and remitting the tax to the Department and
responsible for purchasing the certificates for the machines at that
location.
Any money paid by the location owner to the machine owner would be
considered payment for the rental of tangible personal property.
Since the rental of tangible personal property is taxable, the machine
owner would be responsible for collecting tax on the rental payments
and submitting it to the department.
If, however, the location owner and machine owner agree that the
machine owner shall be the operator, they must enter into a written
agreement. The written agreement between the parties must indicate:
•
•
•
which party is the operator (this party is responsible for
purchasing certificates for the machines at the location);
who is responsible for removing the monies from the
machine and remitting the tax to the Department; and
whether the agreement is for the lease of tangible personal
property or a license to use real property.
When the owner of an amusement machine places the machine on the
premises of another and the two parties agree that the machine owner
is the operator the location owner's share is considered earned by
allowing the machine owner to place the machine on the location
owner's property. The amount received by the location owner is
taxable as a license to use real property. This tax is to be collected
by the property owner from the machine owner and remitted to the
department.
The taxability of the purchase of amusement machines depends upon
whether the machines are purchased for the machine owner's use or
exclusively for re-rental.
9-22
Program Training
2014
When a machine is activated by a slug, token, coupon, or any similar
device which has been purchased, the tax shall be on the price paid by
the user.
Registration Requirements
Dealer Registration
Operators of coin-operated amusement machines are required to apply
for and obtain registration with the Department of Revenue for sales
and use tax purposes. It is not required that a registration certificate be
obtained for every machine but only that the operator obtain separate
Sales and Use Tax Certificates of Registration for each county in
which such machines are located.
Machine Registration
An operator of a coin-operated amusement machine may not operate
any machine until the operator has registered with the department and
has conspicuously displayed an identifying certificate issued by the
Department. The identifying certificate shall include a unique number,
and the certificate shall be permanently marked with the operator's
name, the operator's sales tax number, and the maximum number of
machines to be operated under the certificate. An identifying
certificate shall not be transferred from one operator to another. The
identifying certificate must be conspicuously displayed on the
premises where the coin-operated amusement machines are being
operated.
Machine Identifying Certificates
The operator of the machine must obtain an identifying certificate
before a machine is first operated in the state and by July 1 of each
year thereafter. The annual fee for each certificate shall be based on
the number of machines identified on the application times $30 and is
due and payable upon application for the identifying device. The
application shall contain the operator's name, sales tax number,
business address where the machines are being operated, and the
number of machines in operation at that place of business by the
operator. No operator may operate more machines than are listed on
the certificate. A new certificate is required if more machines are being
operated at that location than are listed on the certificate. The fee for
the new certificate shall be based on the number of additional
machines identified on the application form times $30.
2014
Program Training
9-23
A penalty of $250 per machine is imposed on the operator for failing
to properly obtain and display the required identifying certificate. A
penalty of $250 is imposed on the lessee of any machine placed in a
place of business without a proper current identifying certificate. Such
penalties shall apply in addition to all other applicable taxes, interest,
and penalties.
SUMMARY
Groceries, bars, restaurants, package stores and coin-operated
machines share the major issues of tax rate and ratio. Inventory is the
main operational concern for these businesses. Numerous state and
local registration requirements are another common element,
particularly for coin-operated machines.
9-24
Program Training
2014
SELF – CHECK QUESTIONS
1. When auditing grocery stores, bars, and/or restaurants that have
only one location and do not have dependable sales records, which
audit technique is usually most appropriate?
A.
B.
C.
D.
Error ratio
Rate and ratio
Averaging
Detail
2. Which statement is true regarding a separately stated gratuity
charge to a customer at a restaurant?
A.
B.
C.
D.
2014
The gratuity is part of the taxable selling price.
The gratuity is in addition to the sales price and is
exempt.
The gratuity is exempt if returned to the employees in
full.
The gratuity is taxable unless it was given voluntarily.
Program Training
9-25
3. When a restaurant furnishes employees with meals at no charge and
the value of the meals are not required to be reported as income to the
employees under the federal income tax law, which of the following is
true?
A.
B.
C.
D.
the restaurant does not owe any sale/use tax on the meals.
the employees owe use tax on the full fabricated cost of the
meals.
the restaurant owes use tax on the full fabricated cost of the
meal.
the restaurant owes sales tax on the fair market value of the
meal(s).
4. You have just received a billing from the caterer that catered your
dinner party last weekend. The billing lists the following:
Dinner Buffet items (for 50 guest)
Use of Table Linens
Place settings for 50 guests
Service Personnel (waiters, servers, & bus)
Total Catering Service
$550.00
50.00
125.00
250.00
$975.00
What is the taxable amount of this billing (if any)?
(5. & 6.) While examining the records of Junk Food, a vending
service, you discover that Junk Food has entered into a contractual
agreement with The Bowling Center. In the contract, The Bowling
Center has agreed to allow Junk Food to place a soft drink machine at
The Bowling Center. Junk Food has agreed to assure that the machine
stays properly stocked and also agrees to maintain the machine by
performing any necessary service and/or repairs and remove the
receipts from the machine at least twice weekly. It is also agreed that
The Bowling Center will receive 40% of the gross receipts generated
from the machine. This percentage will be paid monthly.
Based on the above information, answer the following questions:
5. What type vending machine service is involved in this contract?
A. full service
B. non full service
9-26
Program Training
2014
6.
Which of the following best describes the basic nature of the
transaction in the previous question?
A. Junk Food is renting the machine to The Bowling Center.
B. The Bowling Center is receiving a 40% sales commission.
C. Junk Food is paying to use real property in The Bowling
Center.
D. Junk Food owes sales tax on 60% of the sales from the
vending machine.
2014
Program Training
9-27
9-28
Program Training
2014
SELF – CHECK ANSWERS
1. When auditing grocery stores, bars, and/or restaurants that have
only one location and do not have dependable sales records, which
audit technique is usually most appropriate?
A.
B.
C.
D.
Error ratio
Rate and ratio
Averaging
Detail
Explanation: See Module Five, “AUDIT TECHNIQUES, Rate and
Ratio.” The rate and ratio technique is applicable in determining the
amount of tax that has not been reported on sales. This procedure is
appropriate for use when auditing businesses with high volume and
relatively low to moderately priced taxable or exempt sales
(grocery/convenient stores, bars, and restaurants) that do not have
dependable sales records. This technique utilizes an effective tax rate
that is applied to estimated taxable sales.
Choice A is incorrect. See Module Five, “AUDIT TECHNIQUES,
Error Ratio.” The error ratio technique produces an approximation of
the amount of tax not paid by the taxpayer. Dependable records are
needed for this technique to be effective. This is not the best answer.
Choice B is correct. See explanation. The rate and ratio is the best
answer.
Choice C is incorrect. See Module Five, “AUDIT TECHNIQUES,
Averaging.” Averaging is an audit technique that works well in audit
periods where there is an absence of sufficient records. Averaging does
not utilize an effective tax rate for missing sales. This is not the best
answer.
2014
Program Training
9-29
Choice D is incorrect. See Module Five, “AUDIT TECHNIQUES,
Detail.” The detail audit is the basic audit technique used for sales and
use tax. This type audit requires that an examination of all records
pertaining to sales and use tax be examined. This is not the best
answer.
2. Which statement is true regarding a separately stated gratuity
charge to a customer at a restaurant?
A.
B.
C.
D.
The gratuity is part of the taxable selling price.
The gratuity is in addition to the sales price and is
exempt.
The gratuity is exempt if returned to the employees in
full.
The gratuity is taxable unless it was given voluntarily.
Explanation: See “RESTAURANTS AND BAKERIES, Gratuities.”
Rule 12A-1.061(3)(c), F.A.C., expresses that any charges made by a
dealer to a customer for gratuities, tips, or similar charges is taxable as
part of the total sales price unless both of the following conditions are
met:
•
The charge is separately stated as a gratuity, tip
or other similar charge on a guest’s or tenant’s
bill, invoice, or other tangible evidence of sale;
and
•
The owner or owner’s representative does not
receive, either directly or indirectly, any
economic benefit from the charge.
Choice A is incorrect. See explanation.
gratuity to be exempt from tax.
There are criteria for a
Choice B is incorrect. See explanation. The gratuity must be
separately stated and also not be of any benefit to the owner.
Choice C is correct. See explanation.
Choice D is incorrect. See explanation. When the gratuity is stated on
the bill there must not be any benefit to the owner.
9-30
Program Training
2014
3. When a restaurant furnishes employees with meals at no charge and
the value of the meals are not required to be reported as income to the
employees under the federal income tax law, which of the following is
true?
A.
B.
C.
D.
the restaurant does not owe any sale/use tax on the meals.
the employees owe use tax on the full fabricated cost of the
meals.
the restaurant owes use tax on the full fabricated cost of the
meal.
the restaurant owes sales tax on the fair market value of the
meal(s).
Explanation:
See “RESTAURANTS AND BAKERIES, Meals
served without charge.” When a restaurant furnishes food products
free of charge to employees, the owner, or the owner’s family, no sales
or use tax is due.
Choice A is correct. See explanation.
Choice B is incorrect. See explanation.
Choice C is incorrect. See explanation.
Choice D is incorrect. See explanation.
4. You have just received a billing from the caterer that catered your
dinner party last weekend. The billing lists the following:
Dinner Buffet items (for 50 guest)
Use of Table Linens
Place Settings for 50 guests
Service Personnel (waiters, servers, & bus)
Total Catering Service
$550.00
50.00
125.00
250.00
$975.00
What is the taxable amount of this billing (if any)?
Explanation: See “RESTUARANTS AND BAKERIES, Caterers.”
The total charge made by caterers for furnishing food products is
subject to tax. Separate charges for waiters, bartenders, or other
services and/or service personnel, dishes, glasses, chairs, tablecloths
and similar items, are subject to tax.
Answer: The entire Catering Service charge of $975 is taxable.
2014
Program Training
9-31
(5. & 6.) While examining the records of Junk Food, a vending
service, you discover that Junk Food has entered into a contractual
agreement with The Bowling Center. In the contract, The Bowling
Center has agreed to allow Junk Food to place a soft drink machine at
The Bowling Center. Junk Food has agreed to assure that the machine
stays properly stocked and also agrees to maintain the machine by
performing any necessary service and/or repairs and remove the
receipts from the machine at least twice weekly. It is also agreed that
The Bowling Center will receive 40% of the gross receipts generated
from the machine. This percentage will be paid monthly.
Based on this information, answer the following questions:
5. What type vending machine service is involved in this contract?
A. full service
B. non full service
Explanation:
Answer is A. full service.
See “VENDING
MACHINES, Method of Operation.” A full service machine means
the machine is provided and serviced by the machine owner. The
owner of the machine places the machine on location and provides all
products for the machine and in addition, removes all receipts from the
machine.
6. Which of the following best describes the basic nature of the
transaction in the previous question?
A.
B.
C.
D.
Junk Food is renting the machine to The Bowling Center.
The Bowling Center is receiving a 40% sales commission.
Junk Food is paying to use real property in The Bowling Center.
Junk Food owes sales tax on 60% of the sales from the vending
machine.
Explanation: See “VENDING MACHINES, Method of Operation.”
An agreement by the owner of the real property granting the machine
owner permission, or a license, to install and maintain full service coin
operated vending machines on the premises would be a taxable
transaction as a license to use real property.
Choice A is incorrect. See explanation. In this example, the vending
machine is full service primarily because Junk Food is responsible for
removing receipts from the machine.
9-32
Program Training
2014
Choice B is incorrect. See explanation. The Bowling Center is not
receiving sales commissions. The Bowling Center is receiving
payments for a license to use real property.
Choice C is correct. See explanation. The Bowling Center is granting
Junk Food a license to use real property.
Choice D is incorrect. See explanation. As operator, Junk Food owes
sales tax on 100% of the vending machine sales and should pay tax to
The Bowling Center on the 40% payment to use their real property.
2014
Program Training
9-33
9-34
Program Training
2014
Nontaxable Medical Items and General Grocery List
DR-46NT
R. 07/10
Rule 12A-1.097
Florida Administrative Code
Effective 07/10
Chemical Compounds and Test Kits
Common Household Remedies
Chemical compounds and test kits used
for the diagnosis or treatment of disease,
illness, or injury, dispensed according to
an individual prescription or prescriptions
written by a licensed practitioner
authorized by Florida law to prescribe
medicinal drugs are EXEMPT. In addition,
the following chemical compounds and
test kits (including replacement parts) for
HUMAN USE are EXEMPT, with or without
a prescription.
Tax is not imposed on any common
household remedy dispensed according to
an individual prescription or prescriptions
written by a licensed practitioner
authorized by Florida law to prescribe
medicinal drugs. In addition, the following
common household remedies are
specifically EXEMPT with or without a
prescription.
Allergy test kits that use human blood
to test for the most common
allergens
Anemia meters and test kits
Antibodies to Hepatitis C test kits
Bilirubin test kits (blood or urine)
Blood analyzers, blood collection
tubes, lancets, capillaries, test
strips, tubes containing chemical
compounds, and test kits to test
human blood for levels of albumin,
cholesterol, HDL, LDL, triglycerides,
glucose, ketones, or other detectors
of illness, disease, or injury
Blood sugar (glucose) test kits, reagent
strips, test tapes, and other test kit
refills
Blood pressure monitors, kits, and
parts
Breast self-exam kits
Fecal occult blood tests (colorectal
tests)
Hemoglobin test kits
Human Immunodeficiency Virus (HIV)
test kits and systems
Influenza AB test kits
Middle ear monitors
Prostate Specific Antigen (PSA) test
kits
Prothrombin (clotting factor) test kits
Thermometers, for human use
Thyroid Stimulating Hormone (TSH) test
kits
Urinalysis test kits, reagent strips,
tablets, and test tapes to test levels,
such as albumin, blood, glucose,
leukocytes, nitrite, pH, or protein
levels, in human urine as detectors
of illness, disease, or injury
Urinary tract infection test kits
Vaginal acidity (pH) test kits
Chemical compounds and test kits used
for the diagnosis or treatment of animals’
disease, illness, or injury are TAXABLE.
Adhesive tape
Alcohol, alcohol wipes, and alcohol
swabs containing ethyl or isopropyl
alcohol
Allergy relief products
Ammonia inhalants/smelling salts
Analgesics (pain relievers)
Antacids
Antifungal treatment drugs
Antiseptics
Asthma preparations
Astringents, except cosmetic
Band-aids
Bandages and bandaging materials
Boric acid ointments
Bronchial inhalation solutions
Bronchial inhalers
Burn ointments and lotions, including
sunburn ointments generally sold for
use in treatment of sunburn
Calamine lotion
Camphor
Castor oil
Cod liver oil
Cold capsules and remedies
Cold sore and canker remedies
Cough and cold items, such as cough
drops and cough syrups
Denture adhesive products
Diarrhea aids and remedies
Digestive aids
Disinfectants, for use on humans
Diuretics
Earache products and ear wax removal
products
Enema preparations
Epsom salts
External analgesic patch, plaster, and
poultice
Eye bandage, patch, and occlusor
Eye drops, lotions, ointments and
washes, contact lens lubricating and
rewetting solutions (Contact lens
cleaning solutions and disinfectants
are TAXABLE.)
First aid kits
Common Household Remedies continued
Foot products (bunion pads, medicated
callus pads and removers, corn
pads or plasters, ingrown toenail
preparations, and athlete’s foot
treatments)
Gargles, intended for medical use
Gauze
Glucose for treatment or diagnosis of
diabetes
Glycerin products, intended for medical
use
Hay fever aid products
Headache relief aid products
Hot or cold disposable packs for
medical purposes
Hydrogen peroxide
Insect bite and sting preparations
Insulin
Ipecac
Itch and rash relievers, including
feminine anti-itch creams
Laxatives and cathartics
Lice treatments (pediculicides),
including shampoos, combs, and
sprays
Liniments
Lip balms, ices, and salves
Lotions, medicated
Menstrual cramp relievers
Mercurochrome
Milk of Magnesia
Mineral oil
Minoxidil for hair regrowth
Motion sickness remedies
Nasal drops and sprays
Nicotine replacement therapies,
including nicotine patches, gums,
and lozenges
Ointments, medicated
Pain relievers, oral or topical
Petroleum jelly and gauze
Poison ivy and oak relief preparations
Rectal preparations (hemorrhoid and
rash)
Sinus relievers
Sitz bath solutions
Skin medications
Sleep aids (inducers)
Styptic pencils
Suppositories, except contraceptives
Teething lotions and powders
Throat lozenges
Toothache relievers
Wart removers
Witch hazel
Worming treatments (anthelmintics), for
human use
DR-46NT
R. 07/10
Page 2
Cosmetics and Toilet Articles
Cosmetics and toilet articles ARE
TAXABLE, even when the cosmetic
or toilet article contains medicinal
ingredients. Examples of cosmetics are
cold cream, suntan lotion, makeup, body
lotion, soap, toothpaste, hair spray,
shaving products, cologne, perfume,
shampoo, deodorant, and mouthwash.
Cosmetics and toilet articles are
EXEMPT only when dispensed
according to an individual prescription
or prescriptions written by a licensed
practitioner authorized by Florida law to
prescribe medicinal drugs.
Prosthetic Appliances or
Orthopedic Appliances
Prosthetic or orthopedic appliances
dispensed according to an individual
prescription written by a licensed
practitioner (a physician, osteopathic
physician, chiropractic physician,
podiatric physician, or dentist duly
licensed under Florida law) are EXEMPT.
In addition, the following prosthetic and
orthopedic appliances are specifically
EXEMPT under Florida law or have been
certified by the Department of Health as
EXEMPT without a prescription.
Abdominal belts
Arch, foot, and heel supports; gels,
insoles, and cushions, excluding
shoe reliners and pads
Artificial eyes
Artificial limbs
Artificial noses and ears
Back braces
Batteries, for use in prosthetic and
orthopedic appliances
Braces and supports worn on the
body to correct or alleviate a
physical incapacity or injury
Canes (all)
Crutches, crutch tips, and pads
Dentures, denture repair kits, and
cushions
Dialysis machines and artificial kidney
machines, parts, and accessories
Fluidic breathing assistors; portable
resuscitators
Hearing aids (repair parts, batteries,
wires, condensers)
Heart stimulators and external
defibrillators
Mastectomy pads
Ostomy pouch and accessories
Patient safety vests
Rupture belts
Prosthetic Appliances or
Orthopedic Appliances continued
Suspensories
Trusses
Urine collectors and accessories
Walkers, including walker chairs
Walking bars
Wheelchairs, including powered
models, their parts, and repairs
Other Exempt Medical Items
Hypodermic needles and syringes
Lithotripters
Medical products and supplies used
in the cure, mitigation, alleviation,
prevention, or treatment of injury,
disease, or incapacity that are
temporarily or permanently incorporated
into a patient or client or an animal by
a licensed practitioner or a licensed
veterinarian are EXEMPT. Examples are
dental bridges and crowns.
Medical products, supplies, or devices
are EXEMPT when they are:
1. dispensed under federal or state
law only by the prescription or
order of a licensed practitioner,
e.g., “Rx only” or “CAUTION:
Federal law restricts this device
to sale by or on the order of a
[designation of a licensed health
care practitioner authorized to use
or order the use of the device]”;
and
2. intended for use on a single
patient and are not intended to be
reusable.
Some examples of items that would
meet these requirements are:
Artificial arteries, heart valves, and
larynxes
Bone cement, nails, pins, plates,
screws, and wax
Catheters
Eyelid load prosthesis
Pacemakers
Unless listed as a specifically taxexempt item, sales of medical
equipment to physicians, dentists,
hospitals, clinics, and like
establishments are TAXABLE, even
though the equipment may be used in
connection with medical treatment.
Optical Goods
Prescription eyeglasses, lenses, and
contact lenses, including items that
become a part thereof, are EXEMPT.
Standard or stock eyeglasses and other
parts sold without a prescription are
TAXABLE.
General Groceries
The following general classifications
of grocery products are EXEMPT from
tax. However, food products prepared
and sold for immediate consumption
(except food products prepared off the
seller’s premises and sold in the original
container or sliced into smaller portions),
sold as part of a prepared meal (whether
hot or cold), or sold for immediate
consumption within a place where the
entrance is subject to an admission
charge are TAXABLE. Sandwiches sold
ready for immediate consumption are
TAXABLE.
Baked goods and baking mixes
Baking and cooking items advertised
and normally sold for use in
cooking or baking, such as
chocolate morsels, flavored
frostings, glazed or candied
fruits, marshmallows, powdered
sugar, or food items intended for
decorating baked goods
Bread or flour products
Breakfast bars, cereal bars, granola
bars, and other nutritional food
bars, including those that are
candy-coated or chocolate-coated
Butter
Canned foods
Cereal and cereal products
Cheese and cheese products
Cocoa
Coffee and coffee substitutes
Condiments and relishes, including
seasoning sauces and spreads,
such as mayonnaise, ketchup, or
mustard
Cookies, including chocolate-coated
or cream-filled
Crackers
Dairy products
Dairy substitutes
Dietary substitutes (including herbal
supplements)
Drinking water, including water
enhanced by the addition
of minerals (except when
carbonation or flavorings have
been added to the water in the
manufacturing process)
DR-46NT
R. 07/10
Page 3
General Groceries - continued
General Groceries - continued
Eggs and egg products
Fish, shellfish, and other fish
products
Food coloring
Food supplements
Frozen foods
Fruit (including fruit sliced, chunked,
or otherwise cut by the retailer)
Fruit snacks, fruit roll-ups, and dried
fruit, including those sweetened
with sugar or other sweeteners
Gelatins, puddings, and fillings,
including flavored gelatin desserts,
puddings, custards, parfaits, pie
fillings, and gelatin base salads
Grain products and pastas, including
macaroni and noodle products,
rice and rice dishes
Honey
Ice cream, frozen yogurt, sherbet,
and similar frozen dairy or
nondairy products sold in units
larger than one pint (Ice cream,
frozen yogurt, and similar frozen
dairy or nondairy products in
cones, small cups, or pints, and
popsicles, frozen fruit bars, or
other novelty items, whether sold
separately or in multiple units are
TAXABLE.)
Jams, jellies, and preserves
Margarine
Marshmallows
Meal replacement powders and
drinks, including liquid food
supplements
Meat and meat products
Meat substitutes
Milk and milk products, including
products intended to be mixed
with milk
Natural fruit juices containing
100 percent fruit juices (Fruit
drinks labeled ades, beverages,
cocktails, drink or fruit or
vegetable flavor, flavored, or
flavorings are TAXABLE.)
Peanut butter
Poultry and poultry products
Salad dressings and dressing mixes
Salt, salt tablets, pepper, spices,
seeds, herbs, seasonings, blends,
extracts, and flavorings, whether
natural or artificial
Sandwich spreads
Sauces and gravies
Seafood and seafood products
Snack foods, including chips, corn
chips, potato chips, cheese puffs
and curls, cereal bars, cracker
jacks, granola bars, nuts and
edible seeds, pork rinds, and
pretzels, including those that are
chocolate-coated, honey-coated,
or candy-coated (Candy and like
items regarded and advertised as
candy, as indicated on the label,
are TAXABLE.)
Spreads, except those cooked or
prepared on the seller’s premises
Sugar, sugar products, and
substitutes
Tea (including herbal tea), unless sold
in liquid form
Vegetables and vegetable products,
including natural vegetable
products that include natural
vegetable juices
Vegetable juices, natural (except
those labeled as ades, beverages,
cocktails, drink, or fruit or
vegetable flavor, flavored, or
flavorings)
Vegetable oils, lard, olive oil,
shortenings, and oleomargarine
Vegetable salads, fresh (except those
sold cooked with eating utensils)
Vitamins and minerals
Bakeries, Pastry Shops, or Similar
Establishments
Bakery products sold by bakeries,
pastry shops, or similar establishments
that do not have eating facilities are
EXEMPT.
Bakery products sold by bakeries,
pastry shops, or similar establishments
that have eating facilities are TAXABLE,
except when sold for consumption
off premises. Bakery products sold
in quantities of five (5) or fewer are
presumed to be TAXABLE. Bakery
products, regardless of the quantity, that
are not packaged with an intention by
the customer to consume the products
off the premises are also presumed to
be TAXABLE.
Exempt Infant Supplies
Baby food
Baby formulas, liquid or powder
Baby teething lotion
Baby teething powder
Oral electrolyte solutions for infants
and children
Exempt Miscellaneous Items
Bibles, hymn books, and prayer
books
Flags, United States or official state
flag of Florida
Seeds and Fertilizers
Fertilizers, including peat, topsoil,
and manure1 and 2
Seeds, including field, garden, and
flower (no exemption certificate
required)
Fungicides1 and 2
Herbicides1 and 2
Insecticides1 and 2
Pesticides1 and 2
Seedlings, cuttings, plants, and fruit
or nut trees used to produce food
for humans2
Weed killers1 and 2
Exempt if used for application on
or in cultivation of crops, groves,
and home vegetable gardens or by
commercial nurserymen.
2
The purchaser must furnish the
seller a certificate stating that
the item is used exclusively for
exempt purposes.
1
MODULE TEN
REPAIR OF TANGIBLE PERSONAL PROPERTY
& SERVICE WARRANTY AGREEMENTS
OBJECTIVES
Upon completion of this module the participant will:
•
understand the business operations of those who repair
tangible personal property; and
•
be able to determine the correct tax application for the
repair of tangible personal property.
INTRODUCTION
This module introduces the activities and tax application of small and
large appliance repair, large industrial equipment repair, and motor
vehicle repair and service warranty agreements. Although the size of a
repair business may vary from a one man operation to a large factory
service center, they all share one central function. Each provides
materials and labor to repair property that belongs to others. Many
repairs are covered by service warranties. Sales and/or purchases of
service warranties to protect industrial equipment are commonplace.
A registered repair facility's purchase of parts is exempt from tax, if
the parts become a component part of the repaired item. The repair
shop should extend a resale certificate to the distributor or
manufacturer when purchasing these parts. The parts are considered to
be resold as part of a taxable repair. Supplies and overhead items are
subject to use tax. These items are consumed/expended by the repair
shop in performing the repair and do not become a component part of
the repair item.
2014
Program Training
10-1
SMALL AND LARGE APPLIANCE REPAIR
Method of Operation
Smaller home appliances may be returned for repair to the store where
purchased. Some of these stores may operate a small repair facility of
their own, usually at a central warehouse, or the appliance may be sent
to a manufacturer's authorized repair shop. Larger home appliances
may be serviced by a mobile repair unit or transported to the shop.
The charges made for repairing an appliance will depend upon the type
of work done, and the location where such work was performed.
Repairs performed at a shop will usually result in charges for parts,
labor and transportation of the item for repair. There may be a
minimum charge when the repair, labor, or parts used are minor. If a
very common type of repair is performed, a standard repair charge
may be billed to the owner in lieu of itemizing parts and labor. Mobile
repairs may have service call charges or technical fees as well as
itemized billings for parts and labor. The repair shop may operate
under a combination of all of these circumstances.
The shop will maintain an inventory of the standard parts used in
appliance repair. Uncommon or expensive parts will normally have to
be obtained from a distributor or the manufacturer due to extreme cost
to maintain inventory. Shop supplies, tools, and service vehicles are
common purchases made by these types of businesses.
The repair shop may be authorized by one or more appliance
manufacturers to perform warranty work for them. The contract for
warranty work will outline the costs to be assumed by the parties to the
transaction. Maintenance contracts for appliances may also be offered
to customers through the repair shop itself, the manufacturer, or the
dealer. The contracts will specify the appliance, repair work, and time
frame covered under the agreement.
Special Tax Considerations
The definition of sales price in Section 212.02 (16), F.S., "...includes
the consideration for a transaction which requires both labor and
materials to alter, remodel, maintain, adjust and repair tangible
personal property." Rule 12A-1.006, F.A.C., states in part that, where
parts are furnished by the repairman, the entire charge he makes to his
customer for repairing tangible personal property is taxable.
10-2
Program Training
2014
EXAMPLE: A repair shop repaired a refrigerator and upon
completion of the repair, prepared a billing invoice as follows:
Parts
Labor
Subtotal
Sales tax (6%)
Total
$1,500
500
$2,000
120
$2,120
The $500 labor charge is included as part of the taxable
amount, because parts and/or materials were furnished by the
repairman in the repair work.
Further analysis of the taxability of most repair transactions
emphasizes; where so much as a drop of oil for lubrication is added to
the property repaired, or a minute amount of wire and solder are used
to repair a circuit, the entire charge made to the owner of the property
for such repair or service is taxable. The taxation of the entire charge
is not affected by the manner of billing for any repair which isolates
parts from labor, even if separately stated on an invoice or billed on
separate invoices. Charges for repairs that require parts or supplies
that are incorporated into the repaired item are taxable even when no
separate charge is made for the parts or supplies.
EXAMPLE: A repair shop repaired a refrigerator and upon
completion of the repair, prepared a billing invoice as follows:
Labor
Parts supplied by
repair shop at no charge
Subtotal
Sales tax (6%)
Total
$500
$0
$500
30
$530
The $500 labor charge is taxable because parts and/or
materials were furnished by the repairman in the repair work.
Charges for repairs requiring labor or service only are exempt, if the
repair shop can establish by evidence in its records that tangible
personal property was not incorporated into the repair. If it is unable
to do so, the charges for the repairs are taxable.
2014
Program Training
10-3
Material actually incorporated into property being repaired is not
taxable to the repair shop when the material is purchased. Any
materials and supplies used by the repairman which do not become a
component part of the property repaired are taxable to the repair shop
as overhead items.
Repair shops may perform a partial or total repair of an appliance for
another repairman for reasons, such as, job skills, equipment
requirements, and workload. The first repair shop should furnish a
properly executed annual resale certificate to the repair shop that
actually performs the work and tax the total repair charges made to the
customer.
The charge for a service warranty covering tangible personal property
is taxable. Repairs performed under a service warranty are exempt as
long as no additional charge is made to the customer (i.e., minimum
charge, deductible, etc.). Parts used in the performance of a
manufacturer's warranty are exempt.
When the repair occurs outside of Florida and the product is delivered
to the customer in Florida the charge for the repair is subject to Florida
tax. If the product is picked up by the customer outside of Florida and
brought into Florida within six months, the charge for the repair is
subject to Florida tax. Credit is allowed for legally imposed taxes paid
for the repair in another state. When the repair occurs in Florida and
the product is delivered to the customer outside of Florida the charge
for the repair is not subject to Florida tax. When the repair occurs in
Florida and the product is picked-up by the customer in Florida and
immediately taken outside the state the charge for the repair is subject
to Florida tax.
LARGE INDUSTRIAL EQUIPMENT REPAIR
Method of Operation
Industrial equipment is classified as tangible personal property.
The operation of industrial equipment repair is basically the same as
small appliance repair. The major differences occur in billing methods
and the type of equipment repaired.
10-4
Program Training
2014
Major repairs to large equipment may be conducted and invoiced, in
phases. An estimate of repair time and parts required may be prepared
upon the repair shop's initial investigation of the damaged equipment.
A parts requisition may then be completed. The parts may be recorded
as part of the total repair, or invoiced to the customer on a separate
invoice. The repairs may be conducted during numerous visits to the
equipment site and recorded on separate invoices. This method of
invoicing is called phase billing.
Special Tax Considerations
The legislative intent to tax every sale of tangible personal property,
including the fabricating and/or processing of such property also
applies to large industrial repairs. Rule 12A-1.006, F.A.C. also serves
as the guideline for applying sales and use tax to these kinds of repairs.
The substantial difference between appliance repair and large
industrial equipment repair in applying sales tax involves the concept
of real property. Rule 12A-1.006, F.A.C., notes that "...the provisions
of this rule do not apply to contracts covering a combination of work
on both real and personal property".
Contracts involving a
combination of tangible personal property and real property are
governed by the provisions of Rule 12A-1.051, F.A.C.
The most important determination in deciding the taxability of repairs
is to determine whether the item being repaired is realty or tangible
personal property based on the criteria referred to in Modules 6.
Sometimes repair shops generate separate invoices for labor and
materials when they are actually part of the same repair. Billings may
also contain travel expenses incurred for a repair crew. All expenses,
including; travel, motel, restaurant charges, etc., are taxable as part of
the repair whether stated separately or as a lump sum.
2014
Program Training
10-5
EXAMPLE: A repair shop was contracted to make repairs to
specialized construction equipment at the job site. Upon
completion, the following invoice was given to the customer:
Travel and labor
Hotel accommodations
Sales Tax
Total Hotel accommodations
Parts
Supplies
Food
Sales Tax
Total Food
Sub-total
Sales tax (6%)
Total
$1,900.00
$300.00
18.00
318.00
2,000.00
1,200.00
$200
12
212.00
$5,630.00
337.80
$5,967.80
The amount of sales tax collected from the customer is correct. The
total hotel accommodations, supplies, food, and beverages should be
included as part of the taxable sales price of the repair, and tax should
have been paid on their purchase by the repair shop as well.
Phase Billings
When a single repair of tangible personal property takes days, weeks
or even months to complete, the dealer may bill or invoice the
customer several times while the repair is being performed and again
upon completion of the repair. Multiple billing for a single job is
normally referred to as “phase billing”. Phase billings are single
transactions, regardless of the number of invoices or date billed. If the
transaction is taxable, tax is due when the job is completed. Large
repairs are usually performed under a written contract or purchase
order.
EXAMPLE:
Invoice #4390
Date 12/7/02
Job #200
Inspection
$500
Invoice #5679
Date 2/3/03
Job #200
Materials
$4,500
Invoice #6289
Date 2/27/03
Job #200
Installation Labor
$4,000
Tax is due on $9,000 as of 2/27/03 for job #200.
10-6
Program Training
2014
Repairs to Industrial Machinery and Equipment
Parts, materials, and labor used and incorporated into the repair of
machinery and equipment are exempt for most manufacturing
companies. To qualify for the exemption, the industrial machinery and
equipment being repaired must be used to manufacture, process,
compound, produce or prepare for shipping, tangible personal property
at a fixed location.
To qualify the industry's SIC Code must be within the following
Industry Major Group numbers: 10, 12, 13, 14, 20, 22, 23, 24, 25, 26,
27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, and 212.
This exemption applies to repairs not replacement of stand alone
machinery and equipment.
The follow industries qualify for the repair exemption:
SIC Industrial
Major Group Numbers
Short Titles
10
12
13
14
20
22
23
24
25
26
27
28
29
30
31
32
33
34
Metal Mining
Coal Mining
Oil & Gas Extraction
Mining & Quarrying of Nonmetallic Minerals
Food & Kindred Products
Textile Mill Products
Apparel & Other Finished Products from Fabrics
Lumber & Wood Products, except Furniture
Furniture & Fixtures
Paper & Allied Products
Printing, Publishing, & Allied Industries
Chemicals & Allied Products
Petroleum Refining & Related Industries
Rubber & Misc. Plastics Products
Leather & Leather Products
Stone, Clay, Glass, & Concrete Products
Primary Metal Industries
Fabricated Metal Products, except Machinery
& Transportation Equipment
Industrial and Commercial Machinery and
Computer Equipment
Electronic & Other Electrical Equipment
Transportation Equipment
Measuring, Analyzing, and Controlling Instruments
Misc. Manufacturing Industries
Cigars
35
36
37
38
39
212
2014
Program Training
10-7
MOTOR VEHICLE REPAIR
Method of Operation
Most new car dealers operate repair facilities specializing in repairs to
the brand of cars they sell, but may still perform repairs on all makes
of cars brought to them for service or repairs. Many department stores
operate auto centers offering a wide range of repair services and parts.
Specialty garages work only on specific parts/components/systems of
vehicles such as: radiator, transmission, paint and body, or electrical
system, etc. Some of their work may be performed on behalf of
another repair shop, creating a resale situation. Speed shops modify
vehicles to increase performance.
The method of billing employed depends on the repair shop. Many
garages separately state parts, labor and tax, while others quote a price
to the customer for the entire contract, which often becomes the total
price.
Special Tax Considerations
As with appliance repairmen, motor vehicle repairmen are involved in
the repair of tangible personal property belonging to another for a
consideration. The instructions concerning taxation of repairs which
have already been covered under Rule 12A-1.006, F.A.C., also apply
to motor vehicle repairs.
There are additional considerations involved with motor vehicle
repairs:
10-8
•
Rule 12A-1.006, F.A.C., states that wrecker or towing
charges are exempt if separately stated on the customer's
invoice;
•
repairs to vehicles for rental or resale are exempt, including
polishes, and lubricants;
•
insurance companies must pay tax on vehicle repairs in
settlement of a claim;
•
most accessories and special equipment for motor vehicles
are fully taxable, including installation charges.
Program Training
2014
EXAMPLE: The following invoice was for a motor vehicle
repair:
Replace timing belt
Parts
Labor
Shop supplies (rags)
Sub-total
Sales Tax (6%)
Total
$29.95
100.00
10.00
$139.95
8.40
$148.35
The item listed as shop supplies is included in the taxable sales
price. Also, the repair shop owes tax when the supplies are
purchased.
SERVICE WARRANTY AGREEMENTS
Service warranty is defined as any contract or agreement which
indemnifies the holder of the contract for the cost of maintaining,
repairing, or replacing tangible personal property, whether or not the
contract provides for the furnishing of parts. Tax is due on the total
consideration received. Tax shall be collected and remitted at the time
such consideration is received.
Some examples are:
2014
•
service contract covering the repair of a component part of a
motor vehicle;
•
service contract covering an appliance, such as a refrigerator;
•
service contract covering the cost of repair or replacement of
a television set;
•
maintenance contract covering labor only to repair or
maintain computer hardware; and
•
service agreement covering the cost of labor providing for
parts at an additional charge to repair a washing machine.
Program Training
10-9
The definition of service warranty does not include the following and
therefore the following are not subject to sales or use tax:
•
contracts or agreements to repair, maintain, or replace
tangible personal property sold at retail tax exempt
(wheelchairs, hearing aids, sales supported by either a resale
certificate or certificate of exemption, sales delivered out side
the state, etc.);
•
effective July 1, 2007, contracts or agreements to repair
tangible personal property when the parts and labor to repair
tangible personal property qualify for an exemption under
Chapter 212.08(7)(xx), F.S.; or
•
contracts or agreements covering tangible personal property
which becomes a part of real property, such as a central air
conditioning system.
Special Tax Considerations
If the person receiving consideration from the service warranty
agreement holder is not the person issuing such warranty, then the issuer
of the service warranty shall take from that person, in lieu of sales tax, a
certificate to the effect that the service warranty was purchased for
resale.
Contrary to the previously stated requirement that tax on the sale of a
taxable service warranty agreement is due when collected, when a
service agreement is sold in conjunction with the lease of tangible
personal property tax is due at the time of the sale of the service
agreement. When the amount of the service warranty fee, on which tax
has been collected, is prorated over the term of the lease, the prorated
service warranty fee in the lease payment is exempt if separately stated in
the lease agreement.
When a service warranty contract is assigned to a subsequent purchaser
of the property covered by such contract, the total consideration received
from such assignment is taxable.
When a service warranty is cancelled and the consideration paid is
refunded to the warranty holder, the person who remitted the tax to the
department shall also refund to the warranty holder the tax paid by the
warranty holder for the purchase of the service warranty.
10-10
Program Training
2014
When a service warranty is cancelled and the amount refunded to the
warranty holder on a prorated basis, the person who remitted the tax to
the Department should also refund the tax paid by the warranty holder
based on the same proration.
The payment of any claim arising under a taxable service warranty by
the person issuing the service warranty to the person performing repairs
is not subject to sales tax.
The payment of all or any portion, of a claim arising under a taxable
service warranty by the service warranty holder to the person performing
repairs is subject* to sales tax. Such transactions include, but are not
limited to, the following:
•
•
•
deductible paid by the service warranty holder;
amount paid by the service warranty holder directly to the
person performing repairs or maintenance of the product for
which the warranty holder may be subsequently reimbursed
by the issuer of the service warranty; and
payment by the warranty holder for repairs or maintenance
which are not covered by the service warranty.
* When the nature of the repair is an exempt repair, the payment would
not be taxable. Such as a labor only repair or the item repaired is for
resale. However, when the nature of the repair is a taxable repair, the
payment would be taxable. Such as when parts are furnished by the
repairman and no exempt criteria are present.
The partial exemption for the sale of new or used motor vehicles to a
resident of another state does not apply to the sale of service warranty
contracts. (This will be addressed in Module 11.)
EXAMPLE: A resident of Georgia purchases a motor vehicle
from a Florida motor vehicle dealer for $15,000, and a service
warranty for $700. The purchaser executes a notarized
statement of his intent to license the vehicle in Georgia within 10
days from the date of purchase. The tax rate on motor vehicles
in Georgia is 4%.
The Florida motor vehicle dealer should collect $600 tax on the
sale of the motor vehicle ($15,000 x .04 = $600), and $42 tax on
the sale of the service warranty ($700 x .06 = $42), for a total of
$642.
2014
Program Training
10-11
Material and supplies used in the performance of a factory or
manufacturer's warranty are exempt:
•
•
•
if the contract is furnished at no extra charge;
on equipment guaranteed under the warranty; and
the materials and supplies used are paid for by the factory or
manufacturer.
Transactions involving the issuance of both taxable and exempt
warranties must separately apportion and identify in good faith the
consideration for each or the entire transaction is taxable. The
Department may reform the contract if not apportioned in good faith.
Such reformation is considered prima facie correct with the burden of
proof on the dealer.
SUMMARY
This module has covered issues concerning businesses that are
engaged in the repair of tangible personal property. Basically, repairs
of tangible personal property are taxable. If repair parts become a
component part of the item repaired, they are taxable to the customer
and exempt to the repair shop when purchased. Supplies consumed in
the performance of the repair that do not become a part of the repair
item, are taxable to the repair shop when purchased.
If the repair of tangible personal property includes parts/materials, the
total charge is subject to tax. If the repair involves labor only (and the
dealer’s records clearly prove this), the charge is exempt. Phase
billings may contain invoices with labor only, but are considered a part
of the whole repair job and are taxable if the job includes materials.
Service warranties covering the repair of tangible personal property
are taxable. Tangible personal property and real property must be
evaluated carefully for identification purposes.
Basically, tax is due on the total consideration received on the sale of a
service warranty that covers tangible personal property that is subject
to tax.
10-12
Program Training
2014
SELF – CHECK QUESTIONS
1. A repair bill from an appliance repair shop included the following
amounts: parts and materials $500; labor $600; technical fee $100;
and service call $30. What is the taxable base of this transaction?
A.
B.
C.
D.
$ 500
$1,000
$1,200
$1,230
2. A repair bill from an appliance repair shop included the following
charges: labor $600, technical fee $100. What is taxable base of
this transaction assuming that the invoice reflected no parts were
used?
A.
B.
C.
D.
$ 0
$600
$100
$700
3. A computer salesperson purchased the following materials and
supplies to repair some of his damaged computers in the sales
inventory: screws, wire, sandpaper, glue, screwdrivers, computer
hard drives, and screen cleaning solution. What items should the
salesperson pay use tax on?
A.
B.
C.
D.
2014
screws and wire
computer hard drives
glue
screwdrivers, sandpaper, and screen cleaning solution
Program Training
10-13
4. A customer whose vehicle is repaired under a manufacturers'
warranty received a bill analyzing the cost of repair: parts $400;
supplies $50; labor $250. The customer's portion of the invoice
states “no charge”. How much sales tax is due on this transaction?
A.
B.
C.
D.
$ 0
$24
$39
$42
5. An auto repair shop prepares an invoice for its customer as
follows: parts, $400; labor, $300; and towing, $80. What is the
taxable base of this transaction?
A.
B.
C.
D.
-0-.
$400.
$700.
$780.
6. John purchased a service warranty for $600 that covered repairs to
his car’s engine and transmission. The warranty had a $200
deductible, meaning that John would have to pay the first $200 of
any repair covered by the warranty. The following week John took
his car to the dealer for repairs. The dealer repaired the car’s engine
and transmission. The charge from the dealer to repair the car was
$1,000 parts and $2,000 labor. The parts cost the dealer $400. How
much tax (sales & use) is due to the state on all of the transactions in
this scenario?
A.
B.
C.
D.
10-14
$ 36
$ 48
$ 72
$216
Program Training
2014
SELF – CHECK ANSWERS
1. A repair bill from an appliance repair shop included the
following amounts: parts and materials $500; labor $600;
technical fee $100; and service call $30. What is the taxable
base of this transaction?
A.
B.
C.
D.
$ 500
$1,000
$1,200
$1,230
Explanation: See “SMALL AND LARGE APPLIANCE REPAIR,
Special Tax Considerations”. The definition of sales price in Section
212.02(16), F.S., “…includes the consideration for a transaction which
requires both labor and materials to alter, remodel, maintain, adjust
and repair tangible personal property.” Rule 12-1.006, F.A.C., states
in part that, where parts are furnished by the repairman, the entire
charge he makes to his customer for repairing tangible personal
property is taxable.
Choice A is incorrect. See Explanation.
Choice B is incorrect. See Explanation.
Choice C is incorrect. See Explanation.
Choice D is correct. See Explanation. The total charge is taxable.
2014
Program Training
10-15
2. A repair bill from an appliance repair shop included the
following charges: labor $600, technical fee $100. What is
taxable base of this transaction assuming that the invoice
reflected no parts were used?
A.
B.
C.
D.
$ 0
$600
$100
$700
Explanation: See “SMALL AND LARGE APPLIANCE REPAIR,
Special Tax Considerations”. Rule 12A-1.006, F.A.C., states in part
that, where parts are furnished by the repairman, the entire charge he
makes to his customer for repairing tangible personal property is
taxable.
Choice A is correct. See Explanation. The repair did not require any
parts. The transaction is not subject to tax.
Choice B is incorrect. See Explanation. The charge for labor of $600
is not taxable since there were no parts included in the repair.
Choice C is incorrect. See Explanation. The technical fee of $100 is
not taxable since there were no parts included in the repair.
Choice D is incorrect. See Explanation. The $700 total charge for the
repair bill is not taxable since there were not parts included in the
repair.
3. A computer salesperson purchased the following materials and
supplies to repair some of his damaged computers in the sales
inventory:
screws, wire, sandpaper, glue, screwdrivers,
computer hard drives, and screen cleaning solution. What items
should the salesperson pay use tax on?
A.
B.
C.
D.
10-16
screws and wire
computer hard drives
glue
screwdrivers, sandpaper, and screen cleaning solution
Program Training
2014
Explanation: See “SMALL AND LARGE APPLIANCE REPAIR,
Special Tax Considerations”. Material actually incorporated into
property being repaired is not taxable to the repair shop when the
material is purchased. These materials are purchased for resale. Any
materials and supplies used by the repairman which do not become a
component part of the property repaired are taxable to the repair shop
as overhead items.
Choice A is incorrect. See Explanation. The screws and wires are
incorporated into the product for sale and no use tax is due on them.
Choice B is incorrect. See Explanation. The computer hard drives are
a component part of the property for sale and no use tax is due on
them.
Choice C is incorrect. See Explanation. The glue becomes a part of
the final product for sales and no use tax is due on it.
Choice D is correct. See Explanation. The screwdriver, sandpaper,
and screen cleaning solution do not become a component part of the
property for resale and are taxable because they are shop equipment
and supplies.
4. A customer whose vehicle is repaired under a manufacturers'
warranty received a bill analyzing the cost of repair: parts
$400; supplies $50; labor $250. The customer's portion of the
invoice states “no charge”. How much sales tax is due on this
transaction?
A.
B.
C.
D.
$ 0
$24
$39
$42
Explanation: See SMALL AND LARGE APPLIANCE REPAIR,
“Special Tax Considerations”. Repairs performed under a service
warranty are exempt as long as no additional charge is made to the
customer (i.e., minimum charge, deductible, etc.). Parts used in the
performance of a manufacturer’s warranty are exempt.
2014
Program Training
10-17
Choice A is correct. See Explanation. No charge was made to the
customer.
Choice B is incorrect. See Explanation.
Choice C is incorrect. See Explanation.
Choice D is incorrect. See Explanation.
5. An auto repair shop prepares an invoice for its customer as
follows: parts, $400; labor, $300; and towing, $80. What is
the taxable base of this transaction?
A.
B.
C.
D.
-0-.
$400.
$700.
$780.
Explanation:
See “MOTOR VEHICLE REPAIR, Special Tax
Consideration”. Generally, when parts are furnished by the repairman,
the entire repair bill is taxable. However, there is a specific exception
involved with motor vehicle repairs; wrecker or towing charges are
exempt if separately stated on the customer’s invoice.
Choice A is incorrect.
See Explanation. The taxable base would
include the parts and labor.
Choice B is incorrect. See Explanation.
include the parts and the labor.
The taxable base would
Choice C is correct. See Explanation. The parts and labor charges are
included in the taxable base, but the separately stated tow charge is
exempt.
Choice D is incorrect. See Explanation. The separately stated tow
charge is exempt.
10-18
Program Training
2014
6. John purchased a service warranty for $600 that covered repairs
to his car’s engine and transmission. The warranty had a $200
deductible, meaning that John would have to pay the first $200 of
any repair covered by the warranty. The following week John
took his car to the dealer for repairs. The dealer repaired the
car’s engine and transmission. The charge from the dealer to
repair the car was $1,000 parts and $2,000 labor. The parts cost
the dealer $400. How much tax (sales & use) is due to the state
on the transaction in this scenario?
A.
B.
C.
D.
$ 36
$ 48
$ 72
$216
Explanation: See “SERVICE WARRANTY AGREEMENTS”. Tax is
due on the total consideration received for issuing the service
warranty. The payment of the claim arising under a taxable service
warranty by the person issuing the service warranty to the person
performing repairs is not subject to sales tax. The payment of any
portion of a claim arising under a taxable service warranty by the service
warranty holder to the person performing repairs is subject to sales tax.
Material and supplies used in the performance of a factory or
manufacturer's warranty are exempt.
The $600 purchase of the service warranty is taxable.
The $200 deductible paid to the dealer is taxable (taxable repair = parts
& labor used)
$800 x 6% = $48 tax due to the state
Payment to the dealer by the warranty issuer for the repair is not subject
to tax.
The cost of materials used to perform the repair is not taxable.
Choice A is incorrect. See explanation.
Choice B is correct. See explanation.
Choice C is incorrect. See explanation.
Choice D is incorrect. See explanation.
2014
Program Training
10-19
10-20
Program Training
2014
MODULE ELEVEN
TRANSPORTATION EQUIPMENT DEALERS
OBJECTIVES
Upon completion of this module the participant will:
•
understand the business operations of transportation equipment
dealers (cars, boats and planes); and
•
be able to determine the correct tax implications for
transportation equipment dealers.
INTRODUCTION
This module covers transactions and tax applications on automobile,
mobile home, boat, and aircraft dealers. The sale, repair, lease,
storage, or distribution of motor vehicles and their accessories are
considered transactions affecting tangible personal property. The tax
obligations affecting such transactions are covered in Sections 212.05,
212.06, 212.0601, F.S., and Rules 12A-1.006, 12A-1.007, 12A-1.064,
12A-1.0641, F.A.C.
Several documents regarding the sale or transfer of such equipment are
maintained by transportation equipment dealers. These include: title,
or ownership rights; title certificates; manufacturer's statement of
origin (MSO); and registration.
The term "title" has two meanings in the transportation equipment
dealers industry. Title is synonymous with right of ownership or
certificate of title. When property is sold, the seller's right of
ownership, or title, is transferred to the buyer.
2014
Program Training
11-1
Title is also a short name for a title certificate. As a means of control,
the State of Florida requires certain types of property to have a title
certificate. This certificate constitutes an official recognition of the
ownership rights of the purchaser of the property.
Manufacturer's statement of origin (M.S.O.) is a document required by
the Federal Trade Commission for each vehicle sold in this country by
the manufacturer. It serves the same purpose as a title certificate, until
the property is sold at retail. At this point, the manufacturer's
statement of origin must be surrendered to obtain a title certificate.
Registration is another control used by the state. Registration is
evidenced by assigning a unique number (license plate) to a vehicle or
vessel. Registration provides a means of taxation for the state.
Documentation is a term used by the U.S. Coast Guard for the act of
registering small vessels (boats). Larger vessels receive a certificate of
registry, and the smaller vessels receive a certificate of documentation.
Estimated Tax Payment - Alternative Method
Motor vehicle dealers (including boats & aircraft) have an alternative
method for calculating and paying their estimated sales tax. To qualify
for the method, a dealer must have made at least one sale of a motor
vehicle with a selling price of $200,000 or more in the previous state
fiscal year. Dealers must apply before October 1 each year and be
approved by the Department to use the method.
In addition to filing form DR-15, approved dealers will be required to:
•
pay estimated tax every month based on 60% of their average
tax liability for all taxable sales, excluding the sale of each
motor vehicle sold for $200,000 or more during the previous
state fiscal year; and
•
pay the sales tax for each motor vehicle sold for $200,000 or
more by:
electronic funds transfer initiated on the sale date; or,
check submitted with a Single Transaction Sales and Use
Tax Return (form DR-300415) postmarked on the sale date.
11-2
Program Training
2014
AUTOMOBILE DEALERS
Method of Operation
New car dealers are franchised by the manufacturer supplying the
automobiles. The dealer purchases the cars from the manufacturer,
and places them in inventory. This inventory includes the cars on
display, demonstrator vehicles used by the sales personnel, and the
executive cars driven by the executives of the dealership. The dealer
may also use vehicles from the inventory in the conduct of business,
such as delivering parts and accessories.
When a vehicle is sold, the dealer usually files a copy of the invoice
and the buyer's order in a file folder, along with any other pertinent
document. Another copy of the invoice may be filed in a sales invoice
file, and in numerical sequence. The accounting copy of the invoice
has additional information on the reverse side of the form. This
information, when completed, provides the basis for the journal
entries.
When a new car is sold at retail, the dealer usually requests a limited
power of attorney from the buyer, which allows the dealer to obtain
the registration, and apply for a title certificate for the buyer.
After selecting an automobile the customer and the seller will arrive at
an agreed price. The customer's trade-in, if any, will also be taken into
consideration during the purchase transaction. This transaction will
then be recorded onto the buyer's order by the sales person. Upon
being signed by both the customer and the dealer, the buyer's order
becomes the contract for sale. After the automobile is delivered to the
customer, the dealer prepares an invoice that summarizes the
transaction. The customer usually receives a copy of the invoice in the
mail along with the registration certificate.
Used cars are sometimes exchanged for new cars. At the time the
trade-in is made, the owner signs the title certificate transferring
ownership of the exchanged vehicle to the dealer.
Automobile dealers operate repair shops for the service and repair of
automobiles. When the dealer cannot provide the repair services
needed by the customer, the work may be subcontracted to a local
repair shop specializing in the needed repairs.
2014
Program Training
11-3
Automobile dealers may also have an automobile parts department that
provide automobile accessories and repair parts to the dealer's own
repair shop, to other repairmen in the local area, as well as to
individual customers.
Repair parts used in the repair shop are issued to the maintenance
personnel, and entered on the repair order by the parts clerk. The
issuance of parts to the repair shop is accounted for separately from
other parts sales. Sales at wholesale and retail are recorded on a parts
sales slip, or invoice, at the time of sale. Sales on open account may
be recorded separately from cash sales.
Automobile dealers usually establish a subsidiary, or a separate
division, to handle the rental and leasing of automobiles. When rentals
and leasing are operated by a division, it is usually treated as a profit
center with separate accounting entries.
Most automobile dealers provide vending machines for the sale of
coffee, soft drinks and snacks. Some dealerships may have a snack bar
or a small restaurant on their premises. The vending machines may be
owned by the dealership, or placed there by a vending company. The
restaurant or snack bar may be sublet to an independent operator, or
catered for by the dealer.
Special Tax Considerations
Dealer automobile license plates (tags) are purchased by both new and
used car dealers. These tags are registered to the dealer, not to a
specific automobile. The dealer is allowed to place the tag on any
automobile in the inventory. Each year, the dealer pays a use tax
($27.00) for each license plate. This allows unlimited use of the
vehicles in the business as long as the vehicle remains in inventory for
sale.
If the dealer removes a vehicle from inventory, transfers the vehicle to
the equipment or other account, obtains a normal registration (but not a
title certificate), and uses the vehicle in the business, it will be
presumed that the motor vehicle is no longer in inventory for sale in
the regular course of business, or for operation in connection with the
dealer's business. Tax must be paid measured by the purchase or cost
price of the motor vehicle.
11-4
Program Training
2014
If the dealer removes a vehicle from inventory, surrenders the M.S.O.,
and obtains a title certificate and registration, tax is due at 6% of the
cost price of the vehicle.
In some dealerships, the sales persons are charged fees for the use of
demonstrator automobiles. These charges can range from payment for
the gasoline consumed or insurance on the automobile to pure rental of
the automobile. Since Rule 12A-1.007, F.A.C. prohibits vehicles
bearing a dealer's tag from being used for hire, the exact purpose of the
charges must be identified before the tax application can be
determined. If the sales persons are given unlimited use of the vehicle,
the charge made would probably be considered rent, and subject to tax.
When reviewing this area, if you find a written agreement detailing the
use of the vehicle between the dealership and salesperson, be sure to
examine the agreement. The use of the vehicle by the sales person will
probably be exempt, if the agreement restricts the salesperson to use
the vehicle only for the business activities. If it does not have
restrictions, and the salesperson can use the car at his discretion, it is a
taxable rental.
The purchase of used cars by out-of-state dealers is very common.
This type of transaction should be supported by affidavits, as required
by Rule 12A-1.007(6), F.A.C. (see Mod. 3, Nonresident Dealers)
Partial Exemption - Sales to Residents of Other States
Sales at retail of a motor vehicle to residents of other states should be
supported by a properly completed Form DR-123, Affidavit for Partial
Exemption of Motor Vehicle Sold for Licensing in Another State
(Exhibit p.14-38). When a resident of another state purchases a motor
vehicle in Florida and the vehicle will be titled in the purchaser's home
state (not Florida), the dealer is to collect Florida sales tax at the tax
rate applicable in the purchaser's home state. The dealer will collect a
tax up to, but not to exceed Florida's rate.
Out-of-state purchasers of motor vehicles in Florida are allowed 45
days to register the vehicle in their home state to qualify for the partial
sales tax exemption. The purchaser is not required to remove the motor
vehicle from Florida if the motor vehicle is licensed in the purchaser’s
home state within 45 days after the date of sale.
2014
Program Training
11-5
A vehicle is subject to Florida sales tax plus applicable surtax when
the vehicle is purchased by a nonresident corporation, limited
liability company, or partnership and:
•
An officer of the corporation or a member of a limited liability
company is a resident of this state;
•
A stockholder of the corporation who owns at least 10 percent
of the corporation is a resident of this state; or
•
A partner in the partnership who has at least 10 percent
ownership is a resident of this state.
However, if the vehicle is removed from this state within 45 days after
purchase and remains outside the state for a minimum of 180 days, the
vehicle may qualify for the partial exemption, despite the residency of
owners or stockholders of the purchasing entity.
Sales at wholesale between Florida dealers are common and should be
supported by a resale certificate, as expressed in Rule 12A-1.039,
F.A.C.
Sales at wholesale to rental or leasing companies should be supported
by resale certificate.
Sales at retail to common carriers that hold a valid Direct Pay Permit
are subject to pro-ration under Section 212.08, F.S., and Rule 12A1.064, F.A.C., when supported by a certificate similar to that provided
in Rule 12A-1.039, F.A.C.
Extended warranties may be encountered in sales of both new and
used cars. Such service warranty agreements are taxable. (Rule 12A1.105, F.A.C.) The seller of the warranty should collect and report the
tax to the department at the time of sale. Refer to Module 6 for details
on warranties.
The buyer's order may contain charges, such as: handling, notary fee,
dealer preparation and other fees which are pre-printed on the form
prior to the computation of the sales tax. The dealer may or may not
have included these charges as part of the taxable sales price. How
these charges are handled by the dealer must be determined during the
audit. Rule 12A-1.007(1)(a), F.A.C., states in part: "The sale,
including occasional or isolated sales, the use, consumption, or storage
11-6
Program Training
2014
for use in this state of any ...motor vehicle... is taxable on the full sales
price without any deductions for federal taxes, freight, handling,
delivery, commission... or any other expense or cost whatsoever. And
s. 212.02(16), F.S. expresses in part “"Sales price" means the total
amount paid for tangible personal property, including any services that
are a part of the sale…” These services and fees are part of the sales
price subject to sales tax.
An exception to the previous paragraph is separately stated fees or
charges as a requisite to the titling, licensing, registration, transfer of
ownership, or recording of the lien are not included in the sales price,
and are not subject to tax.
When a used vehicle is traded in as credit or part payment on the sale,
tax is due on the sales price of the vehicle being sold, less credit for the
used vehicle taken in trade. The vehicle traded in must be intended for
resale by the dealer (placed into the dealer’s inventory for resale). A
separate or independent sale of a vehicle is not a trade-in, even if the
proceeds from the sale are immediately applied by the seller to a
purchase of another vehicle. (Trade-ins are addressed in Module 6.)
Vehicles Purchased in Other States, Territories of the United
States and the District of Columbia and Registered in Florida
When a vehicle purchased in other states or territories of the United
States and the District of Columbia but is titled, registered or licensed
in Florida within six months of the purchase date, Florida use tax
may be due. Florida allows credit for legally imposed, like taxes paid
to other states, territories of the United States and the District of
Columbia at the time of purchase. However, if no tax was paid in the
other state or the tax paid is less than the Florida tax, use tax is due in
Florida. Use tax due, including surtax, will be equal to the difference
between tax paid in the other state and the amount of tax, including
surtax, that would have been due had the vehicle been purchased in
Florida, unless it is documented that the vehicle is being used outside
of Florida. When the tax credit is equal to or greater than the amount
of tax or surtax due on the vehicle no additional tax or surtax is due.
When the tax credit is greater than the Florida sales tax and surtax due,
no refund is due from the State of Florida.
Vehicles that are purchased and used in other states, territories of the
United States and the District of Columbia over six months prior to
being registered in Florida are not subject to tax in Florida.
2014
Program Training
11-7
Vehicles Purchased in Foreign Countries and Registered in
Florida
When a vehicle that has been purchased in a foreign country is
registered in Florida use tax is due on the greater amount of any
outstanding lien on the vehicle or the fair market value of the vehicle
regardless of when it was purchased.
No credit is permitted for taxes paid on motor vehicles purchased in
foreign countries and titled, registered or licensed in Florida, including
vehicles that are registered in Florida within six months of their
purchase date.
Repairs and Shop Supplies
Repairs to demonstrators, new cars, used cars taken in trade, and other
cars in the inventory for sale, as well as rental cars (for re-rental) are
not subject to the tax. The exemption extends to the servicing (oil
change and lubrication) of these cars as well.
Dealers who sublet or subcontract repairs to specialty repair shops,
such as radiator, body shop, painting, and transmission repairs, do not
pay tax on the purchases of repairs, but should issue a resale certificate
to the subcontractor. When these repairs are billed to the dealer's
customer, they are subject to the tax.
In situations where the repair shop claims the repair to be labor only,
such repairs are subject to the tax, unless the repairman's records
clearly prove that no parts or lubricants were used. Shop items
consumed in the process of the repair are taxable as use items.
EXAMPLES: shop rags, disposable floor mats, sandpaper,
and masking tape.
Items incorporated into the vehicle as part of the repair are exempt
from use tax. Itemization is not necessary for the exemption.
EXAMPLES: lubricants, brake fluid, power steering fluid,
transmission fluid, and replacement nuts and bolts.
11-8
Program Training
2014
LOANER VEHICLES (TIP 98A01-14)
Exempt Vehicles:
No sales or use tax and no rental car surcharge are due on a motor
vehicle that is loaned at no charge (no monetary consideration is given
for use of the loaner vehicle) by a motor vehicle dealer under the
following circumstances:
1) S. 212.601(4), F.S. - The vehicle is loaned to a person whose
vehicle is being repaired, adjusted, or serviced by the dealer
providing the replacement vehicle; or,
2) S. 212.02(20), F.S. - The vehicle is loaned to a high school for use
in its driver education and safety program; or,
3) S. 212.601(1), F.S. - The vehicle is loaned by the dealer in
connection with its business for demonstration purposes, provided
that the dealer has obtained a dealer's license plate for such
vehicle, pursuant to section 320.08(12), F.S..
Dealers are required to maintain adequate records to support the
exemption from use tax on the loan of any vehicle at no charge.
Taxable Vehicles: (TIP 98A01-14 & S. 212.601(3), F.S.)
All other loans of a motor vehicle at no charge by motor vehicle
dealers are subject to use tax based on the annual lease value as
determined by the United States Internal Revenue Service's
Automobile Annual Lease Value Table shown below. Solely for
purposes of sales/use tax on loaner vehicles, the phrase "no charge"
means that no monetary consideration is being exchanged for the use
of the motor vehicle. If monetary consideration is being given to a
motor vehicle dealer in exchange for the use of a vehicle, the value of
all consideration for the use of the vehicle will be the basis of
determining sales tax, and the lease value table will not be applicable
to the transaction.
To calculate the amount of use tax due, determine the annual lease
value of a motor vehicle as follows:
•
2014
Determine the Fair Market Value (FMV) of the motor vehicle.
The FMV shall not be less than the manufacturer's invoice
price (including optional equipment for previously untitled
vehicles) or the dealer's cost to acquire a previously titled
vehicle plus any cost involved in making the vehicle available
Program Training
11-9
for loan. If a vehicle, for which no dealer's license plate has
been obtained, is loaned to an employee, the Fair Market Value
should be the same as that which is used to compute the annual
lease value for purposes of determining the fringe benefit
reportable as employee wages to the Internal Revenue Service.
•
Using the table on the next page, find the dollar range in
column 1 within which the FMV of the motor vehicle falls.
The corresponding amount in column 2 is the annual lease
value. Divide the annual lease value by 365. Multiply that
amount by the number of days the motor vehicle is loaned each
month. Tax is computed by multiplying that amount by 6
percent, plus applicable surtax.
NOTE: The use tax is to be remitted by the dealer for each month the
motor vehicle is on loan.
The following table shall be used to determine the annual lease value:
Automobile
Fair Market Value
$0 to 999
1,000 to 1,999
2,000 to 2,999
3,000 to 3,999
4,000 to 4,999
5,000 to 5,999
6,000 to 6,999
7,000 to 7,999
8,000 to 8,999
9,000 to 9,999
10,000 to 10,999
11,000 to 11,999
12,000 to 12,999
13,000 to 13,999
14,000 to 14,999
15,000 to 15,999
16,000 to 16,999
17,000 to 17,999
18,000 to 18,999
19,000 to 19,999
20,000 to 20,999
21,000 to 21,999
22,000 to 22,999
23,000 to 23,999
Annual Lease
Value
$ 600
850
1,100
1,350
1,600
1,850
2,100
2,350
2,600
2,850
3,100
3,350
3,600
3,850
4,100
4,350
4,600
4,850
5,100
5,350
5,600
5,850
6,100
6,350
Automobile
Fair Market Value
24,000 to 24,999
25,000 to 25,999
26,000 to 27,999
28,000 to 29,999
30,000 to 31,999
32,000 to 33,999
34,000 to 35,999
36,000 to 37,999
38,000 to 39,999
40,000 to 41,999
42,000 to 43,999
44,000 to 45,999
46,000 to 47,999
48,000 to 49,999
50,000 to 51,999
52,000 to 53,999
54,000 to 55,999
56,000 to 57,999
58,000 to 59,999
Annual Lease
Value
$6,600
6,850
7,250
7,750
8,250
8,750
9,250
9,750
10,250
10,750
11,250
11,750
12,250
12,750
13,250
13,750
14,250
14,750
15,250
For vehicles with a FMV of more than $59,999, the annual lease value
equals: (0.25 x the FMV of the automobile) + $500.
11-10
Program Training
2014
LEASED VEHICLES
Leased In Florida - Section 212.05(1)(c), F.S.
A motor vehicle, other than commercial, leased or rented in Florida for
less than 12 months, the entire amount of the rental is taxable, even if
the vehicle is dropped off in another state. If the motor vehicle is
rented in another state and dropped off in Florida, the rental is exempt
from Florida tax.
A motor vehicle, other than commercial, leased or rented in Florida
for 12 months or more, is taxable when the vehicle is registered,
licensed, or titled in Florida. No tax is due if the taxpayer documents
that the motor vehicle is being used outside of Florida and sales tax is
being paid on the lease or rental payments to another state.
Leased Vehicle - Miscellaneous Charges
Separate charges for gasoline or optional insurance are not to be
included in the lease charge that is subject to tax.
Leased Commercial Motor Vehicles – Optional Tax Application
For commercial motor vehicles having a gross weight of 10,000
pounds or more, the owner/lessor may pay use tax on the acquisition
of the vehicle as long as the term of the lease or rental to the initial
lessee is for a period of 12 months or more. If this occurs, the rental of
such vehicle to the initial lessee will not be subject to sales tax, even
upon the initial lessee's renewal of the vehicle lease. However, if the
lessor/owner leases the vehicle to a subsequent lessee, the rental
charge to the subsequent lessee is taxable.
Rebates
Manufacturer rebates are handled in a manner that it is not a reduction
in taxable sales price. The rebate occurs after the sale. The purchaser
agrees to pay the full selling price less the rebate amount with the
purchaser’s own funds (cash or borrowed). The purchaser also must
agree to apply the rebate amount (received or assigned from
manufacturer) to the balance due on the vehicle. The dealer receives
the full selling price of the vehicle.
2014
Program Training
11-11
Manufacturer's rebates are handled by retail dealers in several ways:
•
•
•
mailed directly to customer by the manufacturer after the sale
(the customer pays the full selling price and receives the rebate
later);
retailer advances cash to customer and customer assigns the
manufacturer's rebate rights to the retailer (the customer pays
the full selling price with their own funds and borrowed funds);
retailer reduces the amount due from the customer upon
receiving assignment from customer of the rebate due from the
manufacturer (the customer pays the full selling price with
their own funds and the assignment of the rebate to the dealer).
Manufacturer's rebates are used by the manufacturer in an attempt to
create incentives for customers to buy its product. They do not
reduce the taxable selling price or the tax due, even though the
retail dealer may be able to apply the rebate directly to the selling price
of the automobile. Manufacturer's rebates occur after the sale.
EXAMPLE: Sale of new automobile
Less: trade-in
Add: Dealers Preparation
Notary fees
Taxable Total
Florida sales tax (6%)
Sub-Total
Manufacturer's rebate
Total Due
11-12
Program Training
$14,500.00
(4,500.00)
300.00
30.00
$10,330.00
619.80
$ 10,949.80
(1,000.00)
$ 9,949.80
2014
MOBILE HOMES
Method of Operation
Mobile home dealers are similar to automobile dealers, including their
method of operation. The primary exception is where the mobile
home dealer provides for delivery of the mobile home to the buyer's
site, and places the mobile home in a position for occupancy (set up).
Another aspect of the mobile home dealer's operation that differs from
an automobile dealer is the sale and repair of furniture and appliances.
Special Tax Considerations
When the sale of a mobile home by a mobile home dealer includes
such items/services as delivery and set up, these items are considered
services connected with the sale of tangible personal property, and are
subject to the tax under Rule 12A-1.007, F.A.C.
The sales price of a mobile home which is considered tangible
personal property is the total sales price of the mobile home which
shall include, if applicable, the sales price of any tangible personal
property included within or which becomes a part of, or is attached to
the mobile home at the time of the sale of the mobile home. Such
tangible personal property may include but is not limited to: interior
equipment and furnishings; skylights; carport roof; or storage
structures. (Rule 12A-1.007(11)(b)4., F.A.C.)
Due to their nature, mobile home dealers may also make repairs to real
property. Since a mobile home can be classified as real property under
Rule 12A-1.007, F.A.C., any repairs to a mobile home with an RP
(real property) tag or decal would be considered repair to real property.
In such instances, the nature of the transaction would no longer fall
under the guidelines of Rule 12A-1.007, F.A.C., but would revert to
12A-1.051, F.A.C.
When the owner of a mobile home also owns the land, and the mobile
home is permanently affixed to the land, the mobile home may be
issued an RP tag, and be considered real property. If the real property
tag is not issued, then the mobile home will be taxed as TPP.
Permanently affixed is defined as tied down and connected to normal
utilities.
2014
Program Training
11-13
All mobile homes are required to have license plates or decals issued
by the county attached to them. If a mobile home is converted into
real property and an RP tag is affixed, it becomes taxable as real
property. In general, all mobile homes are taxable as TPP, unless the
mobile home has been converted into real property and RP tag
properly affixed.
A mobile home dealer may obtain title to a mobile home that has an
RP decal through trade-in or repossession, without also obtaining title
to the land. In these situations, the mobile home would revert back to
tangible personal property status.
The sale/purchase of a mobile home that will be used for exclusive rerental as tangible personal property (not living accommodations) is not
subject to the tax, as long as a resale certificate is provided by the
purchaser (Rule 12A-1.007, F.A.C.). However, the rental charges for
the mobile home are subject to tax.
The sale/purchase of a mobile home for use as living or sleeping
accommodations at a fixed location is subject to the Florida sales tax,
under Rule 12A-1.007, F.A.C., Aircraft, Boats, Mobile Homes, and
Motor Vehicles and Rule 12A-1.061, F.A.C., Rentals, Leases,
Licenses to Use Transient Accommodations.
11-14
Program Training
2014
BOATS
Method of Operation
A boat dealer operates in essentially the same manner as an
automobile dealer. However, some activities are unique to boat
dealers. A boat dealer may have a dry-dock, marine railway or boat
lift for removing a boat from the water.
Since boat dealers are usually located on the waterways of the State,
they may be operating a marina, selling fuel and providing storage
and/or docking for boats.
Special Tax Considerations
A floating dry dock would be classified as tangible personal property,
and a fixed dry-dock would be classified as realty. The purchase and
repair of these facilities are taxed according to their classification.
Marine railways are normally classified as improvements to real
property. Only the materials used in the construction and maintenance
of the railway are taxable.
Boat lifts are normally classified as tangible personal property. Both
the labor and the materials for the installation and maintenance of this
equipment are subject to the Florida sales and use tax.
Unlike an automobile dealer, a boat dealer may sell a boat to a resident
of another state without collecting the tax as long as the provisions set
out in Rule 12A-1.007, F.A.C., are met. Under the provisions of Rule
12A-1.007, F.A.C., a resident of another state may purchase a boat
without paying the tax, if the following provisions exist:
•
•
•
•
2014
the dealer obtains for his records a sworn affidavit from the
buyer;
the buyer removes the boat from Florida within 10 days
from the date of purchase or;
20 days after completion of any needed repairs or
alterations;
the buyer provides the department with a proof of removal
(receipts for fuel, dockage, tie-down from outside Florida)
within 30 days;
Program Training
11-15
•
•
the buyer provides the department with written proof that
the boat was licensed, registered or documented outside
Florida within 90 days of removal;
the buyer must not return the boat to Florida within six
months from the date of departure from Florida, except for
repairs.
If the buyer fails to provide the Department with the documents
required, the department’s campaigns process will take actions to
collect the tax, penalty, and interest. The selling dealer, within 5 days
of the sale date, shall provide the department with a copy of the sales
invoice, closing statement, bills of sale, and the original affidavit.
When a purchaser of a boat of 5 net tons of admeasurement or larger
intends to keep the boat in Florida beyond the previously stated 10 and
20 day limits, they must apply for a decal. The selling dealer supplies
decals authorizing the boat to remain in Florida until 90 days after the
date of purchase. Effective July 1, 2009, the purchaser may apply for
an additional 90 day decal (total of 180 days).
If the buyer issues the dealer a fraudulent removal affidavit for the
purpose of evading the payment of tax, the buyer is liable for the tax,
plus a mandatory penalty of 200% of the tax due.
7/1/10 Sales and Use Tax on Boats or Vessels Capped at $18,000
(TIP #10A01-07)
Sales or purchases of a boat or vessel made on or after July 1, 2010,
are subject to a maximum of $18,000 sales or use tax. The $18,000 cap
includes both the state (sales or use) tax and any applicable
discretionary sales surtax. No more than $18,000 in total tax (state
sales or use tax plus county surtax) is due on any taxable sale or use.
The applicable county surtax is first subtracted from the $18,000
maximum tax due with the remaining balance reported as state sales or
use tax.
Example: On or after July 1, 2010, a boat or vessel is purchased for
$1,000,000.00 in a 1% surtax county. For purposes of reporting, the
dealer subtracts the surtax from the maximum tax amount to determine
the maximum state sales tax. The county surtax is due on only the first
$5,000.00 of the sale amount. The total county surtax would be $50.00
($5,000 X .01). So the maximum state sales tax is $17,950.00.
11-16
Program Training
2014
$18,000.00 maximum tax
- 50.00 county surtax
$17,950.00 maximum state sales tax.
The dealer should then divide the maximum state sales tax by the 6%
state sales tax rate to determine the taxable sales amount.
$17,950.00 / .06 = $299,166.66 (The taxable sales amount)
The dealer should then subtract the taxable sales amount from the
gross sales amount to determine the exempt sales amount.
$ 1,000,000.00 gross sale
- 299,166.66 taxable sales amount
$ 700,833.34 exempt amount
Maximum Tax and Trade-Ins as of July 1, 2010
The value of the trade-in vessel is deducted from the sales price of the
purchased vessel. Tax is applied to the net sales price (purchased boat
or vessel price minus the trade-in value), and the maximum amount of
tax to be paid is $18,000.
Nonresident Removal
Nonresidents who purchase a boat or vessel pursuant to Section
212.05(1)(a)2., F.S., the nonresident removal exemption, on or after
July 1, 2010, must comply completely with the exemption
requirements in order to be exempt from tax. If the purchaser fails to
comply with the exemption requirements, the maximum tax due is
$18,000, and failure to comply may result in penalties.
Purchase of a Boat or Vessel Outside Florida
A boat or vessel purchased outside Florida and imported into Florida
on or after July 1, 2010, will be subject to the maximum tax of
$18,000, if tax is applicable.
Leases
The maximum tax of $18,000 per use or sale of a boat or vessel in
Florida is also applicable to the lease of a boat or vessel. The tax cap
applies to each individual lease payment, and no lease payment will be
subject to tax in excess of $18,000.
2014
Program Training
11-17
AIRCRAFT
Method of Operation
The basic method of operating an aircraft dealership is the same as that
of an automobile dealer. However, there are some areas of operation
that are unique to aircraft dealers.
Aircraft are required to be registered with the Federal Aviation
Administration (F.A.A.), by the manufacturer, and are assigned a
unique number which is painted on the wing and vertical stabilizer
(rudder) of the aircraft. Changes in ownership are reported to the
F.A.A., and the registration number is transferred to the new owner.
Aircraft dealers may provide parking spaces, with or without tie down
facilities for aircraft, as well as storage inside and outside hangers.
Aircraft dealers use aircraft in the sales inventory to conduct pilot
training, or to rent to others, and to conduct charter service.
Special Tax Considerations
An aircraft dealer may sell a plane to a resident of another state
without collecting tax but must follow the “same requirements as for
the sales of boats to non-residents”. The buyer must remove the plane
from Florida 10 days from date of purchase or 20 days after
completion of repairs. Refer to the boat section for details.
Beginning July 1, 2010, a non-resident of Florida will be exempt from
use tax on his/her aircraft if the aircraft enters and remains in the state
for no more than a total of 20 days during the 6-month period after the
date of purchase. This includes non-resident buyers that purchase an
aircraft in Florida that meet the removal exemption stated above.
Also beginning July 1, 2010, special provisions were approved
regarding aircraft dealers that qualify as “fractional aircraft ownership
programs” that own a minimum of 25 aircraft. See TIP 10A01-11 for
details.
Effective January 1, 2013, parts and labor charges for the maintenance
and repair of aircraft with a maximum certified take-off weight of
more than 2,000 pounds are exempt from tax. Previously the
exemption limitation was more than 15,000 pounds maximum certified
take-off weight.
11-18
Program Training
2014
Labor charges for the maintenance and repair rotary wing aircraft of
more than 10,000 pounds maximum certified takeoff weight are
exempt from the tax. Parts and equipment incorporated into and
become a part of the repair or maintenance of rotary wing aircraft of
more than 10,300 pounds maximum certified takeoff weight are
exempt. Effective 5/20/13 parts & labor are exempt for rotary wing
aircraft that exceed 2,000 pounds maximum certified takeoff weight.
(TIP 13A01-07)
The sale or lease of an aircraft of more than 15,000 pounds maximum
certified takeoff weight for use by a common carrier is exempt.
The charge for parking or storage of an aircraft is subject to the tax
under Rule 12A-1.073, F.A.C. Fuel for aircraft is subject to the tax
under Chapter 206, F.S.
The charge by the dealer for pilot training, including supervised solo
flights, is not subject to the tax under Rule 12A-1.007, F.A.C., but a
charge for any solo flights made by the student after completing the
training program is subject to the tax as a rental of the aircraft.
The charge made by the dealer for a charter flight (air taxi) to take a
passenger or passengers to a certain destination, when the passenger
does not pilot or take possession of the aircraft, is considered to be a
service, and is not subject to the tax.
Registered aircraft dealers who purchase aircraft exclusively for resale
at the time of purchase are required to pay a use tax computed on 1
percent of the value of the aircraft each calendar month the aircraft is
used by the dealer for purposes such as air charters, flight training, and
demonstration, when a charge is received by the dealer. The payment
of the use tax commences the first month that the aircraft is first used
for any purpose for which income is received by the dealer. The use
tax is due each month that the dealer generates income by using the
aircraft. In lieu of monthly use tax, a registered dealer may pay the
sales tax on the purchase price of the aircraft at the time of purchase.
The value of the aircraft for purposes of computing the use tax is
generally the value of the aircraft shown on the books of the dealer in
accordance with generally accepted accounting principles and includes
the acquisition cost and cost of reconditioning which enhances the
value of the aircraft.
2014
Program Training
11-19
EXAMPLE: An aircraft that was in the dealer's inventory for
sale was used for pilot training on March 20 and March 28,
2008, and again on May 10, 2008. The aircraft's original cost
was $500,000. The charge made to the customer/student is an
exempt charge. Use tax would be due and payable from the
dealer computed as follows:
March 2008 $500,000 x 1% x 6% = $300 use tax
May 2008 $500,000 x 1% x 6% = $300 use tax
No tax is due on the purchase of an aircraft for the purpose of renting
it exclusively to others.
SUMMARY
The module has covered transportation equipment dealers including
motor vehicles, mobile homes, boats, and aircraft. The methods of
operation and special tax considerations of each are discussed. In
general, there are many similarities between these dealers. Rules and
Statutes for the industry should be researched carefully for the minor
differences.
11-20
Program Training
2014
SELF – CHECK QUESTIONS
1. When a Florida resident purchases a motor vehicle in another
state and immediately brings that vehicle into Florida for
registration and titling, which of the following would best
describe the tax implications?
A. There would be no tax implication in Florida. The tag
agent would take application for titling of the vehicle in
Florida and issue a current Florida license plate.
B. The tag agent would require the motor vehicle owner to
pay use tax on the vehicle but would allow credit for
legally imposed sales tax paid in another state, territory of
the United States or the District of Columbia.
C. Any tax imposed by and in Florida would be considered
an illegally imposed tax in accordance with the United
States Constitution.
D. None of the above.
2. Exquisite Auto Sales (a licensed Florida auto dealer), has five
new automobiles which are used as demonstrators. Each
vehicle is equipped with a dealer tag and is assigned to a
salesperson and authorized for limited use in connection with
the business. Each vehicle costs Exquisite $29,000.00. The
vehicles have been used by the salespeople for one month.
How much tax would be due from the dealer on the use of
these vehicles?
A.
B.
C.
D.
2014
$8,700 use tax is due.
$87 use tax is due.
Dealers never owe use tax on purchases they consume.
No tax is due since the car was used as a demonstrator.
Program Training
11-21
3. The purchase of an aircraft, boat or motor vehicle used
exclusively for rental purposes is:
A. tax exempt when purchased (a resale certificate should be
given to the seller).
B. not taxed when purchased or on any subsequent rental
charges.
C. taxed when purchased, and tax exempt on rental charge.
D. none of the above.
4. Parts purchased for use to maintain, repair, rebuild and
recondition vehicles, which are used exclusively for rental
purposes, are:
A. exempt since the parts are used on rental vehicles in which
the tax is collected on the rental charges of the vehicles and
the purchaser has also extended to the seller, a properly
executed annual resale certificate.
B. taxable similar to other parts for repair jobs, even though
tax is charged on the vehicle rental.
C. taxable at a reduced rate, because tax is being collected on
the vehicle rental.
D. repair parts are never taxable.
5. Mr. Foster, a mobile home dealer, also sells furniture for these
homes, if the customer desires. Mr. Foster sold a fully
furnished mobile home to Mr. and Mrs. Sam Jones. Which one
of the following statement(s) is true?
A. Mr. Foster should pay tax when he purchases the furniture
and then charge tax when the furniture is sold to the Jones.
B. Mr. Foster should extend a resale certificate when he
purchases the furniture, making the purchase free of tax
and charge tax on the amount he charges the Jones for the
furniture and the mobile home.
C. Since the mobile home is real property, the purchase of
furniture as an attachment to the mobile home, is exempt as
real property.
D. none of the above.
11-22
Program Training
2014
6. While examining the records of Wanna Fly, an aircraft dealer
who also operates a flight school as part of the same operation,
you notice the following data and activities involving aircraft
LT00651: The aircraft is listed in inventory for sale at the price
of $35,000.00. The dealer purchased the aircraft at a cost of
$22,500.00. During the period being examined, the aircraft
was used by the dealer in the flight school operation for five
days during the month of August 2005 and 20 days during the
month of September 2005. Based on this information, what is
the least amount of tax due from the dealer for the use of this
aircraft?
A. $1,350 tax would be due, based on 6% of the dealer cost.
B. No tax would be due, as the aircraft remained in inventory
for sale during the time of its use.
C. $2,100 tax would be due, based on 6% of the listed sales
price.
D. $27 tax would be due, based on 6% of 2% of the dealer cost
of the aircraft.
7. You are auditing a licensed Florida motor vehicle dealer and you
examine the following sales transaction:
Sales price 2006, Thang
Used vehicle taken as Trade-In
Additional vehicle accessories
Notary Fee
Title & Registration
Dealer Preparation Fee
Misc. Administrative
$59,000.00
14,000.00
10,000.00
20.00
33.00
250.00
197.00
What amount is subject to sales tax?
A.
B.
C.
D.
2014
$45,000
$55,467
$55,500
$59,000
Program Training
11-23
8. Bob’s Auto Dealership removed a vehicle from inventory,
surrendered the M.S.O. and obtained a title certificate and registration.
A.
B.
C.
D.
Tax is due at 6% of the cost price of the vehicle.
No tax is due.
Use tax of $27 is due for a dealer tag.
None of the above.
9. A vehicle dealer makes numerous repairs and performs oil changes
on vehicles that are in the inventory for sale. Some of the vehicles are
demonstrators and others are used cars taken in trade.
A.
B.
C.
D.
All repairs are subject to Use Tax.
All oil changes are subject to Use Tax.
The repairs and oil changes are not subject to tax.
None of the above.
10. Very Generous Dealer loans five vehicles, at no charge, to the
local high school for use in its driver education and safety program.
The vehicles have a cost of $20,000 each. What is the proper tax
reporting method?
A.
B.
C.
D.
11-24
Tax is due in the amount of $6,000.
No tax is due if the dealer also maintained adequate
records to support the loan of the vehicles at no charge.
Tax is due in the amount of $6,000 on the cost of the
vehicles and tax is also due tax is due on rental charges
bases on monthly usage of the vehicles in the driver
education and safety course.
None of the above.
Program Training
2014
11. A repair shop performed an oil change on a customer’s vehicle.
The shop charged the customer $25 for the oil change. The repair
shop was out of rags and sent a runner to the store next door to buy
10 boxes of rags for $25.
What is the total tax due to the
Department of Revenue.
A.
B.
C.
D.
No tax is due
$1.50
$3
None of the above.
12. A Florida resident purchased a vehicle in Florida. The vehicle
sales price totaled $20,000. Three months later the customer
purchased an extended warranty for $1,000. How much, if any,
tax is due to the state of Florida for these two separate
transactions?
A.
B.
C.
D.
2014
$1,200.
$60.
$1,260.
No tax is due
Program Training
11-25
11-26
Program Training
2014
SELF – CHECK ANSWERS
1. When a Florida resident purchases a motor vehicle in another
state and immediately brings that vehicle into Florida for
registration and titling, which of the following would best
describe the tax implications?
A. There would be no tax implication in Florida. The tag
agent would take application for titling of the vehicle in
Florida and issue a current Florida license plate.
B. The tag agent would require the motor vehicle owner to pay
use tax on the vehicle but would allow credit for legally
imposed sales tax paid in another state, territory of the
United States or the District of Columbia.
C. Any tax imposed by and in Florida would be considered an
illegally imposed tax in accordance with the United States
Constitution.
D. None of the above.
Explanation:
See “Vehicles Purchased Outside Florida and
Registered in Florida”. When a vehicle is purchased in another state,
territory of the United States or the District of Columbia., but is titled,
registered or licensed in Florida within six months of the purchase
date, Florida use tax may be due. Florida allows a credit for like taxes
paid to other states, territory of the United States or District of
Columbia at the time of purchase, but not foreign countries.
Choice A is incorrect. The tag agent may collect use tax if the tax paid
in another state is lower than the Florida Sales Tax rate.
Choice B is correct. See “Vehicles Purchased Outside Florida and
Registered in Florida”. Florida allows credit for legally imposed, like
taxes paid to other states, territories of the United States and the
District of Columbia at the time of purchase. However, if no tax was
paid in the other state or the tax paid is less than the Florida tax, use
2014
Program Training
11-27
tax, including surtax is due when the vehicle is registered in Florida
bases on the county where the vehicle is registered.
Choice C. is incorrect. Florida presumes that taxes imposed by dealers
of other states are legally imposed, absent evidence to the contrary.
Choice D is incorrect, since Choice B is correct.
2. Exquisite Auto Sales (a licensed Florida auto dealer), has five
new automobiles which are used as demonstrators. Each
vehicle is equipped with a dealer tag and is assigned to a
salesperson and authorized for limited use in connection with
the business. Each vehicle costs Exquisite $29,000.00. The
vehicles have been used by the salespeople for one month.
How much tax would be due from the dealer on the use of
these vehicles?
A.
B.
C.
D.
$8,700 use tax is due.
$87 use tax is due.
Dealers never owe use tax on purchases they consume.
No tax is due since the car was used as a demonstrator.
Explanation: See “Special Tax Considerations”. A dealer may place
a dealer tag on an automobile used in connection with the business.
Each year the dealer pays $27 use tax for each dealer plate.
Choice A is incorrect. See “Special Tax Considerations”. Use tax at
6% of cost is not due on the vehicle since it has a dealer tag and is
being used as a demonstrator.
Choice B is incorrect. See “LOANER VEHICLES.” Use tax based
on the annual lease value is not due on the vehicle since it has a dealer
tag and is being used as a demonstrator.
Choice C is incorrect.
consume.
Dealers owe use tax on purchases they
Choice D is correct. The dealer is allowed unlimited use of vehicles
in the business when a dealer tag is used.
11-28
Program Training
2014
3. The purchase of an aircraft, boat or motor vehicle used
exclusively for rental purposes is:
A. tax exempt when purchased (a resale certificate should be
given to the seller).
B. not taxed when purchased or on any subsequent rental
charges.
C. taxed when purchased, and tax exempt on rental charge.
D. none of the above.
Explanation: Rule 12A1.007 (13)(a) 2., F.A.C. The purchase by a
registered dealer of an aircraft, boat, mobile home, or motor vehicle
exclusively for lease or rental purposes is exempt. The purchasing
dealer is required to issue the selling dealer a copy of the purchasing
dealer's Annual Resale Certificate at the time of purchase in lieu of
paying tax, as provided in Rule 12A-1.039, F.A.C.
Choice A is correct. See Explanation.
Choice B is incorrect. Rule 12A1.007 (13)(a) 2., F.A.C. The purchase
by a registered dealer of an aircraft, boat, mobile home, or motor
vehicle exclusively for lease or rental purposes is exempt. However,
the rental of these vehicles is subject to tax.
Choice C is incorrect. See “Leased Commercial Motor Vehicles.”
When a vehicle weighs over 10,000 lbs., it that may be taxed on the
purchase, and exempt for subsequent rental charges. However, the
question did not address this issue.
Choice D is incorrect.
correct.
Choice D is incorrect, since Choice A is
4. Parts purchased for use to maintain, repair, rebuild and
recondition vehicles, which are used exclusively for rental
purposes, are:
A. exempt since the parts are used on rental vehicles in which
the tax is collected on the rental charges of the vehicles and
the purchaser has also extended to the seller, a properly
executed annual resale certificate.
B. taxable similar to other parts for repair jobs, even though tax
is charged on the vehicle rental.
2014
Program Training
11-29
C. taxable at a reduced rate, because tax is being collected on
the vehicle rental.
D. repair parts are never taxable.
Explanation: See “Repairs and Shop Supplies”. 12A-1.007(16) Parts
and materials used by aircraft, boat, mobile home, or motor vehicle
dealers in repairing, rebuilding, and reconditioning aircraft, boats,
mobile homes except mobile homes which bear a "RP decal", motor
vehicles, or other vehicles for sale are exempt from tax. Section
212.02(15)(a), F.S., sales includes rental of tangible personal property.
Choice A is correct. See Explanation.
Choice B is incorrect. Parts used in the repair of a vehicle exclusively
for rent are exempt.
Choice C is incorrect. Parts used in the repair of a vehicle exclusively
for rent are exempt.
Choice D is incorrect. See Repairs and Shop Supplies. Repairs are
generally taxable, unless for resale or rental or sold to an exempt
entity.
5. Mr. Foster, a mobile home dealer, also sells furniture for these
homes, if the customer desires. Mr. Foster sold a fully
furnished mobile home to Mr. and Mrs. Sam Jones. Which one
of the following statement(s) is true?
A. Mr. Foster should pay tax when he purchases the furniture
and then charge tax when the furniture is sold to the Jones.
B. Mr. Foster should extend a resale certificate when he
purchases the furniture, making the purchase free of tax and
charge tax on the amount he charges the Jones for the
furniture and the mobile home.
C. Since the mobile home is real property, the purchase of
furniture as an attachment to the mobile home, is exempt as
real property.
D. none of the above.
Explanation: See “MOBILE HOMES, Special Tax Considerations”.
A mobile home sold and fully furnished is taxed on the total price of
the mobile home including all of its furnishings and other tangible
personal property sold with the mobile home.
11-30
Program Training
2014
Choice A is incorrect. The dealer may purchase the furnishing tax
exempt and issue the seller of the furniture a valid Resale Certificate.
Also Rule 12A-1.007(11)(b)4. states in part… that the sales price of a
mobile home which is considered tangible personal property is the
total sales price of the mobile home which shall include, if applicable,
the sales price of any tangible personal property included within or
which becomes a part of it.
Choice B is correct. The dealer may purchase the furnishing tax
exempt and issue the seller of the furniture a valid Resale Certificate.
Also Rule 12A-1.007(11)(b)4. states in part… that the sales price of a
mobile home which is considered tangible personal property is the
total sales price of the mobile home which shall include, if applicable,
the sales price of any tangible personal property included within or
which becomes a part of it.
Choice C is incorrect. Dealer sales of mobile homes are considered
sales of tangible personal property. Choice B is correct.
Choice D is incorrect since Choice B is correct.
6. While examining the records of Wanna Fly, an aircraft dealer
who also operates a flight school as part of the same operation,
you notice the following data and activities involving aircraft
LT00651: The aircraft is listed in inventory for sale at the price
of $35,000.00. The dealer purchased the aircraft at a cost of
$22,500.00. During the period being examined, the aircraft
was used by the dealer in the flight school operation for five
days during the month of August 2005 and 20 days during the
month of September 2005. Based on this information, what is
the least amount of tax due from the dealer for the use of this
aircraft?
A. $1,350 tax would be due, based on 6% of the dealer cost.
B. No tax would be due, as the aircraft remained in inventory
for sale during the time of its use.
C. $2,100 tax would be due, based on 6% of the listed sales
price.
D. $27 tax would be due, based on 6% of 2% of the dealer cost
of the aircraft.
2014
Program Training
11-31
Explanation: See “Special Tax Considerations.” If a dealer uses an
aircraft that is in inventory for sale, use tax will be calculated and due
at 6% of 1 percent of the cost of the aircraft for each calendar month in
which the aircraft was used.
Choice A is incorrect. Rule 12A-1.007(10)(g)1., F.A.C. states
“Registered aircraft dealers who purchase aircraft exclusively for
resale are exempt from the payment of tax on the purchase price at the
time of purchase but shall pay a use tax computed on 1 percent of the
value of the aircraft each calendar month that the aircraft is used by the
dealer.”
Choice B is incorrect. Choice B is incorrect since use tax is due on 1
percent of the value of the aircraft for each month.
Choice C is incorrect. Use tax is not required on the rental sales price
of the aircraft. Use tax is due for the months the aircraft was in use.
Choice D is correct. Use tax is due for the two months the aircraft was
used for flight instruction. $22,500 x 2% = $450. $450 x 6% = $27
7. You are auditing a licensed Florida motor vehicle dealer and
you examine the following sales transaction:
Sales price 2006, Thang
Used vehicle taken as Trade-In
Additional vehicle accessories
Notary Fee
Title & Registration
Dealer Preparation Fee
Misc. Administrative
$59,000.00
14,000.00
10,000.00
20.00
33.00
250.00
197.00
What amount is subject to sales tax?
A.
B.
C.
D.
$45,000
$55,467
$55,500
$59,000
Explanation: See “Special Tax Considerations”. The dealer should
collect the tax on the sales price including add-on items included on
the invoice such as accessories and fees. Trade-Ins reduce the taxable
base for calculating Sales Tax. Only charges that are requisite to the
titling, licensing, and registration are not subject to tax.
11-32
Program Training
2014
Choice A is incorrect. See “Special Tax Considerations”. ($59,000
sales price less $14,000 trade-in) = $45,000. Although the trade-was
correctly deducted from the sales price, A is still incorrect since
accessories and other fees are taxable also and were not included in the
calculation.
Choice B is correct. See “Special Tax Considerations”. ($59,000
sales price less $14,000 trade-in plus ($10,000 vehicle accessories plus
$20 notary fee plus $250 preparation fee plus $197 miscellaneous
administrative costs) equals $55,467 subject to tax. The $33 title and
registration fee is not included in the taxable base.
Choice C is incorrect. $55,500 is the total of all fees, the sales price of
the vehicle minus the trade-in. The $33 title and registration fee is not
taxable.
Choice D is incorrect. The $59,000 sales price is subject to tax, but it
is reduced by the trade-in and other accessories and fees, except the
title and registration fee, must be included in the taxable base.
8. Bob’s Auto Dealership removed a vehicle from inventory,
surrendered the M.S.O. and obtained a title certificate and
registration.
A.
B.
C.
D.
Tax is due at 6% of the cost price of the vehicle.
No tax is due.
Use tax of $27 is due for a dealer tag.
None of the above.
Explanation: See “Special Tax Considerations.” When the dealer
removes a vehicle from inventory and obtains title, tax is due on the
cost price of the vehicle.
Choice A is correct. See “Special Tax Consideration.” If the dealer
removes a vehicle from inventory, surrenders the M.S.O., and obtains
a title certificate and registration, tax is due at 6% of the cost price of
the vehicle.
Choice B is incorrect. Tax is due on the cost price of the vehicle when
it has been removed from inventory.
2014
Program Training
11-33
Choice C is incorrect. See “Special Tax Considerations.” The dealer
is allowed to place a dealer tag on any automobile in the inventory.
Since the vehicle was removed from inventory, the dealer tag is not
allowed.
Choice D is incorrect. Choice D is incorrect since Choice A is correct.
9. A vehicle dealer makes numerous repairs and performs oil
changes on vehicles that are in the inventory for sale. Some of
the vehicles are demonstrators and others are used cars taken in
trade.
A.
B.
C.
D.
All repairs are subject to Use Tax.
All oil changes are subject to Use Tax.
The repairs and oil changes are not subject to tax.
None of the above.
Explanation: See “Repairs and Shop Supplies.” As long as a vehicle
is in inventory for resale, no tax is due for repairs or oil change and
lubrications.
Choice A is incorrect. See “Repairs and Shop Supplies.” Repairs to
demonstrators, executive cars, used cars taken in trade, and other cars
in the inventory for sale are not subject to tax.
Choice B is incorrect. See “Repairs and Shop Supplies.” The
exemption extends to the servicing (oil change and lubrication) of
these cars as well.
Choice C is correct. The repairs and oil changes to the vehicle in
inventory for sale are not subject to tax.
Choice D is incorrect. Choice D is incorrect since Choice C is correct.
11-34
Program Training
2014
10. Very Generous Dealer loans five vehicles, at no charge, to the
local high school for use in its driver education and safety
program. The vehicles have a cost of $20,000 each. What is
the proper tax reporting method?
A. Tax is due in the amount of $6,000.
B. No tax is due if the dealer also maintained adequate records
to support the loan of the vehicles at no charge.
C. Tax is due in the amount of $6,000 on the cost of the
vehicles and tax is also due tax is due on rental charges
bases on monthly usage of the vehicles in the driver
education and safety course.
D. None of the above.
Explanation: See “LOANER VEHICLES.” No sales or use tax is
due on a motor vehicle that is loaned at no charge by the dealer to a
high school for use in its driver education and safety program.
Adequate records to support the exemption are required.
Choice A is incorrect. Use tax of $6,000 – ($20,000/vehicle x 5) =
$100,000 x 6% tax rate = $6,000. See “LOANER VEHICLES.” No
sales or use tax is due on a motor vehicle that is loaned at no charge by
the dealer to a high school for use in its driver education and safety
program. Adequate records supporting the exemption are required.
Choice B is correct. See “LOANER VEHICLES.” The vehicles were
loaned at no charge to a high school for their drivers’ education and
safety program and adequate supporting documentation was
maintained to support the exemption. No tax is due.
Choice C is incorrect. See “LOANER VEHICLES.” The vehicles
were loaned at no charge to a high school for their drivers’ education
and safety program and adequate supporting documentation was
maintained to support the exemption. No tax is due.
Choice D is incorrect since Choice B is correct.
2014
Program Training
11-35
11. A repair shop performed an oil change on a customer’s vehicle.
The shop charged the customer $25 for the oil change. The
repair shop was out of rags and sent a runner to the store next
door to buy 10 boxes of rags for $25. What is the total tax due
to the Department of Revenue.
A.
B.
C.
D.
No tax is due
$1.50
$3
None of the above.
Explanation: See “Repairs and Shop Supplies.” Tax is due on all
shop items that are consumed in the process of repairs and are taxable
as use items. Repairs to tangible personal property are taxable, unless
the repairman’s records clearly prove that no parts or lubricants were
used in the repair.
Choice A is incorrect. See “Repairs and Shop Supplies.” Sales Tax is
due on the charge for the oil change and
Use Tax is due on the
purchase of the rags as use items.
Choice B is incorrect. See “Repairs and Shop Supplies.” Tax is due,
both on the charge for the oil change, and on the purchase of the rags
as use items by the repair shop.
Choice C is correct. $25 oil change x 6% = $1.50 tax plus $25 rags x
6% = 1.50. Total tax due is $3. See Repairs and Shop Supplies. Sales
Tax is due on the charge for the oil change and Use Tax is due on the
purchase of the rags as use items.
Choice D is incorrect since Choice C is correct.
12. A Florida resident purchased a vehicle in Florida. The vehicle
sales price totaled $20,000. Three months later the customer
purchased an extended warranty for $1,000. How much, if
any, tax is due to the state of Florida for these two separate
transactions?
A.
B.
C.
D.
11-36
$1,200.
$60.
$1,260.
No tax is due
Program Training
2014
Explanation: 12A-1.007(1)(a), F.A.C., states that the sale, including
occasional or isolated sales, the use, consumption, or storage for use in
this state of any aircraft, boat, mobile home, motor vehicle, or other
vehicle of a class or type required to be registered, licensed, titled, or
documented in this state or by the United States Government is taxable
on the full sales price without any deduction for freight, handling,
delivery, commission, repossessions, advertising, future free service,
or any other expense or cost whatsoever. Service warranties are also
taxable. Rule 12A-1.105(1)(a), F.A.C., states in part that every person
who solicits, offers, provides, enters into, issues, or delivers any
service warranty, or who receives, on behalf of another person, any
consideration from a service warranty holder is exercising a taxable
privilege and shall register as a dealer with the Department of Revenue
before such person may engage in or conduct business in this state.
Choice A is incorrect. $20,000 vehicle sales prices x 6% Sales Tax
Rate = $1,200. The $1,000 service warranty is also taxable. $1,000 x
6% = 60. Total tax due the State is $1,260.
Choice B is incorrect. Tax is also due on the sale of the vehicle.
$20,000 x 6% = $1,200. 12A-1.007(1)(a), F.A.C. states that the sale,
including occasional or isolated sales, the use, consumption, or storage
for use in this state of any aircraft, boat, mobile home, motor vehicle,
or other vehicle of a class or type required to be registered, licensed,
titled, or documented in this state or by the United States Government
is taxable on the full sales price without any deduction for freight,
handling, delivery, commission, repossessions, advertising, future free
service, or any other expense or cost whatsoever. Service warranties
are also taxable.
Choice C is correct. Tax is due on the sale of the vehicle and the
service warranty. $20,000 + $1,000 = 21,000 x 6% = $1,260.
Choice D is incorrect since choice C is correct.
2014
Program Training
11-37
11-38
Program Training
2014
DR-123
R. 02/09
Affidavit for Partial Exemption of Motor Vehicle Sold
for Licensing in Another State
Affidavit
State of Florida, County of_________________________________________
Before me, the undersigned Notary Public, personally appeared______________________________________________________________ ,
Who, being duly sworn, says that he/she is a resident of the State of____________________________________and that he/she is the
purchaser of the following described motor vehicle.
Name of Purchaser_ ____________________________________________________________________________________________________
State of Residence and
Address of Purchaser___________________________________________________________________________________________________
(Street)
(City)
(State)
(ZIP)
If the non-resident purchaser is a corporation or partnership, an officer or partner must acknowledge the following in order to be
allowed the partial exemption:
q The vehicle will be removed from this state within 45 days of purchase and will remain outside this state for a minimum of
180 days.
OR
If the vehicle is not removed from this state, an officer or partner in the non-resident corporation or partnership must certify the
following:
q There is no officer that is a resident of this state.
q There is no stockholder who owns at least 10% of the corporation that is a resident of this state.
q There is no partner in the partnership who has at least 10 percent ownership of the partnership that is a resident of this state.
Name of Seller_ ________________________________________________________________________________________________________
Address of Seller_ ______________________________________________________________________________________________________
(Street)
(City)
(State)
(ZIP)
Seller’s Sales Tax Registration Number____________________________________________________________________________________
Date of Sale______________________________________
Description of Motor Vehicle:
Make____________________________________________Model___________________________________________Year___________________
Vehicle Identification Number_ _______________________________________ Motor Number_______________________________________
Sales Price_________________________________________________________ Trade-In Allowance___________________________________
Sales Tax Paid to the State of Florida $________________________________________
I, ___________ understand that I may owe sales tax to the State of _______________________________;
(Purchaser's Initials)
(Purchaser's state - Do Not Abbreviate)
• if the state, in which the vehicle is being registered/licensed, does not allow a credit for sales tax paid to the State of Florida; or
• if that state imposes a rate higher than 6 percent.
I also understand;
• sales tax is being paid to Florida and not to any other state; and
• I may request a copy of the "Motor Vehicle Sales Tax Rates by State" from the above motor vehicle dealer or the Florida
Department of Revenue.
This vehicle will be licensed in the State of ____________________________ within forty-five (45) days after the date it was purchased in
the State of Florida.
Sworn to (or affirmed) and subscribed before me this _____________ day of __________, A.D., _________.
(Day of Month)
______________________________________________
(Signature of Nonresident Purchaser)
Personally Known _ _________________________
Or Produced Identification _ _________________________
Type of Identification Produced _ _________________________
(Month)
(Year)
___________________________________________
(Signature of Notary)
______________________________________________________
Print, Type or Stamp Name of Notary
MODULE TWELVE
MISCELLANEOUS TAXES AND FEES
OBJECTIVES
Upon completion of this module the participant will be able to:
•
describe the services subject to the sales and use tax;
•
explain miscellaneous fees and surcharges; and
•
determine the correct tax application of miscellaneous fees
and surcharges;
INTRODUCTION
Florida has several miscellaneous taxes and fees. This module will
provide a general outline of the following issues:
•
Sales of selected services are taxable in Florida. Taxable services
are: non-residential insect or pest exterminators, non-residential
cleaning services, and detective, burglar, and other protection
services.
•
Due to concerns about the environment, Florida has imposed fees
on new tires and batteries. Other motor vehicle issues include, the
car rental and lemon law surcharges.
2014
Program Training
12-1
SERVICES
Persons engaged in the business of providing any of the services noted
in the introduction must register for sales and use tax. If the service
provider is already registered for the sale of tangible personal property,
and more than 50 percent of the person's gross receipts are derived
from the sales of services, the dealer’s industry code should be updated
in their registration profile.
Tax is imposed on the use of any service deemed to be taxable in
Florida at the rate of six percent and is due at the time of the sale of the
service. If the sale of the service is outside the state, the presence of
any one of the following factors will make the service subject to the
Florida sales and use tax:
•
•
•
the direct result of the service applies to activities of a
purchaser who is located in Florida;
the service is related to real property or tangible personal
property with Florida situs; or
the service was performed for or primarily benefited the
estate of a decedent whose last established residency was in
Florida.
CLEANING SERVICES
Sales and use tax is imposed on nonresidential cleaning services as
enumerated in NAICS National Number 561720 of the North
American Industry Classification System, published 2007. These
services include any activity (not including repair) performed to
maintain the clean, sanitary appearance and operating condition of a
nonresidential building interiors and include, but are not limited to, the
following services which are subject to the state's sales and use tax:
•
•
•
•
•
•
•
•
•
•
12-2
acoustical tile cleaning services
building cleaning services, interior
custodial services
deodorant servicing of restrooms
disinfecting services
floor waxing services
housekeeping (cleaning services) on a contract or fee basis
janitorial services on a contract or fee basis
maid services
maintenance of buildings (except repairs)
Program Training
2014
•
•
•
•
•
•
office cleaning services
restroom cleaning services
service station cleaning and degreasing services
venetian blind cleaning
washroom sanitation services
window cleaning (interior or exterior)
Special tax considerations
Charges made for cleaning residential facilities used as living
accommodations, such as detached or single family dwellings,
apartments, duplexes, triplexes, quadraplexes, residential
condominiums, residential cooperatives, residential time-share units,
beach cottages, nursing homes, and mobile home parks, and the
common areas of those residential facilities, are not subject to tax.
Residential facilities include multiple unit structures where each unit
or accommodation is intended for use as a private temporary or
permanent residence, even though the rental, lease, letting, or licensing
of such living accommodations may be subject to the tax imposed
under s. 212.03, F.S. Not included are facilities that are intended for
commercial or industrial purposes, these type facilities would be
subject to tax.
Aircraft, boats, motor vehicles and other transportation vehicles,
except mobile homes, are not considered to be nonresidential
buildings. For the taxability of cleaning aircraft, boats, motor vehicles,
and other vehicles, refer to Rule 12A-1.006, F.A.C. Mobile homes can
be classified as either residential or nonresidential.
Charges to a lessor of a nonresidential building for cleaning services
are taxable, even if the tenant or lessee is a tax exempt entity.
Pressure cleaning (power washing) of the exterior of a building, or of
parking lots or parking structures, is not taxable as a cleaning service.
If a building is used for both residential and nonresidential purposes,
the price of the service for each type of area must be separately stated
or the total charge will be taxable.
Equipment and supplies consumed by the service provider are taxable
to the service provider.
2014
Program Training
12-3
INSECT OR PEST CONTROL SERVICES
Nonresidential pest control services as enumerated in NAICS National
Number 561710 of the North American Industry Classification
System, published 2007, are subject to tax. Nonresidential pest control
services include those services (not involving repair) rendered to
minimize or eliminate any infestation of nonresidential buildings by
vermin, insects, and other pests that do not include services provided
for tangible personal property. Examples of taxable pest control
services are:
•
•
•
•
•
bird control or bird proofing
exterminating services
fumigating services
pest control services
termite control
Special tax considerations
Charges made for pest control services provided at residential facilities
used as living accommodations, such as detached or single family
dwellings, apartments, duplexes, triplexes, quadraplexes, residential
condominiums, residential cooperatives, residential time-share units,
beach cottages, nursing homes, and mobile home parks, and the
common areas of those residential facilities, are not subject to tax.
Residential facilities include multiple unit structures where each unit
or accommodation is intended for use as a private temporary or
permanent residence, even though the rental, lease, letting, or licensing
of such living accommodations may be subject to the tax imposed
under s. 212.03, F.S. Not included are facilities that are intended for
commercial or industrial purposes, these type facilities would be
subject to tax.
The charge for soil treatment for termites or other pests before a
nonresidential building can be erected on the property is taxable.
The charge for annual or periodic pest inspections is considered to be
for pest control services and is taxable if provided to a nonresidential
building.
Where a person is providing pest control services to a residential
building and a utility shed is located on the same property as the
12-4
Program Training
2014
residential building, the spraying of the utility shed will be considered
a part of the service to the residential building, provided no
commercial activity is carried on at the utility shed.
The charge to a lessor of a nonresidential building for pest control
services is taxable, even if the tenant or lessee is a tax exempt entity.
The spraying of lawns, whether residential or nonresidential, is not
subject to tax.
Pest control services provided for agricultural purposes or for forestry
production are not taxable.
Pest control service providers are considered the ultimate users or
consumers of the tangible personal property sold to them and used in
connection with their service and are required to pay the tax imposed
upon such sales of tangible personal property to their dealers.
Aircraft, boats, motor vehicles and other vehicles, except mobile
homes, are not considered to be nonresidential buildings. Therefore,
the charge made for pest control services provided for such items are
not taxable. Mobile homes can be classified as either residential or
nonresidential.
Equipment and supplies consumed by the service provider are taxable
to the service provider.
2014
Program Training
12-5
DETECTIVE, BURGLAR PROTECTION, AND
OTHER PROTECTIVE SERVICES
Detective, burglar protection, and other protection services are subject
to tax. Persons who provide any of the services enumerated in NAICS
National Numbers 561611, 561612, 561613, and 561621 of the North
American Industry Classification System, published 2007, are dealers
in a taxable service and are required to charge sales tax on the total
taxable sales price of the service.
These are defined as services to minimize or prevent loss or damage to
life, limb or property of the type performed by security or alarm
system companies, or services to obtain evidence or other information
for legal, business, or personal purposes of the type performed by
detective or investigative agencies. These include, but are not limited
to:
•
•
•
•
•
•
•
•
•
•
•
•
armored car services
bodyguard (personal protection) services
burglar or fire alarm or other security system devices
monitoring and maintenance*
detective agency services
fingerprint service
guard dog, detection dogs, and other dogs for protection or
investigative services (not including training), with or
without a handler
guard, patrol, and parking or other facility security services
investigation services (except credit)
lie detector or polygraph services
missing person tracing services
passenger screening services
skip tracing services
* The installation of alarm or security systems that remain tangible
personal property is governed by Rule 12A-1.016, F.A.C. The
installation of alarm or security systems that become real property is
governed by Rule 12A-1.051, F.A.C. The monitoring or maintenance
of alarm or security systems is a taxable service whether such systems
are considered to be tangible personal property or part of real property.
The term maintenance includes any inspection of an alarm or security
system to confirm its proper working order. The term maintenance
does not include the expansion or upgrade of an existing system, but
does include the replacement of defective components.
12-6
Program Training
2014
The services enumerated above are taxable whether performed within
or outside this state, if used within this state by the purchaser, or if the
purchaser's primary benefit of the services is within this state. A log
must be maintained by the seller to document transactions performed
in this state but used by a purchaser located outside the state.
Special tax considerations
The following services, when performed by detectives, private
investigators, or others are not subject to tax when freestanding, or
when separately stated on an invoice given to a purchaser which
includes taxable services:
•
•
•
•
•
•
Credit reporting services.
Any report of public information or compiled social,
business, or medical information, where the information
has not been independently verified or confirmed by the
investigator, by such methods as surveillance, interviews,
or physical contact.
Insurance services as classified under NAICS National
Number 524298, such as insurance investigation services,
insurance loss prevention services, or insurance reporting
services. The name of the insurance carrier must be
included in the billing for the investigative services.
Process serving services.
Courthouse records retrieval.
Repossession services.
Security services provided to housing facilities, such as vehicle or foot
patrols; gate, lobby, or entrance guard service; or personnel which may
be dispatched from any other site upon request, are taxable. The
following businesses or persons who charge for these services must
also charge, collect, and remit tax on those services.
•
•
•
2014
Developers, owners, or lessors of residential developments
who charge property owners or residents of such
developments.
Homeowner's, condominium, cooperative, or community
associations who charge their members.
Operators of apartments, roominghouses, hotels, motels,
and mobile home parks who charge the residents or guests
of such facilities.
Program Training
12-7
Charges for the transactions listed above are
when:
• A charge for security services is
invoice given to the purchaser; or
• A charge is made for a package
agreement, includes security
12A-1.0161(6)(a), F.A.C.
considered to be made
expressly noted on an
of services which, by
services. See Rule
If a transaction involves both the sale or use of a service which is
taxable and the sale or use of a service which is not taxable, the
charges for the taxable portion of the transaction must be separately
stated from the charges for the nontaxable portion or the entire
transaction will be presumed taxable.
Protection services are not subject to tax when provided by employees
to their employers.
Services, as discussed in this module, are taxable for all persons,
businesses, residences, or nonresidential properties.
Investigative services provided directly to an exempt government
entity are exempt. When provided to a second party for a government
contract they are taxable.
Security services provided by a shopping mall for its tenants are
taxable.
Security services performed by a law enforcement officer outside
his/her regular duties, in a geographical area where the officer has
arrest jurisdiction, are exempt. The charge is taxable if the duties are
in a geographical area where the officer does not have arrest
jurisdiction.
The consideration paid solely for directing the control of vehicular
traffic is not subject to tax. This consideration is taxable if the control
of vehicular traffic is associated with protection services for a
particular person or properties.
Detective, burglar protection, and other protection service providers
are considered the ultimate users or consumers of the tangible personal
property sold to them and used in connection with their service and are
required to pay the tax imposed upon such sales of tangible personal
property to their dealers.
12-8
Program Training
2014
SOLID WASTE FEE - NEW TIRES
A $1.00 fee is imposed on each new tire sold at retail in this state. The
fee applies to new tires sold as a component part of a new or used
motor vehicle as well as to new tires sold as separate items.
A new tire is one that has never been used in the movement of a motor
vehicle. "Tire" for purpose of this fee means a continuous solid or
pneumatic rubber covering encircling the wheel of a motor vehicle.
The motor vehicle means a mechanism or device in, upon, or by which
a person or property is or may be transported.
Motor vehicles are: an automobile, motorcycle, truck, trailer,
semitrailer, truck tractor and semitrailer combination, or any other
vehicle operated in the state of Florida to transport people or property,
and that is propelled by power other than muscular power.
The fee applies regardless of whether the vehicle is operated on or off
the road. This includes golf carts and all terrain vehicles. However,
the term does not include: traction engines, road rollers, vehicles
running on tracks, bicycles, mopeds, or farm tractors and farm trailers.
The rules which will control this fee are 12A-12.001 and 12A-12.003
through 12A-12.004, F.A.C. The fee should be remitted on a DR15SW, Solid Waste and Surcharge Return.
Estimated tax requirements do not apply to the fee. The dealer's
collection allowance for timely remitting sales and use tax provided in
s. 212.12, F.S., does not apply to the fee.
Special tax considerations
The fee is imposed upon the dealer selling the tire and not upon the
purchaser. The fee is required to be stated separately on the sales
invoice or other tangible evidence of sale given to the purchaser. The
fee is to be included in the price upon which sales or use tax or any
other tax imposed by Chapter 212, F.S., is computed, even though the
fee is listed as a separate item on the invoice.
The only exemption from the fee for a dealer of new motor vehicle
tires is tires sold for resale. The selling dealer must maintain
completed annual resale certificates to support the exempt
transactions.
2014
Program Training
12-9
Transactions involving holders of exemption certificates, taxpayers
who operate under self accrual authority and anyone else not
purchasing for resale are taxable.
Used car dealers may elect to pay the fee to the wholesaler instead of
purchasing the tires exempt from the fee. If there is an election, the
dealer must pay the fee to the wholesaler on all tire purchases. The
used car dealer must indicate on the sales tax resale certificate issued
to the wholesalers that the certificate is to be used to exempt the
purchase of the tires from sales tax only, and not from the tire fee. On
subsequent retail sales, the used car dealer must state in the contract or
sales invoice to the purchaser that the applicable tire fee has been paid,
whether sold separately or as a component part of a motor vehicle.
A sale to a motor vehicle leasing company of a new tire, or a vehicle
of which a new tire is a component part, is not a retail sale for purpose
of the fee if the company gives the seller a resale certificate. Instead,
the fee is payable by the leasing company when it first puts the vehicle
into use in this state.
New tires which were sold, but later returned, are allowed credits as
follows:
•
•
•
cancelled and allowed full refund of the purchase price to
the buyer with the dealer receiving full credit;
new tire exchanged for another new tire - original tire fee
remains due and payable with nothing on replacement; and
partial credit (based on mileage or wear) - the dealer cannot
take credit for a previously paid fee and full fee is due on
the new tire.
Specific Audit Procedures
To begin the audit, the auditor should schedule the DR-15SW's and
verify calculations and payment for accuracy.
A worksheet should be prepared to determine total consumption of
new tires for the fiscal year. Start with the beginning inventory of new
tires for each fiscal year of the dealer. All purchases made during the
period should be added, then subtract the ending inventory. The result
is total new tires consumed by the dealer. If dollars are used, the
dollars will have to be converted to estimated number of tires.
12-10
Program Training
2014
The total may further be reduced by the following:
•
•
new tires sold for resale;
new tires exchanged for full credit of the purchase price.
The balance of new tires left after the adjustments will be the number
of tires on which the fee shall be calculated. Once calculated, it will
be reduced by the amount paid during the same period, as indicated on
the DR-15SW's. Any remaining balance will be assessed against the
dealer.
Keep in mind that these calculations take into consideration all tires
used by the dealer on personal vehicles and tires for which only a
partial refund was given to the buyer.
The DR-1215, Notice of Intent to Make Audit Changes will be used
for assessments. All other forms and workpapers will be governed by
the order of file for sales and use tax.
SOLID WASTE FEE - BATTERIES
A $1.50 fee is imposed on the sale of each new or remanufactured
lead-acid battery designed for use in motor vehicles, vessels, and
aircraft. The fee applies to batteries sold at retail as a component part
of a motor vehicle, vessel or aircraft as well as to batteries sold as
separate items. The fee is payable even if a battery so designed is
purchased for use on other machinery or equipment or when sold at
retail as a component part of other machinery or equipment.
A lead-acid battery is a storage or secondary battery containing lead
plates that will function as a battery when the electrolyte is added, and
designed for use in motor vehicles, vessels, and aircraft. A new
lead-acid battery is one that has never been put to any use for which it
was manufactured. A remanufactured lead-acid battery has been used
as a battery, but has been repaired, rebuilt, recharged, refilled with
electrolyte, or subjected to some other process, so that it can be used
again as a battery.
Motor vehicles are: an automobile, motorcycle, truck, trailer,
semitrailer, truck tractor and semitrailer combination, golf carts, or any
other vehicle operated in the state of Florida to transport people or
property, and that is propelled by power other than muscular power.
2014
Program Training
12-11
The retail sale of used batteries and the sale of a battery for the
purpose of recycling its components is exempt from the fee.
Rules 12A-12.011, and 12A-12.003 through 12A-12.004, F.A.C.,
govern the administration, collection and enforcement of this fee. The
fee is to be paid on Form DR-15SW, Solid Waste and Surcharge
Return.
Estimated tax requirements do not apply to the fee. The dealer's
collection allowance for timely remitting sales and use tax provided in
s. 212.12, F.S., does not apply to the fee.
Special tax considerations
The battery fee is imposed upon the selling dealer and not the
purchaser. The dealer may choose to state the fee separately
regardless of whether the additional cost is passed on to the purchaser.
The fee is to be included in the price upon which sales or use tax is
computed even if the fee is listed as a separate item on the invoice.
The only exemption from the fee for a dealer of new or
remanufactured lead-acid batteries that are designed for use in motor
vehicles, vessels, and aircraft is batteries sold for resale. The selling
dealer must maintain completed annual resale certificates to support
the exempt transactions.
Transactions involving holders of exemption certificates, taxpayers
who operate under self accrual authority, and anyone else not
purchasing for resale are taxable.
Batteries which were sold but later returned are allowed credits as
follows:
•
•
•
12-12
if cancelled or a full refund of the purchase price to the
buyer. The dealer receives full credit if purchase is
cancelled, and/or full refund of purchase price is paid to the
buyer;
if batteries are exchanged for another battery, the dealer
owes no fee for second battery, but the original battery fee
remains due and payable; or
if it is a partial credit, the dealer cannot take credit for the
previously paid fee, and would also owe the full fee on the
second battery given with respect to the partial refund.
Program Training
2014
If a dealer purchases a battery for resale and later withdraws the
battery from inventory, the fee is due at the time the battery is
withdrawn from inventory for any of the following:
•
•
•
•
used in a new or used motor vehicle, vessel, aircraft, or
other machinery or equipment;
used in his/her own motor vehicle, vessel, aircraft,
machinery or other equipment;
given away; or
for any purpose other than for resale.
RENTAL CAR SURCHARGE
A surcharge of $2.00 per day is imposed on the lease or rental in
Florida of a for hire passenger motor vehicle. The surcharge applies to
each lease or rental of a for hire passenger motor vehicle, specified in
the lease or rental agreement, on the first thirty (30) days the vehicle is
continuously leased or rented to one lessee or renter.
The surcharge is to be paid on a DR-15SW tax return. This form is to
be used to report the number of days that all for hire passenger motor
vehicles were leased or rented during the month for each county.
The term "for hire passenger motor vehicle" means any automobile
designed to carry fewer than nine (9) passengers let or rented to
another for consideration; offered for lease or rent as a means of
transportation for consideration; advertised; or generally held out as
being for lease or rent. The term for hire passenger motor vehicle does
not include any motorcycle, moped, truck, truck trailer, travel trailer,
camping trailer, recreational vehicle with living facilities, or van
conversion.
Estimated tax requirements do not apply to the surcharge. The dealer's
collection allowance for timely remitting sales and use tax provided in
s. 212.12, F.S., does not apply to the surcharge. Chapter 212.0606,
F.S., and Rule 12A-16, F.A.C., govern this surcharge.
2014
Program Training
12-13
Special tax considerations
If a for hire passenger motor vehicle is leased or rented to one lessee or
renter under an agreement, and for a specific duration in excess of
thirty (30) continuous days, the surcharge shall be collected and
remitted on lease or rental payments due for the first thirty (30)
continuous days.
If an original lease or rental agreement is renewed at any time for an
additional period, the renewal constitutes a new lease or rental, and the
surcharge is due until thirty (30) continuous days are reached on the
renewed lease or rental agreement.
The surcharge is to be separately stated on any charge ticket, invoice,
or other tangible evidence of lease, and shall be subject to sales and
use tax. The surcharge is due and payable when the lease or rental
payments are to be made by the lessee or renter as they accrue under
the terms of the lease or rental agreement.
Any person who has leased or rented a for hire passenger motor
vehicle and cannot prove the surcharge has been paid to his lessor or
other person shall be directly liable to the state for any surcharge,
interest, or penalty due on such transaction. The rental surcharge does
not apply to entities that hold a direct pay permit, consumer certificate
of exemption or exemption affidavit.
Loaner cars are subjected to the rental surcharge at the same rate
charged on cars which are rented, except for the following exemptions:
12-14
•
The vehicle is loaned to a high school for use in its driver
education and safety program; or
•
The vehicle is loaned by the dealer in connection with its
business for demonstration purposes, provided the vehicle
has a dealer's license plate; or
•
A vehicle loaned to a person whose vehicle is being
repaired, adjusted, or serviced by the dealer providing the
replacement vehicle.
Program Training
2014
Motor vehicle leases or rentals for a period of less than 12 months:
If a contract to lease or rent a motor vehicle (other than a commercial
motor vehicle) is entered into in Florida, the entire charge for such
lease or rental is subject to Florida sales tax and the applicable rental
car surcharge. The sales tax and surcharge apply even if the vehicle is
used or dropped off in another state, and even if payment for the lease
or rental is made in another state.
If a contract to lease or rent a motor vehicle (other than certain
commercial motor vehicles) is entered into in another state, the rental
is exempt from Florida sales tax and the rental car surcharge. The
exemption applies even if the vehicle is used or dropped off in Florida,
and even if payment for the lease or rental is made in Florida.
Motor vehicle leases or rentals for a period of 12 months or more:
Sales tax and rental car surcharge on the lease or rental of a motor
vehicle (other than certain commercial motor vehicles) is due if the
vehicle is registered in Florida. However, no tax or rental car
surcharge is due on the lease payments, even if the motor vehicle is
registered in Florida, if the taxpayer documents that the vehicle is
being used outside Florida and sales tax is being paid on the lease or
rental payments to another state.
Specific Audit Procedures
To begin the audit, the auditor should review the DR-15SW's and
verify calculation and payments. The auditor must verify that sales tax
has been charged on the surcharge even though the surcharge is
separately stated on the invoice.
A test should be conducted for compliance. The sample chosen would
be verified against a control ledger, and all exempted transactions
would be traced to a resale or exemption certificate or documentation
that the lease was for more than thirty (30) days to the same lessee.
All exceptions which are determined to be taxable would be
scheduled, and an error ratio should be developed in order to project
the auditor's findings. If both short and long term leases or rentals are
involved, an error ratio should be developed for each category.
2014
Program Training
12-15
MOTOR VEHICLE WARRANTY FEE – LEMON
LAW (s. 681.117, F.S. and rules 12A-13 and 12A-1.022, F.A.C.)
A $2.00 fee is to be collected from customers by motor vehicle dealers
on new motor vehicles sold or leased in Florida for one year or more,
even when the vehicle is going to be titled and registered outside this
state.
The fee is NOT included in the sales price upon which sales and use
tax is computed when the fee is separately itemized on the customer's
bill, invoice, statement, or other evidence of sale.
The fee is paid to the county tax collector by the selling dealer when
the vehicle is going to be titled and registered in Florida. Dealers are
required to remit the fee collected on vehicles that are going to be
titled and registered outside this state directly to the Department.
Form DR-35, Motor Vehicle Warranty Fee Remittance Report, is to be
used for both types of transactions.
SUMMARY
This chapter has addressed issues concerning the imposition and
application of miscellaneous taxes and fees. Many of the issues will
need to be considered in audits of a variety of business types.
The taxable services in Florida include: cleaning, pest control, and
protection services. Several fees are discussed, including: solid waste
fee on new tires and batteries; surcharges on rental cars; motor vehicle
lemon law fee.
The solid waste fee on new tires and batteries is imposed on the seller
not the buyer. When the fee is separately stated on an invoice it is
subject to sales tax. The rental car surcharge is also subject to sales
tax. However, the motor vehicle lemon law fee is not subject to sales
tax.
12-16
Program Training
2014
SELF – CHECK QUESTIONS
1. Pest control services rendered to residential buildings are:
A.
B.
C.
D.
taxable to residential occupant.
taxable to the pest control service company.
not subject to the tax.
taxable only to condominiums.
2. The charge for soil treatment for termites or other pests before a
nonresidential building can be erected is:
A. a nontaxable service.
B. a taxable pest control service.
C. taxable, even if it is for the purpose of erecting residential
building.
D. none of the above.
3. Pest control charges for spraying lawns are:
A.
B.
C.
D.
2014
taxable for nonresidential lawns.
taxable for residential lawns.
exempt for both residential and nonresidential lawns.
exempt for residential lawns only.
Program Training
12-17
4. Cleaning services in a building with a mix of both residential and
nonresidential are:
A. taxable for both residential and nonresidential, even if charges
are separated.
B. if separated, only the charges for the residential building is
taxable.
C. if separated, only the charges for the nonresidential portion of
the building is taxable.
D. if not separated, auditor should prorate and charge tax for
residential buildings.
5. Charges for investigative services provided to a private contractor
for a governmental agency are:
A. exempt, as long as the private contractor obtains an exemption
certificate.
B. taxable to the private contractor.
C. exempt, because government agencies are exempt from use
taxes.
D. taxable to the private contractor only to the portion of tangible
personal property used.
6. A vehicle dealer separately states battery fees on its sales invoices.
A.
B.
C.
D.
12-18
The battery fee is not included in the taxable amount of the
invoice since it is a tax.
The battery fee is included in the taxable amount.
The battery fee is exempt from sales tax since it is separately
stated.
None of the above.
Program Training
2014
7. Bright Cleaning Services, Inc. waxed John’s floors and cleaned the
chimneys in his house for $250. The floor waxing is $150 and the
chimney cleaning is $100. How much tax should Bright Cleaning
Services, Inc charge on its invoice to John?
A.
B.
C.
D.
$15
$9
$6
$0
8. Terry Technologies, Inc. has the following monthly expenses for
security services at the company; $500 for burglar alarm monitoring
services for their building, $300 for the rental of guard dogs for
their fenced in warehouse area, and $5,000 for two employees hired
as security guards. How much tax does the company owe each
month for security services?
A.
B.
C.
D.
$18
$ 30
$ 48
$348
9. The Bike Shop sold a new motorcycle for $5,000 and a new bicycle
for $1,000. The motor cycle included two tires and one lead-acid
battery and the bicycle included two tires. The tire and battery fees
were separately stated on the sales invoices. How much sales tax
and solid waste fees does The Bike Shop owe to the state on these
sales?
A.
B.
C.
D.
2014
$363.50
$363.71
$365.50
$365.83
Program Training
12-19
12-20
Program Training
2014
SELF – CHECK ANSWERS
1. Pest control services rendered to residential buildings are:
A.
B.
C.
D.
taxable to residential occupant.
taxable to the pest control service company.
not subject to the tax.
taxable only to condominiums.
Explanation: See “Special Tax Considerations”. Charges made for
pest control services provided at residential facilities used as living
accommodations are not subject to tax.
Choice A is incorrect. See “Special Tax Considerations.” Charges for
pest control services on residential buildings are not taxable.
Choice B is incorrect. See “Special Tax Considerations.” Pest control
providers are considered the ultimate users of the tangible personal
property sold to them and used in connection with their service, but
they do not pay use tax on the charge for the pest control service to the
customers.
Choice C is correct. See “Special Tax Considerations.” Charges for
pest control services on residential buildings are not taxable.
Choice D is incorrect. See “Special Tax Considerations.” Charges
made for pest control services used in dwellings (residential
condominiums) are not taxable.
2014
Program Training
12-21
2. The charge for soil treatment for termites or other pests before a
nonresidential building can be erected is:
A. a nontaxable service.
B. a taxable pest control service.
C. taxable, even if it is for the purpose of erecting residential
building.
D. none of the above.
Explanation: See “Special Tax Considerations”. The charge for soil
treatment for termites before a nonresidential building can be erected
is taxable.
Choice A is incorrect. See “Special Tax Considerations.” The charge
for soil treatment for termites or other pests before a nonresidential
building can be erected on the property is taxable.
Choice B is correct. See “Special Tax Considerations.” The charge
for soil treatment for termites or other pests before a nonresidential
building can be erected on the property is taxable.
Choice C is incorrect. B is correct since it is for service of a
“nonresidential” soil. If it were for “residential” property, it would be
exempt.
Choice D is incorrect. Choice B is correct and Choice A and C are
incorrect.
3. Pest control charges for spraying lawns are:
A.
B.
C.
D.
taxable for nonresidential lawns.
taxable for residential lawns.
exempt for both residential and nonresidential lawns.
exempt for residential lawns only.
Explanation: See “Special Tax Considerations”. Pest control charges
for spaying lawns of residential or nonresidential properties are
exempt from tax.
Choice A is incorrect. See “Special Tax Considerations.” The
spraying of lawns, whether residential or nonresidential, is not subject
to tax.
12-22
Program Training
2014
Choice B is incorrect. See “Special Tax Considerations.” The
spraying of lawns, whether residential or nonresidential, is not subject
to tax.
Choice C is correct. See “Special Tax Considerations.” The spraying
of lawns, whether residential or nonresidential, is not subject to tax.
Choice D is incorrect. See “Special Tax Considerations.” The charge
for spraying of lawn for termite service is also exempt for
nonresidential buildings.
4. Cleaning services in a building with a mix of both residential and
nonresidential are:
A. taxable for both residential and nonresidential, even if charges
are separated.
B. if separated, only the charges for the residential building is
taxable.
C. if separated, only the charges for the nonresidential portion of
the building is taxable.
D. if not separated, auditor should prorate and charge tax for
residential buildings.
Explanation: See “Special Tax Considerations”. Charges for
cleaning services for nonresidential buildings are taxable.
Choice A is incorrect.
See “Special Tax Considerations.” If a
building is used for both residential and nonresidential purposes, the
price of the service for each type of service must be separately stated
or the total charge will be taxable.
Choice B is incorrect. Charges for cleaning services for
“nonresidential” buildings are taxable. Choice B is incorrect since it is
referring to a “residential building”.
Choice C is correct. See “Special Tax Considerations.” If a building
is used for both residential and nonresidential purposes, the price of
the service for each type must be separately stated or the total charge
will be taxable.
Choice D is incorrect. There is no Florida Statute or Rule that allows
prorating for the charges of cleaning services that are lumped together
as one charge for the residential and nonresidential buildings.
2014
Program Training
12-23
5. Charges for investigative services provided to a private contractor
for a governmental agency are:
A. exempt, as long as the private contractor obtains an exemption
certificate.
B. taxable to the private contractor.
C. exempt, because government agencies are exempt from use
taxes.
D. taxable to the private contractor only to the portion of tangible
personal property used.
Explanation: See “DETECTIVE, BURGLAR PROTECTION, AND
OTHER PROTECTIVE SERVICES.” Detective, burglar protection,
and other protection services are taxable.
Choice A is incorrect.
See “Special Tax Considerations.”
Investigative services provided directly to an exempt government
entity are exempt. When provided to a second party for a government
contract, they are taxable.
Choice B is correct. See “Special Tax Considerations.” Investigative
services provided directly to an exempt government entity are exempt.
When provided to a second party for a government contract, they are
taxable.
Choice C is incorrect. The charges are being made to a private
contractor and not to the governmental agency.
Choice D is incorrect. See Rule 12A-1.0092(6), F.A.C., Detective,
burglar protection, and other protection service providers are
considered the ultimate users or consumers of the tangible personal
property sold to them and used in connection with their service and are
required to pay the tax imposed upon such sales of tangible personal
property to their dealers.
12-24
Program Training
2014
6. A vehicle dealer separately states battery fees on its sales invoices.
A. The battery fee is not included in the taxable amount of the
invoice since it is a tax.
B. The battery fee is included in the taxable amount.
C. The battery fee is exempt from sales tax since it is separately
stated.
D. None of the above.
Explanation: See “Special Tax Considerations.” The dealer may
choose to separately state the fee. The fee is to be included in the price
upon which sales or use tax is computed when the fee is a separate
item on the invoice.
Choice A is incorrect. See “Special Tax Considerations.” Battery
fees are imposed on the selling dealer and not the purchaser. The
dealer has the option to separately state the fee on the invoice. The
battery fee is included in the taxable base of the invoice.
Choice B is correct. See “Special Tax Considerations.” The fee is to
be included in the price upon which sales or use tax is computed when
the fee is a separate item on the invoice.
Choice C is incorrect. See “Special Tax Considerations.” The fee is
to be included in the price upon which sales or use tax is computed
when the fee is a separate item on the invoice.
Choice D is incorrect since choice B is correct.
7. Bright Cleaning Services, Inc. waxed John’s floors and cleaned the
chimneys in his house for $250. The floor waxing is $150 and the
chimney cleaning is $100. How much tax should Bright Cleaning
Services, Inc charge on its invoice to John?
A.
B.
C.
D.
$15
$9
$6
$0
Explanation: See “CLEANING SERVICES, Special Tax
Consideration”. Charges made for cleaning residential facilities used
as living accommodations, such as detached or single family
dwellings, apartments…are not subject to the tax.
2014
Program Training
12-25
Choice A is incorrect. See explanation. Tax is not due on the charge
for the floor waxing or the chimney cleaning for John’s residence.
Choice B is incorrect. See explanation. Tax is not due on the floor
waxing.
Choice C is incorrect. See explanation. Tax is not due on the chimney
cleaning.
Choice D is correct. See explanation. Residential cleaning charges
are exempt.
8. Terry Technologies, Inc. has the following monthly expenses for
security services at the company; $500 for burglar alarm monitoring
services for their building, $300 for the rental of guard dogs for
their fenced in warehouse area, and $5,000 for two employees hired
as security guards. How much tax does the company owe each
month for security services?
A.
B
C.
D.
$18
$ 30
$ 48
$348
Explanation: See “DETECTIVE, BURGLAR PROTECTION, AND
OTHER PROTECTIVE SERVICES, and Special Tax
Considerations.” The $500 for burglar alarm monitoring service and
the $300 for rental of dogs for protective services are taxable services.
Protection services provided by employees to their employers are not
taxable. Therefore, tax is due on $800 at 6%, $48.
Choice A is incorrect. See explanation.
Choice B is incorrect. See explanation.
Choice C is correct. See explanation.
Choice D is incorrect. See explanation.
12-26
Program Training
2014
9. The Bike Shop sold a new motorcycle for $5,000 and a new bicycle
for $1,000. The motor cycle included two tires and one lead-acid
battery and the bicycle included two tires. The tire and battery fees
were separately stated on the sales invoices. How much sales tax and
solid waste fees does The Bike Shop owe to the state on these sales?
A.
B.
C.
D.
$363.50
$363.71
$365.50
$365.83
Explanation: See ‘SOLID WAST FEE – NEW TIRES and
BATTERIES’. A $1.00 tire fee is imposed on each new motor vehicle
tire sold at retail in this state. A $1.50 battery fee is imposed on each
new or remanufactured lead-acid battery designed for use in motor
vehicles sold at retail in this state. Motor vehicles includes
motorcycles but not bicycles. Also see “Special Tax Consideration”:
The tire fee is required to be separately stated on the sales invoice.
The battery fee doesn't have to be separately stated on the invoice.
However, when these fees are separately stated they are included in the
price upon which sales or use tax is computed. Therefore, the total
sales tax and solid waste fees is calculated as follows:
Motor cycle (2 tires & 1 battery) $5,000 + $2.00 tire fee + $1.50
battery fee = $5,003.5 x 6% = $300.21 sales tax
Bicycle $1,000 (no solid waste tire or battery fee) x 6% = $60 sales tax
Total sales tax and solid waste tire fee = $360.21 sales tax + $3.50
solid waste fees = $363.71 solid waste fees & sales tax.
Choice A is incorrect. See explanation.
Choice B is correct. See explanation.
Choice C is incorrect. See explanation.
Choice D is incorrect. See explanation.
2014
Program Training
12-27
12-28
Program Training
2014
MODULE THIRTEEN ADVERTISERS AND PRINTERS
OBJECTIVES
Upon completion of this module the participant will be able to:
•
identify taxable and exempt sales and purchases by
newspapers, magazines and newsletters;
•
identify taxable and exempt sales and purchases by printers;
and
•
identify taxable and exempt sales and purchases by advertising
agencies.
INTRODUCTION
This module focuses on dealers’ responsibilities to register and collect
sales tax or pay use tax on;



the sale of newspapers by newspaper companies,
o newspaper company contract carriers, and
o retail dealers (including vending sales)
the sale of print material by printers, and
the liability for use tax on items of tangible personal property
that is used and not resold by newspaper companies and
printers.
This module also focuses on the criteria necessary for a dealer to
qualify as an advertising agency and how tax applies to their sales and
purchases of;




2014
advertising materials,
advertising services,
promotional goods, and
raw materials.
Program Training
13-1
PERIODICALS
For the purpose of Rule 12A-1.008, F.A.C., the term “periodicals”
include newspapers, community newspapers, shoppers, newsletters,
magazines, and other periodicals, but excludes books, whether
published in serial form or otherwise.
Newspapers and Magazines
Method of Operation
Newspaper and magazine publishers sell their products by
subscriptions and over the counter sales. Publishers maintain mailing
lists of their customers which are often sold to interested parties. The
larger the mailing list the more income that can be generated when
these lists are sold. Also, since much of a publisher’s income comes
from advertising the larger the circulation the better the ability to
attract advertising revenue.
Newspapers and magazines are also sold at newsstands, grocery stores,
from vending machines, and on street corners. These non-subscription
sales are added to the subscription sales to produce what is known as
paid circulation.
Another type of distribution is called complementary circulation. This
is where free or promotional copies are given to a targeted group, such
as new residents in an area or professionals, like accountants, teachers
or doctors.
Almost all publishers are involved in one form of advertising or
another. Some will do all the work such as design, preparation and
printing of the layout or insert. Others may receive only the prepared
advertisement or insert from a client and print it as is. Or, rather than
actually being a page of the newspaper or magazine, the advertisement
may be received from an agency to be included as a supplement or
intruder. Also, the publisher may perform the service of a regular print
shop and do work for others.
Special Tax Considerations
Generally, sales of newspapers, magazines and newsletters are taxable.
However, newspaper, magazine, and newsletter subscriptions, in
which the product is delivered to the customer by mail are exempt.
13-2
Program Training
2014
The taxability for the entire subscription, for subscriptions that are
subject to tax, shall be determined by the delivery point (out-of-state,
in-state, surtax county, non-surtax county) when the subscription
begins.
Many newspapers are delivered to the subscriber by an employee of
the newspaper or an independent contractor. Dealers may be approved
by the Department to assume the obligation of remitting tax directly to
the state, as agent for the independent contractor. (Rule 12A1.0911(3), F.A.C.) The newspaper is required to provide both the
Department and the carrier with a written statement that the newspaper
assumes the obligation of remitting the tax directly to the state, as
agent for the independent contractor, otherwise the contractor must
register as a dealer and charge, collect, and remit sales tax to the
Department.
Newspapers may also be sold at retail over the counter, out of rack
machines, or delivered by mail.
Inserts Distributed with Periodicals
Inserts, such as magazines, handbills, circulars, flyers, advertising
supplements, and other printed materials distributed with a newspaper,
community newspaper, shopper, or magazine are a component part of
these periodicals.
Inserts are exempt from use tax when:
•
The inserts are either printed by the publisher of the periodicals
or delivered directly to the publisher by any other printer for
inclusion in a distributed periodical; and
•
The inserts are labeled as part of the designated periodical in
the masthead, logo, gang logo, or supplement line of the
periodical to which they are inserted; and
•
If the purchaser of the insert acquires the insert from a dealer
other than the publisher of the periodical, the purchaser must
present to the selling dealer a copy of the purchaser's Annual
Resale Certificate (form DR-13) or an exemption certificate, as
provided in Rule 12A-1.038, F.A.C., stating that the
publication is exempt from tax pursuant to s. 212.08(7)(w),
F.S.
2014
Program Training
13-3
Exempt Periodicals (costs)
Section 212.08(7)(w), F.S., exempts from tax periodicals that meet the
following requirements:
•
•
•
The periodical is published on a regular basis;
The periodical is distributed free of charge to the recipient
by mail, home delivery, rack machines, newsstands, or
similar method; and
The content of the periodical is primarily advertising.
Distributors of tax exempt periodicals may issue an exemption
certificate to their vendors in lieu of paying tax on the publishing or
printing costs of, or for the purchase of items, such as paper and ink,
that are incorporated into and become a component part of, the
publication.
Publishers of Newspapers, Magazines, or Periodicals
S. 212.06(16)(a) & (b), F.S., provides that the use by the publisher of a
newspaper, magazine, or periodical of copies for his or her own
consumption or to be given away is taxable at the usual retail price
thereof, if any, or at the "cost price."
For the purpose of this subsection, the term "cost price" means the
actual cost of printing of newspapers, magazines, and other
publications, without any deductions therefrom on account of the cost
of materials used, labor or services cost, transportation charges, or
other direct or indirect overhead costs that are a part of printing costs
of the property. However, the cost of labor to manufacture, produce,
compound, process, or fabricate expendable items of tangible personal
property which are directly used by such person in printing other
tangible personal property for sale or for his or her own use is exempt.
Authors' royalties, fees, or salaries, general overhead, and other costs
not directly related to printing shall be deemed to be labor associated
with manufacturing, producing, compounding, processing, or
fabricating expendable items.
13-4
Program Training
2014
JOB PRINTERS
Method of Operation
Job printers are engaged in the fabrication and sale of tangible
personal property. They do jobs of all sizes. They print custom work
such as stationery, calling cards, business forms, advertisements,
newspaper supplements, handbills, area advertisers and just about
anything else. They may manufacture the materials necessary to
complete the job or they may purchase the materials from someone
else. Possibly, they may utilize a combination of the two.
Special Tax Considerations
Job printers are engaged in the fabrication and sale of tangible
personal property. Sales by printers are generally taxable, with few
exceptions. Sales for resale or to exempt organizations would be
legitimate exemptions provided that a properly executed resale or
exemption certificate was provided by the purchaser. In addition, keep
in mind that goods sold and shipped to an out-of-state customer are
also exempt.
Items that accompany a product to the final consumer, such as
packaging material, and instructions are exempt to the purchaser (for
resale). Brochures, catalogs, price lists, point-of-sale advertising that
accompany products being sold to advertise other products for sale are
not materials used for packaging tangible personal property for sale and
are subject to tax.
The job printer may be relieved of the responsibility of collecting tax
from the customer if the printer delivers the printed materials to the
United States Postal Service for mailing to persons located both within
and outside Florida. Relief will not be granted if all, or substantially
all, of the printed materials are mailed to persons located in Florida.
When this occurs, the printer is obligated to collect the applicable tax.
When the printer is relieved of the responsibility for collecting the tax,
the printer's customer must pay sales or use tax directly to the
Department of Revenue for printed materials mailed to persons located
within Florida.
Job printers are manufacturers and their purchases of materials and
supplies are considered in light of the basic manufacturing exemption.
That is, items that become a component of the product being
2014
Program Training
13-5
manufactured for sale can be purchased tax exempt for resale. This
would include paper, ink, packaging, and any other item included in
the product.
Select Industries Use Tax Exemption
The purchase, production, or creation of film, photographic paper,
dyes used for embossing and engraving, artwork, typography,
lithographic plates, and negatives used in producing graphic matter for
sale by printers is exempt if the printer’s business is classified in the
Standard Industrial Classification (SIC) Manual 1987, as published by
the Office of Management and Budget, Executive Office of the
President, by one of the following classifications:
SIC Industry Group Number 275, Commercial Printing;
SIC Industry Group Number 276, Manifold Business Forms;
SIC Industry Group Number 277, Greeting Cards
SIC Industry Group Number 278, Blankbooks, Loose-leaf
Binders, and Bookbinding and Related
Work;
SIC Industry Group Number 279, Service Industries for the
Printing Trade.
Miscellaneous issues
Publishers frequently sell their mailing lists to others. When these lists
are sold, sales tax is due on the selling price.
Another point that we touched on before was complementary
circulation. Frequently, publishers will send out advance copies of
books, magazines or professional literature and solicit reviews. Since
this is free merchandise, use tax would be due on the publisher's cost.
Newspaper rack machines are a type of vending machines. For tax
purposes rack machines and sales from rack machines are handled like
other vending machine situations.
ADVERTISING AGENCIES
Advertising agencies are service-oriented businesses. However, they
frequently make sales of tangible personal property.
Media
advertising is a service, but brochures and promotional items are
tangible personal property, as are art work, photographs, mats, etc.
13-6
Program Training
2014
Some of the larger agencies maintain in-house print shops to fabricate
work for their clients. The smaller agencies tend to subcontract the
work to others. Advertising agencies normally maintain detailed
records for each job.
Special Tax Considerations
Rule 12A-1.072, F.A.C., clarifies sale and use tax issues applicable to
advertising agencies. A firm must first meet the rule criteria for
qualifying as an advertising agency before they may qualify for the tax
applications provided by rule for advertising agencies.
Rule 12A-1.072(1)(d)1., F.A.C., provides that an advertising agency
is any firm that is “primarily engaged in the business of providing
advertising materials and services”. This means more than 50 percent
of its gross receipts in the firm's previous tax year were, or in the first
tax year are budgeted to be, from receipts for the sale of advertising
materials and services to clients. For purposes of determining whether
the firm qualifies under this definition, there shall be deducted from
gross receipts amounts paid by the agency on behalf of its client to a
third party for charges such as printing, imprinting, reproduction,
publishing of tangible personal property, broadcasting advertisements,
media placement, or other out-sourced activities before applying the
50 percent test.
Example:
Gross Receipts
$2,754,217
Deduct Outsourced Costs
Printing Costs
Media Costs
Photography
Total Outsourced Costs
$726,785
779,613
33,950
$1,540,348
Difference to apply 50% test
$1,213,869
50% equals
$606,934.50
If more than $606.934.50 is from receipts for the sale of advertising
materials and services to clients, this company qualifies as an
advertising agency.
2014
Program Training
13-7
Example:
Gross Receipts
$2,754,217
Receipts from In-House Printing
(Cannot be deducted - not outsourced)
$1,540,348
Difference
$1,213,869
Amount to apply 50% test
$2,754,217
50%
$1,377,108.50
If even the entire $1,213,869 is from receipts for the sale of advertising
materials and services to clients, it is less than 50% of gross receipts.
Therefore, this company does not qualify as an advertising agency.
Sales, purchases and fabrication of advertising materials and
advertising services by an advertising agency are exempt when the
agency is acting as agent for its clients pursuant to a contract.
Advertising materials are tangible personal property sold to, created
by, or sold by an advertising agency during the course of providing
advertising services. Examples of advertising materials include:
photographs, videos containing images, films containing images,
artwork, recorded tapes and compact discs, models, and digital
equipment. The term "advertising materials" does not include "raw
materials" or "promotional goods".
Advertising services are services rendered by an advertising agency
when designing and/or implementing an advertising campaign to
promote a product, service, idea, concept, issue, or the image of a
person. This includes services rendered to design and produce
advertising materials such as: research; design, layout, preliminary and
final art preparation; placing or arranging for advertising: creative
consultation, coordination, direction, and supervision; script writing
and copywriting; editing; and account management services.
Sales of promotional goods by an advertising agency are subject to tax.
However, the charge to clients for development of sample promotional
goods is exempt.
13-8
Program Training
2014
Promotional goods are tangible personal property used for
promotional purposes. Examples of promotional goods include
displays, display containers, exhibits, newspaper inserts, brochures,
catalogues, shirts, hats, pens, key chains, audio tapes, videotapes, or
other printed goods or materials.
The purchase of raw materials, whether purchased by an advertising
agency or by a person who creates advertising materials for sale to an
advertising agency, is taxable.
Raw materials means materials or media used to create advertising
materials. Examples of raw materials are: blank film; blank
videotapes; art supplies, such as poster board, paper products, inks,
letters, and paints; stock art; stock photography; prerecorded music
and sound; stock props; stock costumes; and stock backdrops.
Sales of tangible personal property by an advertising agency to persons
other than its clients are taxable, unless specifically exempted by other
sections of Chapter 212, F.S.
SUMMARY
You need to understand the business practices within an industry. An
understanding of the products sold by a dealer will also help with
understanding what is consumed by the dealer. This relationship will
prove useful when addressing the basic manufacturer's exemption for
dealers that fabricate goods for their own use (not for resale). That is,
items which become a component of the product being manufactured
for sale may be purchased tax exempt for resale.
2014
Program Training
13-9
13-10
Program Training
2014
SELF – CHECK QUESTION
1. Best Hardware Stores publishes its own company newsletter
to keep employees informed about promotions and company
policies, and to supply information about products they sell.
What is the total taxable amount on the costs associated with
producing and distributing the newsletter?
Paper
Toner
Labor to write articles
Labor to prepare copies
Labor to distribute
A.
B.
C.
C.
$1,000
500
4,000
1,000
500
$7,000
$6,500
$2,500
$1,500
TRUE/FALSE
1. ______ Sales, purchases and fabrication of advertising materials and
advertising services by an advertising agency are taxable when the
agency is acting as agent for its clients pursuant to a contract.
2014
Program Training
13-11
13-12
Program Training
2014
SELF – CHECK ANSWERS
1. Best Hardware Stores publishes its own company newsletter to
keep employees informed about promotions and company policies,
and to supply information about products they sell. What is the total
taxable amount on the costs associated with producing and distributing
the newsletter?
Paper
Toner
Labor to write articles
Labor to print copies
Labor to distribute
A.
B.
C.
D.
$1,000
500
4,000
1,000
500
$7,000
$6,500
$2,500
$1,500
Explanation:
See “PERIODICALS, Publishers of Newspapers,
Magazines, Periodicals.” The hardware store is liable for sales tax on
the cost price of the newsletter published to give to its employees. The
cost price includes the actual cost of printing of the newsletter, without
any deductions there from on account of the cost of materials used,
labor or services cost, transportation charges, or other direct or indirect
overhead costs that are a part of printing costs of the property.
Therefore, the costs for paper, toner and labor to print copies are all
subject to tax as the newsletter’s “cost price”.
However, other costs not directly related to printing, such as the $500
labor to distribute, are not included in the taxable “cost price”.
2014
Program Training
13-13
Choice A is incorrect: See Explanation: “Costs” not directly related
to manufacturing, such as labor to distribute, are exempt from tax.
The $500 labor cost to distribute the newsletter is not taxable.
Choice B is incorrect: See Explanation: : The $1,000 labor cost to
write the newsletter is not part of the manufacturing costs subject to
tax.
Choice C is correct: Taxable fabrication costs include; paper, toner
and labor to prepare copies.
Choice D is incorrect: See Explanation.
TRUE/FALSE
1. ______ Sales, purchases and fabrication of advertising materials and
advertising services by an advertising agency are taxable when the
agency is acting as agent for its clients pursuant to a contract.
Explanation: The answer is false. See “ADVERTISING
AGENCIES, Special Tax Considerations.” Sales, purchases and
fabrication of advertising materials and advertising services by an
advertising agency are exempt when the agency is acting as agent for
its clients pursuant to a contract.
13-14
Program Training
2014
MODULE FOURTEEN
REAL PROPERTY CONTRACTORS
OBJECTIVES
Upon completion of this module the participant will:
•
understand the business operations of real property contractors
and repairmen;
•
be able to explain what real property and real property
improvements are; and
•
be able to determine the correct tax application for real
property contractors and repairmen.
INTRODUCTION
This module addresses real property contractors and repairmen who
may be involved in the repair, alteration and/or construction of real
property (inclusive of "fixtures"); fabricate, furnish, and/or install
tangible personal property that becomes real property upon
installation; or any combination thereof. Rule 12A-1.051(3), F.A.C.,
outlines five general methods used by these contractors in writing
contracts:
a.
b.
c.
d.
e.
lump sum;
cost plus or fixed fee;
upset or guaranteed price;
retail sale plus installation;
time and materials.
The type of project and method in which a contract is written
determines the tax impact of each transaction.
2014
Program Training
14-1
REAL PROPERTY CONTRACTORS
Method of Operation
Usually, a property owner will have plans and specifications drawn up
outlining exactly what work is to be accomplished. The owner of the
property will invite general contractors to bid on the project. This
invitation to bid will usually include: how the bid will be prepared,
type of contract to be written, work to be performed, closing date for
submitting bids, and the time table for the performance and completion
of certain portions of the contract. At a specified date and time, all
bids are reviewed, and a contractor is selected by the property owner.
The plans, specifications, and contractor's bid are then incorporated
into a contract between the two parties. If during the construction
process, it becomes necessary to adjust the original contract, change
orders may be negotiated between the parties involved, resulting in the
needed adjustments in the contract. A review of these contracts should
be performed by the auditor to determine if the contractor is consistent
in the method of writing contracts.
General Tax Application
A general contractor often invites bids from subcontractors prior to
submitting a bid to the property/project owner. For instance, a
building contractor may invite bids from land and site developers,
plumbing contractors, asphalt and paving contractors, landscape
contractors, and others, before submitting a bid to the property/project
owner. The contractor's and subcontractor's bids should be included in
the job or project file with the original contract and change orders.
Each contractor or subcontractor is responsible for paying the tax
associated and applicable to their portion of the contract.
14-2
Program Training
2014
In Florida, the sale of real property is not subject to sales tax. Real
property contractors and repairpersons purchase tangible personal
property and convert it to real property. Real property contractors who
operate under lump-sum, cost-plus/fixed fee or upset/guaranteed price
or time and materials contracts are actually selling real property and
should not charge sales tax on their contract billings. Also, real
property contract billings should not be reported on the taxpayer’s tax
return under either Gross Sales or Exempt Sales. Proceeds from
contracts to improve realty are not required to be reported to the
Department for sales and use tax purposes (TUB 96(A)-007 listed as
TUB 96A1007).
Use tax should be paid on all purchases of materials used in the
performance of real property improvement contracts. The contractor is
the ultimate consumer of the tangible personal property used in the
performance of these contracts. The following are descriptions and
examples of the four different types of contracts.
Types of Real Property Contracts
Lump Sum Contracts - These are contracts in which a contractor or
subcontractor agrees to furnish materials and supplies and necessary
services for a single stated lump sum price.
EXAMPLE:
costs:
Lump sum contract for $9,000.
Materials
Supplies
Labor
Total Cost
The use tax due by the contractor is $180
($2,000 + $1,000 x 6%)
2014
Program Training
Contractor's
$2,000
1,000
3,000
$6,000
14-3
Cost Plus Or Fixed Fee Contracts - These are contracts in which the
contractor or subcontractor agrees to furnish the materials and supplies
and necessary services in exchange for reimbursement of costs plus a
fee that is fixed in advance or calculated as a percentage of the costs.
EXAMPLE: Cost plus/fixed fee for $10,000 cost, plus 40% of
cost price. Contract amount:
Material Cost
Labor Cost
Subtotal
40% of cost
Total Contract
$ 7,000
3,000
10,000
4,000 ($10,000 x 40%)
$14,000
The use tax due and payable by the contractor is $420 ($7,000
x 6%).
Upset Or Guaranteed Price Contracts - These are contracts in which
the contractor or subcontractor agrees to furnish materials and supplies
and necessary services based on costs plus fees but with an upset or
guaranteed maximum price which may not be exceeded.
EXAMPLE: Upset or guaranteed price for cost plus 40% with
guaranteed maximum price of $26,000. Contract amount:
Material Cost
Supply Cost
Labor Cost
Total Cost
Contractor fee
Cost plus price
$8,000
3,000
9,000
$20,000
6,000
$26,000
The use tax due and payable by the contractor is $660 ($8,000
+ $3,000 x 6%).
14-4
Program Training
2014
Time And Materials Contracts - These are contracts in which the
contractor or subcontractor agrees to furnish materials and supplies
and necessary services for a price that will be calculated as the sum of
the contractor's cost or a marked up cost for materials to be used plus
an amount for services to be based on the time spent performing the
contract. These contracts are similar to cost plus or fixed fee
contracts, because the final price to the property holder will be
determined based on the cost of performance. A time and materials
contract may or may not also have a guaranteed or upset price clause.
Time and materials contracts differ from contracts described in retail
sale plus installation contracts, because the materials are not
completely identified, itemized, and priced in the contract prior to the
work being performed and because the property owner is contracting
for a finished job rather than the purchase of materials.
EXAMPLE: Time and materials, the contractor agrees to
complete a job (i.e., install a hot water heater) and charges for
the heater plus supplies necessary for the installation of the
heater and an additional amount (usually in increments of time
required to complete the job). Contract amount:
Electric water heater, 50 gal.
$300
Copper pipe
20
Electrical wiring
25
In home service charge
50
Labor 2 hours
@ $45 per hour
90
Total
$485
__________________________________
(internal cost records – not disclosed in the contract)
Dealer’s costs:
Water heater
$260
Copper pipe
10
Electrical wiring
15
Total material costs $285
The use tax due and payable by the contractor is $17.10
($285 x 6%).
2014
Program Training
14-5
Retail Sale Plus Installation Contracts - These are contracts for
improvements to real property in which the contractor agrees to sell
specifically described and itemized materials at an agreed price and to
complete the work either for an additional agreed price or on the basis
of time consumed. In order for a contract to meet these requirements
all the materials that will be incorporated into the work must be
itemized and priced in the contract before work begins. If a contract
itemizes some materials but does not itemize other materials that will
be incorporated into the work, the contract does not qualify as a retail
sale plus installation contract.
Because the sale of the materials is a separate transaction from the
installation, the purchaser must assume title to and risk of loss of the
materials as they are delivered, rather than accepting title only to the
completed work. The contractor may remain liable for negligence in
handling and installing the items.
EXAMPLE: Retail sale plus installation, often referred to as a
(3)(d) contract, selling specifically itemized materials and
supplies and installing the materials for a specific amount.
Contract amount:
2000 2"x 6"x 8' lumber @ $9.00 ea.
400 lbs. 10 penny nails @ $10.00/lb.
Subtotal
6% tax
Labor
Total
$18,000
4,000
$22,000
1,320
14,500
$37,820
The sales tax due from the customer is $1,320 ($18,000 +
$4,000 x 6%). It must be collected and reported to the
department by the contractor.
14-6
Program Training
2014
The retail sale plus installation contract is considered a specifically
itemized sale of tangible personal property and is referred to as a
"(3)(d)" type contract. Class 3(d) contracts must strictly follow the
guidelines established in Rule 12A-1.051(3)(d), F.A.C. The
interpretation of class 3(d) contracts was clarified in Sears, Roebuck &
Company v. Florida Department of Revenue, Case No. 92-1080 (Fla.
2nd Cir. Ct. 1994).
Pursuant to the rule and court decision, a class 3(d) contract must:
•
itemize each and every separate item of tangible personal
property used in fulfilling the contract;
•
itemize each and every separate item's price;
•
be issued in writing, expressing the necessary itemization in
advance of the work performed; and
•
pass ownership of the materials directly to the customer upon
delivery, along with all risks and responsibilities of ownership.
A detailed invoice issued upon completion of service work on real
property does not constitute a class (3)(d) contract. For example,
service jobs on central HV/AC systems which involve a detailed
billing after the work is completed, but which do not involve the
preparing of a contract, setting forth every specific item to be used and
the price thereof, in advance of the work being performed and that
passes ownership and risk of ownership to the real property owner are
considered time and material jobs (real property improvement), not
class (3)(d) contracts (sale of TPP + installation).
In cases where a transaction involves a contract falling under Rule
12A-1.051(3)(d),F.A.C., the contractor is selling tangible personal
property and should charge the appropriate tax on the customer's
invoice. Keep in mind that the original contract must have been
entered into as this type of contract and it is not based only on how the
contractor bills their customer.
2014
Program Training
14-7
Mixed Contracts – Combined Tangible & Real Property Contracts
A mixed contract is one that involves a real property improvement,
maintenance, or repair and also involves providing tangible personal
property that remains tangible personal property and does not become
part of the real property.
If the predominant nature of a mixed contract is a contract for real
property improvements, taxability will be determined as if the contract
were entirely for real property.
If the predominant nature of a mixed contract is a contract for tangible
personal property, taxability of the contract will be determined as if the
contract were entirely for tangible personal property.
If a mixed contract clearly allocates the contract price among the
various elements of the contract, and such allocation is bona fide and
reasonable in terms of the costs of materials and nature of the work to
be performed, taxation will be in accordance with the allocation.
Pursuant to Rule 12A-1.051(8)(e), F.A.C., when machinery or
equipment that qualifies for tax exemption under a temporary tax
exemption permit in Chapter 212, F.S., is included in a mixed contract
that is:
predominantly real property, the contractor is entitled to
purchase the qualified machinery or equipment tax-exempt. The
property owner must obtain a Temporary Tax Exemption Permit
from the Department that authorizes the contractor to purchase the
machinery and equipment tax exempt. The property owner must
provide the authorized permit to the contractor who then issues the
permit to the selling dealer. This exemption is not permitted for
holders of Consumer Certificates of Exemption. It applies only to
machinery or equipment that is specifically exempt based on its
use. (i.e. qualified machinery purchased for a new or expanding
business)
predominantly tangible personal property, the contractor is
entitled to purchase the qualified machinery or equipment taxexempt by issuing a copy of the contractor’s Annual Resale
Certificate to the selling dealer and accept the property owner’s
authorized permit provided by the Department in lieu of charging
tax on the sale on the machinery or equipment to the property
owner.
14-8
Program Training
2014
FABRICATION COST
When a contractor operates a manufacturing plant in which he
manufactures tangible personal property for use in the performance of
contracts, the tangible personal property manufactured is subject to tax
at the manufactured or fabricated cost, as outlined in Rules 12A1.043 and 12A-1.051, F.A.C.
"Fabricated items," means items contractors manufacture for their own
use in performing contracts for improvements to real property. The
term applies only to items the contractor manufactures at a plant
or shop maintained by the contractor.
When a temporary manufacturing plant is set up at the job site (house
construction site) to perform a specific job at the site, the direct labor
incurred by the contractor to manufacture tangible personal property
for their own use at the site is not subject to tax (as long as the plant
retains its classification as temporary).
The elements of fabricated cost only include the following materials,
labor, service, or transportation costs that are attributable to
manufacturing, producing, compounding, processing, or fabricating an
article of tangible personal property for one's own use and which are
properly chargeable to the cost of the product.
Elements of Fabricated Cost that are Subject to Tax:
Direct Materials: Material costs that are physically observable as
being identified to the finished tangible personal property, that are
consumed in producing the property, or that become a component or
ingredient of the finished property are subject to tax. Rule 12A1.043(1)(c)(d)(e), F.A.C., permits dealers that fabricate tangible
personal property for their own use to either pay sales tax and surtax to
the supplier of direct materials when the materials are purchased or
purchase the materials exempt and accrue use tax at the time the
material is fabricated. Dealers who are required to be registered with
the department may purchase materials tax exempt by extending an
Annual Resale Certificate. Dealers that are not required to be
registered with the department may purchase materials tax exempt by
extending an Exemption Certificate, as provided in Rule 12A1.038(5)(d)1., F.A.C., Sales Exempt Based on the Use of the Property
or Services and remit use tax on a DR-15MO.
2014
Program Training
14-9
If sales tax and surtax was not paid on the cost of direct materials use
tax is due when the materials are fabricated. Surtax is due when the
materials are fabricated in a surtax county.
In-Coming Freight: Freight charges to deliver direct materials to the
fabricator are fabrication costs that are subject to tax.
If sales tax and surtax was not paid on the cost of having direct
materials delivered to the manufacturing plant use tax is due when the
materials are fabricated. Surtax is due when the materials are
fabricated in a surtax county.
Warehousing and Handling: The total cost of handling and
warehousing direct materials from the time they are purchased until
fabrication is completed are included in the fabrication costs subject to
use tax. Surtax is due when fabrication occurs in a surtax county.
When determining the costs of handling and warehousing of direct
materials the auditor shall use the taxpayer’s allocation of these
expenses in their financial records. The Department will respect the
taxpayer’s allocation but the auditor should make an adjustment if the
allocation is substantially wrong. An example would be a separate
warehouse used for storage of direct materials prior to fabrication. If
the rent is not included in the fabrication expense, it would be
considered substantially wrong for allocation purposes and the auditor
would make the change to include the rent expense in the fabrication
costs.
Manufacturer’s Excise Taxes: Manufacturer’s excise taxes paid on
direct materials by the manufacturer to material suppliers are
fabrication costs that are subject tax.
Direct Labor and Support Employees: The costs of all elements of
direct labor used in the fabrication process are included in the
fabrication costs subject to use tax. Elements of direct labor include
wages, bonuses, benefits, insurance costs, workmen’s compensation,
etc., compensation of officers and costs of service, engineering, design
or other support employees allocated to production, at the
manufacturing plant. Surtax is due when fabrication occurs in a surtax
county.
14-10
Program Training
2014
When determining the costs of direct labor and officer compensation
to be included in the fabrication costs subject to tax the auditor shall
use the taxpayer’s allocation of these expenses in their financial
records. The Department will respect the taxpayer’s allocation but the
auditor should make an adjustment if the allocation is substantially
wrong. (See Handling and Warehousing above)
Services:
The costs of consulting or professional services,
engineering, design or other support employees and non-employees
allocated to production of the fabricated material are included in the
fabrication costs subject to use tax. Surtax is due when fabrication
occurs in a surtax county.
When determining the costs of consulting or professional services the
auditor shall use the taxpayer’s allocation of these expenses in their
financial records. The Department will respect the taxpayer’s
allocation but the auditor should make an adjustment if the allocation
is substantially wrong. (See Handling and Warehousing above)
Note: In the case of real property contractors, Rule 12A-1.051(2)(a),
F.A.C., exempts the cost of transporting fabricated items from the
contractor’s plant to the real property job site and the cost of labor at
the job site where the fabricated items are incorporated into the real
property improvement.
2014
Program Training
14-11
Asphalt Contractors & Fabrication Costs
If asphalt contractors manufacture asphalt for their own use, tax should
be computed by using the following method:
•
the cost of materials which become a component part or which are
an ingredient of the finished asphalt should be multiplied by 6%,
plus;
•
the costs of transportation of such components and ingredients to
the plant site should be multiplied by 6%, plus;
•
an indexed tax of:
72 cents per ton July 1, 2013, through June 30, 2014
70 cents per ton July 1, 2012, through June 30, 2013
67 cents per ton July 1, 2011, through June 30, 2012
66 cents per ton July 1, 2010, through June 30, 2011
67 cents per ton July 1, 2009, through June 30, 2010
63 cents per ton July 1, 2008, through June 30, 2009
62 cents per ton July 1, 2007, through June 30, 2008
•
or an exemption of 40 percent of the indexed tax on asphalt
manufactured for a contractor’s own use in any public works
project, or an indexed tax on public works projects of:
43 cents per ton July 1, 2013, through June 30, 2014
42 cents per ton July 1, 2012, through June 30, 2013
40 cents per ton July 1, 2011, through June 30, 2012
40 cents per ton July 1, 2010, through June 30, 2011
40 cents per ton July 1, 2009, through June 30, 2010
38 cents per ton July 1, 2008, through June 30, 2009
37 cents per ton July 1, 2007, through June 30, 2008
Public works projects are works contracted and constructed for a state,
local, or federal government, for public use, such as a highway.
The indexed tax represents all other costs associated with the
manufacture of the asphalt. The indexed tax rate is linked to the
producer price index, as calculated and published by the United States
Department of Labor, Bureau of Statistics, and is adjusted annually on
July 1. The per-ton indexed tax is in addition to any taxes required to
be paid on the purchase of overhead items, including boiler fuels.
14-12
Program Training
2014
Real Property Contractor Special Tax Considerations
Florida Real Property Contractors Performing Jobs inside and
outside Florida:
The cost of materials are subject to tax when delivery of the materials
occurs in Florida, including when materials are used in real property
improvement jobs out-side the state.
When a Florida contractor performs a job outside the state and
materials are delivered from their supplier to the out of state location
no tax is due (to Florida).
Plant fabrication costs are subject to tax when the fabrication occurs in
Florida whether the real property improvement job is performed inside
or outside the state.
The exemption provided by statute for tangible personal property that
is imported for export does not apply to contractors performing real
property improvement jobs outside the state. The exemption only
applies to the purchase of tangible personal property that is exported
for sale outside the state. Real property contractors are the ultimate
consumers of the tangible personal property they purchase or fabricate.
Out-of-State Real Property Contractors Performing Jobs in
Florida:
When materials are delivered to a contractor in Florida they are subject
to tax.
When materials are delivered to a contractor outside the state for use in
a real property improvement job in Florida they are subject to tax
when they are brought into the state.
When materials are fabricated outside of Florida and used in the
performance of a real property improvement job in Florida, the
materials are subject to tax on the same fabricated cost elements as
materials fabricated in Florida.
When materials are purchased or fabricated outside Florida credit must
given for like taxes lawfully imposed and paid in another state,
territories of the U.S., or the District of Columbia (not foreign
countries). Rule 12A-1.091, F.A.C., outlines that, if the legally
imposed tax of another state is less than the Florida tax, the State of
2014
Program Training
14-13
Florida is entitled to the difference between the other state’s tax and
Florida tax rate. Materials which were used in other states for six
months or longer before being imported into Florida are not subject to
Florida taxes. (Real property improvement contractors do not normally
incorporate ‘used materials’ into real property jobs, so it is unlikely
that this exemption would apply.)
EXAMPLE: Purchase made in another state and brought into
Florida.
Materials and equipment cost
Paid 4% out-of-state tax (4% of $15,000)
Florida tax due at 2% (6%-4%)
$15,000
600
300
$300 use tax is due to the state of Florida.
Fill Materials
The use of rock, shell, fill dirt, or similar materials, by a real property
contractor is subject to tax based on these materials used by the
contractor to perform a real property contract for another person.
If the contractor acquires the materials from a location owned or
leased by the contractor, the contractor must remit use tax based on
one of the following methods:
•
the fair market value, which means either the price the
contractor would have to pay on the open market or the
price at which the contractor would sell the materials to a
third party; or
•
the cost of the land plus all cost of clearing, excavating, and
loading the materials, including labor, power blasting, and
similar costs.
This does not apply to a person or a corporation or affiliated group as
defined by s. 220.03(1)(b) or (e),F.S. that secures such materials from
a location that the entity owns for use on its own property.
If the contractor purchases the materials and as a part of the agreement
excavates and removes them from the seller's land (including state
owned submerged land), the taxable cost is the purchase price paid to
14-14
Program Training
2014
the seller plus all the costs incurred by the contractor in clearing,
excavating, and removing the materials, including labor.
Fill-dirt, shell, and rock (borrow materials) used by a contractor in the
performance of a road project are taxable to the road contractor, unless
borrow materials are provided at no charge by the Department of
Transportation. This includes materials that the contractor extracts
from pits that are provided at no charge by DOT.
Sand, mud and other soil dug or dredged from the bottom of Florida
owned waterways are taxable if used to build new lands. The tax base
is the amount charged to the contractor by the Department of
Environmental Protection and any costs the contractor incurs in
removal.
Equipment Rental Tax Issues
The rental of equipment without the operator being provided is taxable
as a bare rental, but if the owner of the equipment provides an
operator, the transaction is considered a service, and not subject to tax,
unless the lessee has control over its operation.
When a piece of equipment that was purchased for the contractor’s use
is also rented to others, tax is due on both the purchase of the
equipment and on the rental charges, since the equipment is not
purchased for exclusive rental purposes. When the contractor rents
such equipment to others, he qualifies as a dealer (equipment rental)
and must register as a dealer and collect tax on the rental proceeds.
Note: The future sale of this equipment would be taxable because the
contractor is also an equipment dealer (a sale is not occasional or
isolated when sold by a dealer of the product).
However, if a contractor does not rent his equipment to others and is
not an equipment dealer, he may sell the equipment as an occasional or
isolated sale without being required to collect tax (provided the
equipment is not a motor vehicle requiring a title document transfer).
Contractors often enter into lease purchase agreements when buying
heavy equipment. The lease purchase agreement establishes a purchase
price should the contractor decide to execute his purchase option. The
contract also establishes a rental rate for the period of the lease. This
will state that all, or a portion, of the lease payment will be applied
toward the purchase price. The vendor should charge and collect sales
2014
Program Training
14-15
tax on the lease payments and on the payoff balance if the contractor
executes the option.
A transaction may appear to be a lease or a lease purchase agreement,
when, in fact, it is an installment sales contract. Factors to consider in
making this determination are:
•
•
•
•
lessee's is obligated to pay the entire amount of the
contract;
lessee obtains title to the property (immediately or at end of
the lease term);
lessee takes a depreciation expense; or
lessee’s purchase option amount does not exceed $100 or 1
percent of the total contract price, whichever is the lesser
amount.
Prefabricated Building Contractors
Section 212.06(1)(b), F.S., expresses in part that when a
contractor/manufacturer prefabricates a building to be used in the
performance of a real property contract, tax is due only on the cost
price of the materials consumed in the manufacture of such a building.
These buildings are referred to as factory built buildings.
Section 212.02(7), F.S., expresses that a factory-built building means a
structure manufactured in a manufacturing facility for installation or
erection as a finished building including, but not limited to, residential,
commercial, institutional, storage and industrial structures.
Registered Contractors who Collect Erroneous Sales Tax
In accordance with TUB 93A(1)-004 a contractor, registered as a
Florida sales tax dealer, who erroneously charges sales tax on real
property repairs, alterations, improvements, or construction contracts
described in Rule 12A-1.051(2)(a),(b), or (c), F.A.C., is required to
remit, to the Department, such sales tax erroneously collected.
The auditor will advise the contractor by letter of the proper method of
computing tax due on real property contracts for future compliance,
and the effective date of required compliance, and inform the
contractor that any customer who is entitled to a refund of taxes paid
to the contractor must secure such refund from the contractor and not
directly from the department.
14-16
Program Training
2014
If the contractor refunds the entire amount of the erroneously collected
sales tax to the customer who paid the tax, the contractor is required to
remit use tax on the cost of tangible personal property, purchased or
manufactured for use in the performance of such contracts, or reduce
the amount of credit or refund requested from the Department by the
amount of use tax owed.
If the contractor, for whatever reason, does not refund to the customer
any part of the erroneously collected sales tax, the Department shall
not seek any additional tax from the contractor. (This assumes that the
sales tax remitted is equal to or greater than the actual use tax due.)
This procedure is to be applied on a contract by contract basis. The
erroneous collection of sales tax on one contract does not off-set use
tax due on other contracts where sales or use tax has not been remitted.
If a contractor does not charge and remit sales tax on a contract
(exempt entity) use tax is still due on that contract. This is true even
though the total tax remitted by the contractor (illegally imposed)
during the audit period exceeds the total use tax due by the contractor
during the audit period.
Note: In the above analysis the contractor has not paid sales tax on the
materials but has drawn or fabricated such materials from a ‘tax free’
inventory.
When real property is removed from the site (it becomes TPP)
Repairs to real property items, such as hot water heaters, elevator
components, central heating/air conditioners, fire alarm systems, builtin water fountains, etc., may be taxable to the customer in some
situations and exempt for the same type of repairs in other situations.
Example: If a central heating/air conditioner repairman disassembles
the main unit and cleans, lubricates, adds repair parts, and reassembles
the unit at the job site, the repair work is generally considered to be
repairs to realty. The type of contract used, as specified in Rule 12A1.051(3)(a), (b), (c), (d) or (e), will determine the ultimate consumer of
the tangible personal property and the sales or use tax consequences.
Using the example above, if the unit to be repaired is disassembled,
and transported to the repairman's shop (removed from the premises)
for repair and then returned to the site and reassembled, the total
billing to the customer for the repair is taxable. (Module 10, addresses
the repair of TPP.)
2014
Program Training
14-17
Contractors that sell tangible personal property
Contractors, manufacturers, or dealers who furnish and install items of
tangible personal property that do not become a part of real property,
must register as dealers of tangible personal property and collect tax
on the total contract price, including labor, installation and other
charges that may occur. Contractors working under this provision may
purchase materials that are incorporated into the tangible personal
property tax exempt when they issue their annual resale certificate to
their suppliers.
Miscellaneous issues
Materials, supplies, and repair parts, such as paint, thinner, wire and
electrical parts, nuts, bolts, screws, pipe, wood, etc., which are actually
incorporated into the real property being repaired, are taxable to the
repairman when used in the performance of a lump sum, cost plus or
fixed fee, or guaranteed price contract. The repairman is the ultimate
consumer of the tangible personal property.
Materials and supplies used by the repairman in performing real
property repairs, and which do not become a component part of the
real property repaired, are taxable to the repairman as overhead items.
The overhead items may include tools, flux, sand paper, detergents,
paint cleaners, brushes, pails, etc.
Awnings, when attached, are considered to become a part of realty.
As a result, tax is due on the manufactured/fabricated cost of the
awnings by the contractor furnishing and installing the awnings.
Materials and labor for installation of drapery rods and draperies are
taxable as tangible personal property, as they do not become a part of
the real property.
Paint color card samples, flooring and wall samples, fabric swatch
samples, window covering samples, and similar samples, when such
samples serve no useful purpose other than as a comparison of color,
texture, or design are provided by the manufacturer to a dealer or
ultimate customer for no charge and are given away by the dealer to
the ultimate consumer for no charge, are exempt.
14-18
Program Training
2014
Public Works Contracts
Public works contractors are regulated by Rule 12A-1.094, F.A.C.
"Public works" are projects for public use or enjoyment, financed and
owned by the government, in which private persons undertake the
obligation to do a specific piece of work that involves installing
tangible personal property in such a manner that it becomes a part of a
public facility. A public facility includes any land, improvement to
land, building, structure, or other fixed site and related infrastructure
thereon owned or operated by a governmental entity where
governmental or public activities are conducted. "Public works" is not
restricted to the repair, alteration, improvement, or construction of real
property and fixed works.
The tangible personal property in a “Public Works Contract” must be
attached or affixed to the public facility in order for the tangible
personal property to become “part of the facility”. The method of
“attachment” does not have to meet the same criteria of a real property
improvement. The public works contract must express the method of
attachment and the intent that the tangible personal property once
installed will become a part of the facility.
“Contractor” is one that supplies and installs tangible personal
property that is incorporated into or becomes a part of a public facility
pursuant to a public works contract with a governmental entity
exercising its authority in regard to the public property or facility.
Contractors include, but are not limited to, persons engaged in
building, electrical, plumbing, heating, painting, decorating,
ventilating, paperhanging, sheet metal, roofing, bridge, road,
waterworks, landscape, pier, or billboard work.
“Contractor” does not include a person that furnishes tangible personal
property that is not affixed or appended in such a manner that it is
incorporated into or becomes a part of the public property or public
facility to which a public works contract relates. A person that
provides and installs tangible personal property that is freestanding
and can be relocated with no tools, equipment, or need for adaptation
for use elsewhere is not a contractor within the scope of the rule.
"Contractor" does not include a person that provides tangible personal
property that will be incorporated into or become part of a public
facility if such property will be installed by another party.
2014
Program Training
14-19
Example: A security system vendor furnishes and installs low voltage
wiring behind the walls, motion detectors, smoke alarms, other
sensors, control pads, alarm sirens, and other components of a security
system for a new county courthouse. The components are direct wired,
fit into recesses cut into the walls or other structural elements of the
building, and are held in place by screws. The vendor is a contractor
within the scope of this rule. The security system is installed and
affixed in such a manner that it has been incorporated into the
courthouse.
Material purchases and/or manufacturing costs by contractors are
taxable:
Contractors employed directly or as agents of government entities are
liable for sales tax or use tax on purchases and manufacturing costs of
material to be incorporated into public works contracts. Rule 12A1.094(2), F.A.C., permits public works contractors that purchase
supplies or materials that may be sold as tangible personal property or
may be incorporated into a public works project may purchase such
supplies or materials without tax by issuing a copy of the contractor's
Annual Resale Certificate and accrue and remit tax upon withdrawing
such supplies or materials from inventory to go into or become a part
of public works.
Public works contractors that purchase or
manufacture such materials outside the State of Florida are liable for
use tax, subject to credit for any sales or use tax lawfully imposed and
paid in the state of purchase or manufacture.
Material purchases by governmental entities are exempt:
Section 212.08(6), F.S., is a general exemption for sales of tangible
personal property made directly to a governmental entity. For that
reason materials purchased directly by the government entity from the
supplier, as tangible personal property to be incorporated into a public
works project, may be purchased tax exempt. This exemption does not
include sales of tangible personal property made to, or the manufacture
of tangible personal property by, public works contractors when such
tangible personal property goes into or becomes a part of public works.
14-20
Program Training
2014
Rule 12A-1.094(4), F.A.C., expresses that the determination whether a
particular transaction is properly characterized as an exempt sale to a
governmental entity or a taxable sale to or use by a contractor shall be
based on the substance of the transaction, rather than the form in
which the transaction is cast.
The following criteria that govern the status of the tangible personal
property prior to its affixation to real property will be considered in
determining whether a governmental entity rather than the contractor
is the purchaser of materials:
1. Direct Purchase Order. The government entity issues its own
purchase orders, not the contractor's, directly to the vendors
supplying the materials the contractor will use;
2. Consumer's Certificate of Exemption. The purchase orders
must include the government entity’s consumer's certificate of
exemption number and the government entity must supply a
copy of its Consumer’s Certificate of Exemption with each
purchase order issued to a supplier;
3. Direct Invoice. The vendors invoice must be issued directly to
the government entity rather than to the contractor;
4. Direct Payment. The government entity must make payment
directly to the vendor from public funds;
5. Passage of Title. The government entity must takes title to the
materials from the vendor and assumes liability for the
materials at the time of purchase or delivery by the vendor;
6. Assumption of Risk of Loss*. The government entity must
assume risk of loss for the materials upon delivery (a
paramount consideration), which is clearly established by the
contracts that the government entity is insured against loss or
damage to the materials and the governmental entity is named
as the insured party to receive the proceeds in case of loss of
the items; and
7. Substance and Form. The remaining terms of the documents
do not prevent the conclusion that the government entity rather
than the contractor is in substance as well as form the
purchaser of the materials.
* A governmental entity will be deemed to have assumed the risk of
loss if the governmental entity bears the economic burden of obtaining
insurance covering damage or loss or directly enjoys the economic
benefit of the proceeds of such insurance.
2014
Program Training
14-21
Public Works Contracts – Requirement for a Certificate of
Entitlement (effective January 2, 2011, R. 12A-1.094(4)(c), F.A.C. )
To be entitled to purchase materials tax exempt for a public works
project, a government entity is required to issue a Certificate of
Entitlement to each vendor and to the government entity’s contractor
to affirm that the tangible personal property purchased from that
vendor will go into or become a part of a public work (excluding the
federal government).
The governmental entities purchase order for tangible personal
property to be incorporated in the public works project must be
attached to the Certificate of Entitlement. The government entity must
issue a separate Certificate of Entitlement for each purchase order.
The governmental entity must affirm: (1) the tangible personal
property purchased tax-exempt under Section 212.08(6), F.S., from the
vendor will go into and become a part of a public facility; (2) the
governmental entity will be liable for any tax, penalty, or interest due
should the Department later determine that the items purchased do not
qualify for exemption; (3) the criteria established in Rule 12A-1.094,
F.A.C., are being followed; and (4) contractors who manufacture,
fabricate, or furnish tangible personal property must pay tax on the
articles produced and may not accept a Certificate of Entitlement for
these articles. The contractor and subcontractors, not the governmental
entity, are deemed to be the ultimate consumers of the articles of
tangible personal property they manufacture, fabricate, or furnish to
perform their contracts and may not accept a Certificate of Entitlement
for these articles.
Possession by a dealer or contractor of a Certificate of
Entitlement to the exemption from the governmental entity relieves the
dealer from the responsibility of collecting tax on the sale and the
contractor for any liability for tax, penalty, or interest related to the
sale, and the department shall look solely to the governmental entity
for recovery of tax, penalty, and interest if the department determines
that the transaction was not an exempt sale to the governmental entity.
The governmental entity may not transfer liability for such tax,
penalty, and interest to another party by contract or agreement.
The Certificate of Entitlement does not permit a public works
contractor to furnish and install materials tax exempt.
14-22
Program Training
2014
SELF – CHECK QUESTIONS
1. If a property owner contracts with a general contractor to
build a building for a lump sum and the general contractor
subcontracts part of the work to three subcontractors on
the same basis. Who would the DOR have to audit to
insure the proper tax was paid on the construction of the
building?
A.
B.
C.
D.
1 - General contractor
3 - Subcontractors
4 - General contractor and subcontractors
5 – Property owner, general contractor, and
subcontractors
2. Ajax, Inc. is a block and brick contractor. Ajax, Inc. contracted
to do the brick work on the Florida Bank building in
Tallahassee, for $20,000. Ajax, Inc. purchased the brick and
mortar mix from The Georgia Brickyard in Thomasville,
Georgia and had the materials delivered to the job site. When
the job was complete, Ajax, Inc. analyzed the cost of the bank
job as follows; bricks $7,000, mortar mix $1,000, labor $7,000.
What is the total amount subject to tax for this job?
A.
B.
C.
D.
2014
0
$8,000
$15,000
$20,000
Program Training
14-23
3. B & B, Inc. is a block and brick contractor. B & B, Inc. did the
brick work on the Florida Bank building in Tallahassee, using a
cost plus/fixed fee contract. B & B, Inc. purchased the brick
and mortar mix from The Georgia Brickyard in Thomasville,
Georgia and had them delivered to the job site. B & B, Inc.’s
bill to the bank is as follows:
$ 7,000
1,000
7,000
5,000
$20,000
14,000 red brick, cost $ .50 each
100 bags mortar mix, cost $10 each
200 hours labor, cost $35 per hour
fixed fee per contract
Total due
What is the total amount subject to tax for this job?
A.
B.
C.
D.
$5,000
$8,000
$13,000
$20,000
4. Ace Builders is a block and brick contractor. Ace Builders
contracted to sell 14,000 bricks for $10,000, 100 bags of
mortar mix for $2,000, and to lay the brick for $8,000, for a
total price of $20,000, to the Florida Bank in Tallahassee. No
other materials were used for the job except bricks and mortar.
The bank agreed in writing to assume title and risk for all
materials delivered to the job site. When the job was complete
Ace Builders analyzed the cost of the bank job as follows:
bricks $7,000; mortar mix $1,000; labor $7,000. What is the
total amount subject to tax for this job?
A.
B.
C.
D.
14-24
$8,000
$10,000
$12,000
$20,000
Program Training
2014
5. Custom Brickwork is a block and brick manufacturer and
contractor in Florida. Custom Brickwork contracted to do the
brick work on the Florida Bank building in Tallahassee, for
$20,000. Custom Brickwork fabricated the brick at his plant.
When the job was complete Custom Brickwork analyzed the
cost of the bank job as follows; bricks $4,000 (materials
$2,500, delivery of materials to the plant $500, direct shop
labor $1,000), mortar mix $1,000, labor to lay the bricks
$7,000. What is the total amount subject to tax for this job?
A. $3,500
B. $5,000
C. $12,000
D. $20,000
2014
Program Training
14-25
14-26
Program Training
2014
SELF – CHECK ANSWERS
1. If a property owner contracts with a general contractor to
build a building for a lump sum and the general contractor
subcontracts part of the work to three subcontractors on
the same basis. Who would the DOR have to audit to
insure the proper tax was paid on the construction of the
building?
A.
B.
C.
D.
1 - General contractor
3 - Subcontractors
4 - General contractor and subcontractors
5 – Property owner, general contractor, and
subcontractors
Explanation: See “Special Tax Considerations”. Each contractor
or subcontractor is responsible for paying the tax associated and
applicable to their portion of the contract. Also, see “Types of
Real Property Contracts”: The sale of real property, including
improvements, is not subject to sales tax. Contractors are the
ultimate consumer of the tangible personal property used in the
performance of lump sum contracts.
Choice A is incorrect. See Explanation.
Choice B is incorrect. See Explanation.
Choice C is correct. See Explanation.
Choice D is incorrect. See Explanation. The property owner can
not be held liable for tax on purchases made by the contractors.
2014
Program Training
14-27
2. Ajax, Inc. is a block and brick contractor. Ajax, Inc. contracted
to do the brick work on the Florida Bank building in
Tallahassee, for $20,000. Ajax, Inc. purchased the brick and
mortar mix from The Georgia Brickyard in Thomasville,
Georgia and had the materials delivered to the job site. When
the job was complete, Ajax, Inc. analyzed the cost of the bank
job as follows; bricks $7,000, mortar mix $1,000, labor $7,000.
What is the total amount subject to tax for this job?
A.
B.
C.
D.
0
$8,000
$15,000
$20,000
Explanation: This is a lump sum real property improvement contract.
The contractor is the ultimate consumer of all tangible personal
property purchased for the job. Even though the materials are
purchased from a Georgia dealer, because they are delivered to the job
site in Florida, Florida use tax is due from the contractor.
Choice A. is incorrect. See “Special Tax Considerations”. Use tax is
due from the contractor because delivery of materials occurred in
Florida and Florida sales tax was not charged by the Georgia dealer.
Choice B. is correct. See “Special Tax Considerations”. Use tax is due
on the cost of bricks and mortar mix. See Fabricated Cost: On site
labor to improve real property is exempt.
Choice C. is incorrect. See “Fabricated Cost”. Use tax is only due on
the bricks and mortar mix. On site labor is exempt.
Choice D. is incorrect. See “Types of Real Property Contractors”. The
sale of real property improvements is not subject to sales tax.
14-28
Program Training
2014
3.
B & B, Inc. is a block and brick contractor. B & B, Inc. did
the brick work on the Florida Bank building in Tallahassee,
using a cost plus/fixed fee contract. B & B, Inc. purchased
the brick and mortar mix from The Georgia Brickyard in
Thomasville, Georgia and had them delivered to the job site.
B & B, Inc.’s bill to the bank is as follows:
$ 7,000
1,000
7,000
5,000
$20,000
14,000 red brick, cost $ .50 each
100 bags mortar mix, cost $10 each
200 hours labor, cost $35 per hour
fixed fee per contract
Total due
What is the total amount subject to tax for this job?
A.
B.
C.
D.
$5,000
$8,000
$13,000
$20,000
Explanation: This is a cost plus real property improvement contract.
The contractor is the ultimate consumer of all tangible personal
property purchased for the job. Even though the materials are
purchased from a Georgia dealer, because they are delivered to the job
site in Florida, Florida use tax is due from the contractor.
Choice A. is incorrect. See “Special Tax Considerations”. Use tax is
due from the contractor because delivery of materials occurred in
Florida and Florida sales tax was not charged by the Georgia dealer.
Choice B. is correct. See “Special Tax Considerations”. Use tax is due
on the cost of bricks and mortar mix. See Fabricated Cost: On site
labor to improve real property is exempt.
Choice C. is incorrect. See “Fabricated Cost”. Use tax is only due on
the cost of the bricks and mortar mix. The $5,000 fixed fee is not
subject to sales tax because the sale of real property improvements is
not subject to sales tax.
Choice D. is incorrect. See “Types of Real Property Contractors”.
The sale of real property improvements is not subject to sales tax.
2014
Program Training
14-29
4.
Ace Builders is a block and brick contractor. Ace Builders
contracted to sell 14,000 bricks for $10,000, 100 bags of
mortar mix for $2,000, and to lay the brick for $8,000, for a
total price of $20,000, to the Florida Bank in Tallahassee. No
other materials were used for the job except bricks and mortar.
The bank agreed in writing to assume title and risk for all
materials delivered to the job site. When the job was complete
Ace Builders analyzed the cost of the bank job as follows:
bricks $7,000; mortar mix $1,000; labor $7,000. What is the
total amount subject to tax for this job?
A.
B.
C.
D.
$8,000
$10,000
$12,000
$20,000
Explanation: This is a retail sale plus installation contract. The
contractor contracted to sell tangible personal property and to install
the tangible personal property for a separate charge. The material sold
to the bank was separately listed and separately priced in the contract
prior to performing the work and the bank agreed to assume title and
risk for all materials delivered to the job site.
Choice A. is incorrect. See “Types of Real Property Contracts”. The
charge to lay the brick is not subject to tax because it is not a service
that is a part of a taxable sale. The sale of real property improvements
is not subject to sales tax.
Choice B. is incorrect. See “Types of Real Property Contracts – Retail
Sale Plus Installation”. The $10,000 charge for bricks is taxable but
the charge for mortar mix is also taxable.
Choice C. is correct. See “Types of Real Property Contracts – Retail
Sale Plus Installation”. The charge for bricks and mortar mix is
subject to tax as a sale of tangible personal property prior to being
incorporated into real property. No additional charges or costs are
subject to tax.
Choice D. is incorrect. See “Types of Real Property Contractors”.
The sale of real property improvements is not subject to sales tax.
14-30
Program Training
2014
5. Custom Brickwork is a block and brick manufacturer and
contractor in Florida. Custom Brickwork contracted to do the
brick work on the Florida Bank building in Tallahassee, for
$20,000. Custom Brickwork fabricated the brick at his plant.
When the job was complete Custom Brickwork analyzed the
cost of the bank job as follows; bricks $4,000 (materials
$2,500, delivery of materials to the plant $500, direct shop
labor $1,000), mortar mix $1,000, labor to lay the bricks
$7,000. What is the total amount subject to tax for this job?
A. $3,500
B. $5,000
C. $12,000
D. $20,000
Explanation: This is a lump sum real property improvement contract.
The contractor is the ultimate consumer of all tangible personal
property purchased for the job. Additionally, because the contractor
fabricated the brick for their own use at their plant, use tax is due on
the full fabricated cost to make the brick; material, labor and services.
Choice A. is incorrect. See “Fabricated Cost”. Use tax is due from the
manufacturer/contractor on the full fabricated cost, not just the cost of
the materials for the brick and mortar mix.
Choice B. is correct. See “Fabricated Cost”. Use tax is due from the
manufacturer/contractor on the full fabricated cost; $2,500 material,
$500 delivery of materials to the plant, and direct shop labor. The
$7,000 cost to lay the bricks at the job site is not subject to tax because
on site labor to improve real property is exempt.
Choice C. is incorrect. See “Fabricated Cost”. Use tax is due on the
full fabricated cost but the $7,000 cost to lay the bricks at the job site
is not subject to tax because on site labor to improve real property is
exempt.
Choice D. is incorrect. See “Types of Real Property Contractors”.
The sale of real property improvements is not subject to sales tax.
2014
Program Training
14-31
14-32
Program Training
2014
CERTIFICATE OF ENTITLEMENT
The undersigned authorized representative of_________________ (hereinafter
"Governmental Entity"), Florida Consumer's Certificate of Exemption Number , affirms
that the tangible personal property purchased pursuant to Purchase Order Number______
from ___________ (Vendor) on or after _______ (date) will be incorporated into or
become a part of a public facility as part of a public works contract pursuant to contract #
___________ with ______________ (Name of Contractor) for the construction of
_____________________________.
Governmental Entity affirms that the purchase of the tangible personal property
contained in the attached Purchase Order meets the following exemption requirements
contained in Section 212.08(6), F.S., and Rule 12A-1.094, F.A.C.:
You must initial each of the following requirements.
____ 1. The attached Purchase Order is issued directly to the vendor supplying the
tangible personal property the Contractor will use in the identified public works.
____ 2. The vendor’s invoice will be issued directly to Governmental Entity.
____ 3. Payment of the vendor's invoice will be made directly by Governmental Entity to
the vendor from public funds.
____ 4. Governmental Entity will take title to the tangible personal property from the
vendor at the time of purchase or of delivery by the vendor.
____ 5. Governmental Entity assumes the risk of damage or loss at the time of purchase
or delivery by the vendor.
Governmental Entity affirms that if the tangible personal property identified in the
attached Purchase Order does not qualify for the exemption provided in Section
212.08(6), F.S., and Rule 12A-1.094, F.A.C., Governmental Entity will be subject to the
tax, interest, and penalties due on the tangible personal property purchased. If the Florida
Department of Revenue determines that the tangible personal property purchased taxexempt by issuing this Certificate does not qualify for the exemption, Governmental
Entity will be liable for any tax, penalty, and interest determined to be due.
I understand that if I fraudulently issue this certificate to evade the payment of
sales tax I will be liable for payment of the sales tax plus a penalty of 200% of the tax and
may be subject to conviction of a third degree felony.
Under the penalties of perjury, I declare that I have read the foregoing Certificate
of Entitlement and the facts stated in it are true.
Signature of Authorized Representative
Title
Purchaser’s Name (Print or Type)
Date
Federal Employer Identification Number:
Telephone Number:
You must attach a copy of the Purchase Order to this Certificate of Entitlement.
Do not send to the Florida Department of Revenue. This Certificate of Entitlement must
be retained in the vendor’s and the contractor’s books and records.
MODULE FIFTEEN
TRANSPORTATION COMPANIES
OBJECTIVES
Upon completion of this module the participant will:
•
understand the business operations of transportation
companies; and
•
be able to determine the correct tax application for
transportation companies.
INTRODUCTION
This module covers issues concerning the operation and tax
application of transportation companies, including passenger carriers,
cargo carriers, highway motor carriers, and air carriers. The carriers
all provide transportation and related services to passengers and/or
moving cargo for compensation. Rule 12A-1.064, F.A.C., applies to
this industry.
TRANSPORTATION COMPANIES
Method of Operation
Transportation companies are in the business of transporting people
and property for a fee. The charges made for rendering these services
are services charges, and are not subject to the tax.
Charges made for transportation are calculated based on the weight of
the goods transported and by the distance transported. Motor vehicle
and air carrier movement are measured in statute miles of 5,280 feet.
Movement over water is measured in nautical miles of 6,076 feet.
2014
Program Training
15-1
Passenger carriers operate between terminals or depots that are either
privately or publicly owned. Passengers obtain passage by purchasing
a ticket either at the terminal or from a ticket agent. The carrier then
transports the passengers from one terminal location to another. At
this point a passenger may change conveyance, mode of travel, or
carrier in order to reach his or her final destination.
Passenger carriers maintain reservation systems that are usually
computerized.
They purchase and maintain baggage handling
equipment at each terminal. Maintenance facilities are required to
insure proper operation of the equipment used to carry the passengers.
Refreshments are either prepared, or contracted at each terminal for
serving at the terminal, or during the trip. Equipment to assist the
passengers on and off the vehicle is made available at each terminal.
Cargo carriers use a BILL OF LADING rather than a passenger ticket.
This document identifies the consignor (shipper) and the consignee
(receiver), the lading (items being transported), and the carrier or
carriers that will transport the lading.
Motor carriers may operate in several ways. A trucker may transport
full loads from a shipper’s location to a destination. Some of these
carriers are engaged in providing this service for a variety of clients,
while others operate in a more specialized manner, transporting a
special product for a single producer. In this situation, a highway
carrier may be a member of a pool.
A pool is a collection of vehicles from various motor carriers that are
assigned to transport the output of a given factory. The carrier will
generally participate in the sharing of revenues and expenses of the
pool vehicles furnished by these carriers. Purchased, leased, or rented
vehicles may be furnished to the pool.
Other carriers may transport mixed loads for a number of shippers. In
this case, the motor carrier receives the goods at one of its terminals,
and ships to another. The trucking company will operate these
warehouse/terminals at strategic locations throughout its region of
operation.
Storage space, material handling equipment, and
maintenance shops will be available at these facilities.
15-2
Program Training
2014
Transportation companies that require movements of their own goods
are in a unique position in that they can be both the carrier and the
consignee of goods in transit. The Surface Transportation Board
regulates interstate commerce.
All carriers acquire title to damaged and unclaimed property. Carriers
use three methods to dispose of the acquired property, and recover
freight and storage costs. The three methods are:
•
selling all the goods to a salvage dealer;
•
holding periodic auctions to sell the goods to the public;
and
•
operating a salvage store and selling the items to the public.
Special Tax Considerations
The sale of damaged or unclaimed property acquired through freight
claims is considered to be an occasional sale and not subject to the tax,
unless the carrier operates a salvage store open to the public. Sales
made by the salvage store are subject to the sales tax.
The sale of meals and beverages by passenger carriers are taxable but
subject to proration. The purchase of beverages, snacks and prepared
meals which are not sold to passengers are taxable when delivered to
the carrier at a point in Florida.
Repair parts purchased outside the state of Florida and installed in
Florida, are subject to proration (see Motor Carriers, Special Tax
Considerations) unless a legally imposed tax of an equal or greater
amount was paid at the time of purchase. Repair parts purchased and
installed outside the state are not subject to Florida tax.
Proration is also applied each month to total Florida purchases which
are delivered or sold in a county imposing the discretionary sales
surtax.
Vehicles, aircraft, vessels, locomotives and rail cars purchased outside
the state and placed in revenue service outside the state are not subject
to Florida tax.
2014
Program Training
15-3
Repairs made to vehicles, aircraft, rail cars and vessels outside the
state are not subject to Florida tax, provided that the equipment was
not sent out of the state for the purpose of repair and returned
immediately.
Most highway carriers also maintain repair trucks, tow-trucks and
automobiles. These vehicles are used as service or supervisory
vehicles, and are subject to tax without proration.
MOTOR CARRIERS
COMMON CARRIER by motor vehicle is defined as "any person
who, or which undertakes, whether directly, or by a lease, or any other
arrangement to transport passengers or property, or any class or classes
of property for the general public in interstate or foreign commerce by
motor vehicle for compensation."
CONTRACT CARRIER by motor vehicle means "any person who, or
which under special and individual agreements, and whether directly
or by a lease or by other arrangement, transports passengers or
property in interstate or foreign commerce by motor vehicle for
compensation."
INTERSTATE COMMERCE means "commerce between any place in
a state, and any place in another state, or between places in the same
state through another state...."
FOREIGN COMMERCE is "commerce between any place in the
United States, and any place in a foreign country, or between places in
the United States through any foreign country."
INTRASTATE COMMERCE is commerce solely within the state.
15-4
Program Training
2014
Method of Operation
Motor carriers may transport items or persons between fixed terminals
or hubs, interstate and intrastate. Vehicles used in providing this
service are referred to as LINE-HAUL vehicles. Other carriers may
expand upon or complement such service by providing transportation
to or from the terminals or hubs and the specific locations of shippers
and receivers. Vehicles that are used to provide this service are
referred to as LOCAL-HAUL vehicles.
A commonly used method for rapid delivery of cargo is called
interchange. INTERCHANGE is the transfer of vehicles between two
carriers to complete transportation of goods for a shipper. For sales
tax purposes the charge for the interchange of vehicles is considered a
service. Established charges for the use of such vehicles are made
based on mileage traveled, and the times in use are measured by days,
hours, and even minutes.
Interchange applies to both empty and fully loaded vehicles destined
for the same location. The carriers involved in the interchange can be
tractor, rail, ship or barge. If interchanges occur by any type other
than tractor the cargo is transported by PIGGYBACK. The cargo may
reach its final destination through any combination of the above noted
methods.
The concept of interchange results in carriers owning vehicles that are
located all over the country, or even in foreign countries. Elaborate
reporting and accounting systems have been instituted to control and
account for these vehicles. To compensate the owner of a vehicle
while the vehicle is earning revenue for another carrier, the carrier
using the vehicle pays the owner an established daily and mileage fee.
The concept of interchange has spawned an entirely new industry.
Corporations have been formed to rent trailers and containers to cargo
carriers. The carriers and the equipment companies enter into formal
agreements for the use of the rental equipment. The rental term
includes both long term lease, daily, or hourly rent, and even
by-the-minute charges. The long term lease vehicles are treated as
though the carrier owns them, and usually carry the trade name of the
carrier.
2014
Program Training
15-5
The equipment company owned/leased vehicles that are interchanged
are considered FREE RUNNING vehicles. The carrier simply agrees
to pay rent to the owner of the vehicle, as long as the carrier has
possession of the vehicle. For sales tax purposes the charge for free
running vehicles is considered the rental of equipment. When the
vehicle is interchanged, the receiving carrier begins to pay rent directly
to the owner of the vehicle. Free running vehicles reduce the problems
encountered in returning a vehicle, because the vehicle is at home
wherever it happens to be located.
The concept of interchange has produced new demands on
maintenance procedures for the carriers. In addition to maintaining its
own fleet of vehicles, a carrier, by agreement and regulation, is
responsible for some maintenance on vehicles belonging to others
without consulting the owner (a dollar limit is established for these
repairs). For major repairs, other than minor repair work, the carrier
must notify the owner, to enable the owner to make a decision, or give
instructions about the repair.
Most carriers have their own
maintenance shops, but major repairs are sometimes contracted to
others. The equipment companies maintain regional repair shops for
their own equipment, and will also enter into contracts for the
maintenance of other carriers' vehicles.
Special Tax Considerations
Proration Factor
Section 212.08(9)(b), F.S., states that: “Motor vehicles that are
engaged in interstate commerce as common carriers, and parts thereof,
used to transport persons or property in interstate or foreign commerce
are subject to tax imposed in this chapter only to the extent provided
herein. The basis of the tax shall be the ratio of intrastate mileage to
interstate or foreign mileage traveled by the carrier’s motor vehicles
which were used in interstate or foreign commerce and which had at
least some Florida mileage during the previous fiscal year of the
carrier. Such ratio is to be determined at the close of the carrier’s fiscal
year. However, during the fiscal year in which the carrier begins its
initial operations in this state, the carrier’s mileage apportionment
factor may be determined on the basis of an estimated ratio of
anticipated miles in this state to anticipated total miles for that year
and, subsequently, additional tax shall be paid on the carrier, or a
refund may be applied for, on the basis of the actual ratio of the
carrier’s miles in this state to its total miles for that year. This ratio
shall be applied each month to the purchases in this state of such motor
15-6
Program Training
2014
vehicles and parts thereof which are used in this state to establish that
portion of the total used and consumed in intrastate movement and
subject to tax under this chapter. The basis for imposition of any
discretionary surtax is set forth in s. 212.054. Motor vehicles that are
engaged in interstate commerce, and parts thereof, used to transport
persons or property in interstate and foreign commerce are hereby
determined to be susceptible to a distinct and separate classification for
taxation under the provisions of this chapter. Motor vehicles and parts
thereof used exclusively in intrastate commerce do not qualify for the
proration of tax. For purposes of this paragraph, parts of a motor
vehicle engaged in interstate commerce include a separate tank not
connected to the fuel supply system of the motor vehicle into which
diesel fuel is placed to operate a refrigeration unit or other equipment.”
(emphases added)
Application of the Proration Factor
The proration factor is applied to the carrier's vehicle and parts
purchases made in Florida each month to obtain the amount subject to
the tax. Only those vehicles actually engaged in interstate commerce
are allowed this partial exemption. The partial exemption covers the
purchase, lease or rental of the vehicle, and repair parts taxable under
Chapter 212, F.S.
Line-Haul and Local Haul Vehicles
The proration factor is only applicable to the carrier’s qualified linehaul and local haul equipment that is actually engaged in the interstate
movement of goods.
Interchange and Free Running Vehicles
Charges made for interchanged vehicles are exempt as a service.
Charges made for free running vehicles are taxable as a rental of
equipment. The proration factor is applicable to qualified free running
vehicles (taxable rentals of line-haul or local haul vehicles used in
qualified interstate commerce).
2014
Program Training
15-7
Discretionary Sales Surtax
The proration factor is applied each month to qualified Florida
purchases which are delivered or sold in a county imposing the
discretionary sales surtax and taxed at that county’s surtax rate.
Other Vehicles and Purchases
Office equipment and supplies, warehouse or cartage equipment, and
other vehicles, such as wreckers/tow trucks, or company cars are not
entitled to the partial exemption.
Annual Report
Highway carriers must file an annual report. In this report the total
mileage traveled by the carrier in the fiscal year must be reported. The
mileage traveled in each state is accumulated when preparing this
report. The calculated proration factor should be computed and
checked against the ratio used by the carrier in the succeeding year.
This process should be followed for each year of the audit period.
Piggyback Miles
A carrier’s reported mileage must be examined for accuracy. If the
carrier’s trailers were transported by piggyback, then it must be
determined if the distance traveled by each trailer while on board the
water or rail carrier (piggyback) has been included in the total miles
traveled. If this mileage has been included, then the total miles
traveled must be reduced by the "piggyback" miles before computing
the Florida proration factor.
The definition of "motor vehicle" includes trailers and semitrailers
operated on the roads of this state. Therefore, a trailer is a motor
vehicle, for purposes of proration, only when it is being pulled by a
tractor, since it is being operated on the roads of this state. A trailer
which travel "piggyback" on a railcar is "cargo" and does not meet the
definition of "motor vehicle", for purposes of proration, since it is not
operating on the roads of this state. Therefore, mileage traveled
"piggyback" on a railcar should not be included in the ratio pursuant to
s. 212.08(9)(b), F.S., because it is not "mileage traveled by the carrier's
motor vehicles."
15-8
Program Training
2014
Vehicle Combinations
A "truck tractor and semitrailer combination" is considered a motor
vehicle pursuant to s. 320.01(1)(a), F.S. The statute contemplates such
a combination as one motor vehicle, when both are owned by the same
company. When the tractor and trailer are owned by different
companies, the Department will allow the mileage to be counted by
each company in determining their respective ratios.
Records – Driver’s Log
For small local or regional carriers, a detail confirmation of the Florida
proration factor may be made by examination of the driver's logs. Due
to the size and complexity of many common carriers, it may be
necessary to rely on spot checks of various drivers' logs throughout the
audit period, and adjusting the size of the sample according to the
exceptions uncovered.
2014
Program Training
15-9
EXAMPLE:
A common carrier that provides services anywhere in the United States
during the taxable year ended December 31, 2007, shows in its records
that it traveled a total of 800,000 miles. The total of miles in Florida
was 300,000 miles. Note: All vehicles have at least some Florida
miles and carry interstate goods.
Included in the total everywhere mileage is:
10,000 miles traveled by tow/wrecker trucks
5,000 miles traveled by maintenance vehicles
12,000 miles traveled by executives
Included in Florida mileage are:
3,000 miles traveled by tow/wrecker trucks
1,000 miles traveled by executives
Florida transactions during the month found in motor carrier's books:
$80,000
2,000
1,500
500
800
8,000
15-10
vehicle purchase for interstate (USDOT) service
for parts on interstate (USDOT) service
for parts on intrastate (non-USDOT) service
vehicle rental for free-running (USDOT)
vehicle for interchange (USDOT)
vehicle repair ($5,000 for USDOT, and $3,000 for
non-USDOT)
Program Training
2014
Calculation of proration factor and tax due:
Everywhere
Total mileage
Maintenance
Executive
Tow/Wrecker
Total Qualified miles
Florida
800,000
(5,000)
(12,000)
(10,000)
773,000
300,000
(1,000)
(3,000)
296,000
Qualified Florida miles
=
Florida Proration Factor
Qualified everywhere miles w/some Florida miles
296,000 / 773,000 = 0.382924 proration factor
Calculating tax due:
Proration
Purchases of vehicle
$80,000
Purchase of parts (USDOT)
2,000
Free running rental (USDOT)
500
5,000
Vehicle repair (USDOT)
Total
$87,500 x 0.382924 = $33,505.85
Fully Taxable
Parts (non-USDOT)
Vehicle repair (non-USDOT)
Total
Proration Taxable Amount
Fully Taxable Amount
Total Taxable Amount
Total taxable amount
2014
$1,500
3,000
4,500
$33,505.85
4,500.00
$38,000.85
$38,005.85 x 6% = $2,280.35 tax due
Program Training
15-11
AIR CARRIERS
Basically, air carriers operate in the same manner as motor carriers.
The major difference is that air carriers do not interchange. Air
carriers are governed by the Federal Aviation Authority (FAA).
Special Tax Considerations
Any air carrier required by the United States Department of
Transportation to keep records according to said Department's
standard classification of accounting may elect to be subject to the tax:
•
on all their Florida purchases of tangible personal property,
services, leases or rentals of or licenses in real property, or;
•
on a portion (proration factor) of system-wide gross purchases of
tangible personal property, services and in certain instances*, the
lease or rental of, or license in real property otherwise taxable in
Florida.
“Otherwise taxable in Florida” means those purchases of tangible
personal property, services and certain leases* of real property
purchases inside or outside this state that would be subject to the tax if
purchased in Florida.
• The following is from s. 212.0598(2), F.S., Special provisions:
air carriers.
The ratio shall be applied each month to the carrier’s total
systemwide payments for the lease or rental of, or license in,
real property used by the carrier substantially for aircraft
maintenance if the carrier employed, on average, during the
previous calendar quarter in excess of 3,000 full-time
equivalent maintenance or repair employees at one
maintenance base that it leases, rents, or has a license in, in
this state. In all other instances, the tax on real property
leased, rented, or licensed by the carrier shall be as provided in
s. 212.031, F.S.
15-12
Program Training
2014
The election will not be allowed unless the purchaser makes a written
request, in a manner prescribed by the Department of Revenue, to be
taxed under the provisions of proration. The purchaser should register
with the Department as a dealer and extend to his vendors at the time
of purchase, a certificate stating that the item or items to be partially
exempted are for the exclusive use in interstate transportation.
Accordingly, if the taxpayer elects to apportion its system-wide
purchases it must calculate a proration factor which is the same as the
apportionment factor as determined per the corporate income statute,
Section 220.151(2)(c), F.S.
The basis of the proration factor shall be the ratio of Florida revenue
mileage to system-wide revenue mileage for all aircraft, worldwide.
The proration factor shall be determined at the close of the twelvemonth period of the carrier's most recently completed fiscal year. The
proration factor shall be applied each month to the carrier's qualified
system-wide gross purchases.
A "revenue mile" is the transportation of one passenger or one net ton
of freight the distance of one mile for a consideration. When an air
carrier is engaged in the transportation of passengers and freight, the
fraction shall be determined by means of an average of the passenger
revenue mile fraction and the freight revenue mile fraction, weighted
to reflect the taxpayer's relative gross receipts from passenger and
freight transportation.
2014
Program Training
15-13
EXAMPLES:
An air carrier is a Florida-based air carrier providing charter
ambulance and passenger services anywhere in the United States.
During the taxable year ended December 31, 2007, its records of
operations disclosed it carried passengers a total of 500,000 revenue
miles of which 310,000 were within Florida. The proration factor is
computed as follows:
Passenger revenue miles:
310,000 (Florida miles)
500,000 (Everywhere miles)
= .6200
The proration factor is computed at the air carrier’s year end
and is used to apportion that year’s corporate taxable income
and monthly taxable purchases for the following year. The
proration factor is recomputed at the end of each year and it is
used in the succeeding reporting period (monthly, quarterly
etc.).
System-wide purchases of otherwise taxable tangible personal
property during the month of February, XXX2, amounted to $10,000.
A carrier electing to use the proration factor would be subject to the
following sales tax liability:
$10,000
x .6200
$ 6,200
x .06
$ 372
(systemwide gross purchases of otherwise taxable tangible personal property )
(proration factor)
(basis for the tax)
(sales tax rate)
(February, XXX2, sales tax liability)
If an air carrier transports both passengers and cargo the miles
traveled must be broken down and a weighted proration factor must
be computed separately for each type of activity and then combined.
15-14
Program Training
2014
Using the previous example, passenger revenues and cargo revenues as
well as the miles associated with each activity must be known. In
addition to the miles previously computed there are also miles
associated with freight transportation. There was a total of 16,000 ton
miles of which 8,000 ton miles were traversed in Florida. The total
revenues earned were $54,600 of which $45,000 was from passenger
service and $9,600 were from freight activity.
Compute the percentage of revenue from passengers and freight
services:
$ 45,000
$ 54,600
(Passenger revenues)
(Total Revenues)
Passenger Revenues = .8242
$ 9,600 (Freight Revenues)
$ 54,600 (Total Revenues)
Freight Revenues = .1758
Compute the weighted proration factor for each type of activity and
combine to determine the total weighted proration factor.
Passenger Miles: 310,000 (Florida miles) = .6200 X .8242 = .5110
500,000 (Everywhere miles)
Freight Miles:
8,000 (Florida miles) = .5000 X .1758 = .0879
16,000 (Everywhere miles)
Total Weighted Proration Factor
=
.5989
The apportionable system-wide purchases are then multiplied by the
weighted proration factor to determine the taxable base, that is then
multiplied by the appropriate sales tax rate:
Apportionable system-wide purchases
Multiplied by the proration factor
Florida taxable base
Florida tax rate
Tax due
$10,000.00
x .5989
$
5,989
x .06
$ 359.34
Any air carrier eligible for the election provided that does not so elect
shall be subject to the tax, without proration, on the purchase, the use,
the consumption, the distribution, and the storage for use or
consumption in this state of tangible personal property, services, and
the lease or rental of, or license in, real property subject to taxation
under Chapter 212, F.S.
2014
Program Training
15-15
SUMMARY
Transportation companies use aircraft, automobiles trucks, barges,
locomotives, rail cars, buses, and vessels in transporting people, cargo,
and other merchandise for compensation. The methods of operation
and tax implications covered in this module are unique to the industry.
Motor and water carriers are regulated by the United States
Department of Transportation (USDOT), but the air carriers are
regulated by the Federal Aviation Authority (FAA).
Common carriers are allowed a partial exemption on certain items
purchased or used in Florida. The proration factor used for allowing
this partial exemption is based on the ratio of Florida miles to miles
everywhere of qualified vehicles with at least some Florida miles.
15-16
Program Training
2014
SELF – CHECK QUESTIONS
1. A carrier has acquired title to damaged and unclaimed property.
The carrier company decided to sell some of the goods to a salvage
dealer some of the goods by auction to the public, and some of the
goods at their salvage store.
A.
B.
C.
D.
The goods sold to the salvage dealer are taxable
The goods sold in the auction are taxable
The goods sold in the salvage store are taxable
None of the above.
2. In the transportation industry, a partial tax exemption (proration) is
allowed for vehicles used in the transportation of people or property in
interstate commerce. What purchases by transportation companies
does the partial exemption applied to?
A.
B.
C.
D.
The rental of qualified vehicles.
The rental and repairs of qualified vehicles.
The purchase, repairs and rental of qualified vehicles.
The purchase of motor vehicles and parts used exclusively in
intrastate commerce.
3. To enable an identification of the consignor, consignee, and the
items being transported, the cargo carrier uses:
A. Passenger tickets
B. Affidavits
C. Bills of lading
D. Exemption certificates
2014
Program Training
15-17
4. Motor carrier vehicles that transport freight between fixed terminals
are referred to as:
A. Interchange vehicles
B. Line-haul vehicles
C. Local-haul vehicles
D. Free running vehicles
5. The Fast Freight Co. is a U.S.D.O.T.- regulated motor carrier
serving the states along the eastern seaboard of the U.S. carrying
interstate goods. Fast Freight provides pick up and delivery service
between the freight terminal and the customer's location. During the
last fiscal year, Fast Freights vehicles traveled a total of 20,000,000
miles. The vehicles used for local pick up and delivery traveled a total
of 1,800,000 miles. Also included in the total is 2,000,000 miles
traveled by independent truckers who own the vehicles and operate
under a contract with Fast Freight. Also included in the total mileage
is 250,000 miles traveled by wreckers and maintenance vehicles and
300,000 miles traveled by executive and supervisory cars. During your
audit you determine that Fast Freight traveled a total of 2,250,000
miles in Florida during the fiscal year. You also determine that the
total includes 250,000 miles traveled by local pick up and delivery
vehicles, 200,000 miles traveled by independent truckers under
contract, 20,000 miles traveled by wreckers and maintenance trucks
and 20,000 miles traveled by executive and supervisory automobiles.
What is the Fast Freight's exempt proration factor?
A.
B.
C.
D.
11.1048%
11.2460%
11.2500%
11.3625%
.
15-18
Program Training
2014
6. Motor Trucking Company is an intrastate trucking company that
operates in Florida. In 2005 records show Motor Trucking Company
vehicles traveled a total of 500,000 miles. All vehicles carry goods
intrastate (in Florida only). The most common travel is between
Pensacola, FL and Jacksonville, FL on Interstate 10. Included in the
mileage is:
10,000 miles traveled by the tow truck
20,000 miles traveled by the executive cars
5,000 miles traveled by the maintenance truck
What is the proration factor?
A. 35,000 miles (10,000 tow truck miles + 20,000 executive miles
+ 5,000 maintenance miles) divided by 500,000 total miles =
.07 proration factor
B. 5,000 maintenance miles divided by the 500,000 total miles =
.01 proration factor.
C. 20,000 executive miles divided by the 500,000 total miles =
.04 proration factor.
D. None of the above.
7. Which one of the following vehicle mileages is never included in a
motor carrier’s calculation of their exempt proration factor.
A.
B.
C.
D.
Line-haul vehicle miles
Piggyback vehicle miles
Local-haul vehicle miles
Interchange vehicle miles
8. Air carriers operate in the same manner as motor carriers. The
major difference is that air carriers do not interchange. What
government authority regulates air carriers in Florida?
A.
B.
C.
D.
2014
United States Department of Transportation
Florida Aviation Authority
Florida Department of Transportation
Federal Aviation Authority regulation.
Program Training
15-19
15-20
Program Training
2014
SELF-CHECK ANSWERS
1. A carrier has acquired title to damaged and unclaimed property.
The carrier company decided to sell some of the goods to a salvage
dealer some of the goods by auction to the public, and some of the
goods at their salvage store.
A.
B.
C.
D.
The goods sold to the salvage dealer are taxable
The goods sold in the auction are taxable
The goods sold in the salvage store are taxable
None of the above.
Explanation: See “TRANSPORTATION COMPANIES, Method of
Operation.” The sale of damaged or unclaimed property acquired
through freight claims is considered to be an occasional sale and not
subject to the tax. Sales made by the salvage store are retail sales and
subject to tax.
Choice A is incorrect. See “Special Tax Considerations.” The sale to
salvage dealers would normally be an exempt sale for resale and not
taxable.
Choice B is incorrect. See “Special Tax Considerations.” The sale by
auction to the public is not taxable.
Choice C is correct. See “Special Tax Considerations.” Sales made
by the salvage store are subject to sales tax.
Choice D is incorrect since choice C is correct.
2014
Program Training
15-21
2. In the transportation industry, a partial tax exemption (proration) is
allowed for vehicles used in the transportation of people or property in
interstate commerce. What purchases by transportation companies
does the partial exemption applied to?
A.
B.
C.
D.
The rental of qualified vehicles.
The rental and repairs of qualified vehicles.
The purchase, repairs and rental of qualified vehicles.
The purchase of motor vehicles and parts used exclusively in
intrastate commerce.
Explanation:
See “MOTOR CARRIERS, Special Tax
Considerations.” The proration factor (partial exemption) covers the
purchase, lease or rental of vehicles, and repair parts taxable under
Chapter 212, F.S. for qualified vehicles that are engaged in interstate
commerce.
Choice A is incorrect.
See “MOTOR CARRIERS, Special Tax
Considerations.” The partial exemption also covers purchases and
repair parts of qualified vehicles.
Choice B is incorrect. The partial exemption also covers the purchase
of qualified vehicles. See “MOTOR CARRIERS, Special Tax
Considerations.”
Choice C is correct. See “MOTOR CARRIERS, Special Tax
Considerations.” The proration factor (partial exemption) covers the
purchase, lease or rental of vehicles, and repair parts taxable under
Chapter 212, F.S. for qualified vehicles that are engaged in interstate
commerce.
Choice D is incorrect.
See “MOTOR CARRIERS, Special Tax
Considerations.” Motor vehicles and parts thereof used exclusively in
intrastate commerce do not qualify for the proration of tax.
3. To enable an identification of the consignor, consignee, and the
items being transported, the cargo carrier uses:
A. Passenger tickets
B. Affidavits
C. Bills of lading
D. Exemption certificates
15-22
Program Training
2014
Explanation: See “TRANSPORTATION COMPANIES, Method of
Operation”. Cargo Carriers use a bill of lading rather than a passenger
ticket. This document identifies the consignor (shipper) and the
consignee (receiver), the lading (items being transported), and the
carrier or carriers that will transport the lading.
Choice A is incorrect. Passenger tickets are used by Passenger
Carriers rather than Cargo Carriers. See “TRANSPORTATION
COMPANIES, Method of Operation”.
Choice B is incorrect. See “TRANSPORTATION COMPANIES,
Method of Operation”. Cargo Carriers use a bill of lading. This
shipping document better documents the transaction than an affidavit.
Choice C is correct. See “TRANSPORTATION COMPANIES,
Method of Operation”. Cargo Carriers use a bill of lading.
Choice D is incorrect. See Explanation. An exemption certificate is
not relevant here.
4. Motor carrier vehicles that transport freight between fixed terminals
are referred to as:
A. Interchange vehicles
B. Line-haul vehicles
C. Local-haul vehicles
D. Free running vehicles
Explanation: See “MOTOR CARRIERS, Method of Operation”.
Vehicles used in providing this service are referred to as LINE-HAUL
vehicles.
Choice A is incorrect. See Explanation.
Choice B is correct.
See Explanation.
Choice C is incorrect. See Explanation.
Choice D is incorrect. See Explanation.
2014
Program Training
15-23
5. The Fast Freight Co. is a U.S.D.O.T.- regulated motor carrier
serving the states along the eastern seaboard of the U.S. carrying
interstate goods. Fast Freight provides pick up and delivery service
between the freight terminal and the customer's location. During the
last fiscal year, Fast Freights vehicles traveled a total of 20,000,000
miles. The vehicles used for local pick up and delivery traveled a total
of 1,800,000 miles. Also included in the total is 2,000,000 miles
traveled by independent truckers who own the vehicles and operate
under a contract with Fast Freight. Also included in the total mileage
is 250,000 miles traveled by wreckers and maintenance vehicles and
300,000 miles traveled by executive and supervisory cars. During your
audit you determine that Fast Freight traveled a total of 2,250,000
miles in Florida during the fiscal year. You also determine that the
total includes 250,000 miles traveled by local pick up and delivery
vehicles, 200,000 miles traveled by independent truckers under
contract, 20,000 miles traveled by wreckers and maintenance trucks
and 20,000 miles traveled by executive and supervisory automobiles.
What is the Fast Freight's exempt proration factor?
A.
B.
C.
D.
11.1048%
11.2460%
11.2500%
11.3625%
Explanation:
See “MOTOR CARRIERS, Special Tax
Considerations.” Motor vehicles engaged in interstate commerce…are
subject to tax only to the extent…the basis of the tax shall be the ratio
of intrastate mileage to interstate or foreign mileage traveled by the
carrier’s motor vehicles which were used in interstate or foreign
commerce and which had at least some Florida mileage.
All vehicle miles in the question qualify except wreckers and
maintenance vehicles and executive and supervisory cars for both
everywhere and Florida miles.
Everywhere
Florida
Total vehicle miles
20,000,000
2,250,000
Wreckers & Maint. Vehicles
(250,000)
(20,000)
Executive cars
(300,000)
(20,000)
Qualifying miles
19,450,000
2,210,000
Exempt Proration Factor
2,210,000 / 19,450,000 = .113625
Choice D is correct. See Explanation.
15-24
Program Training
2014
6. Motor Trucking Company is an intrastate trucking company that
operates in Florida. In 2005 records show Motor Trucking Company
vehicles traveled a total of 500,000 miles. All vehicles carry goods
intrastate (in Florida only). The most common travel is between
Pensacola, FL and Jacksonville, FL on Interstate 10. Included in the
mileage is:
10,000 miles traveled by the tow truck
20,000 miles traveled by the executive cars
5,000 miles traveled by the maintenance truck
What is the proration factor?
A. 35,000 miles (10,000 tow truck miles + 20,000 executive miles
+ 5,000 maintenance miles) divided by 500,000 total miles = .07
proration factor
B. 5,000 maintenance miles divided by the 500,000 total miles =
.01 proration factor.
C. 20,000 executive miles divided by the 500,000 total miles = .04
proration factor.
D. None of the above.
Explanation.
See “MOTOR CARRIERS, Special Tax
Considerations.” Motor vehicles and part thereof used exclusively in
intrastate commerce do not qualify for the proration of tax.
Choice A is incorrect. See “MOTOR CARRIERS, Special Tax
Considerations.”
Although tow truck, executive, and maintenance
mileage are not included in calculating the proration factor for tax,
Motor Trucking Company operates only in intrastate commerce and
does not qualify for proration of tax.
Choice B is incorrect. See “MOTOR CARRIERS, Special Tax
Considerations.” Although maintenance mileage is not included in
calculating the proration factor for tax, Motor Trucking Company
operates only in intrastate commerce and does not qualify for proration
of tax.
Choice C is incorrect. See “MOTOR CARRIERS, Special Tax
Considerations.” Executive vehicles are not included in calculation of
the proration factor. But Motor Trucking Company operates only in
intrastate commerce and does not qualify for proration of tax.
Choice D is correct. See Explanation.
2014
Program Training
15-25
7. Which one of the following vehicle mileages is never included in a
motor carrier’s calculation of their exempt proration factor.
A.
B.
C.
D.
Line-haul vehicle miles
Piggyback vehicle miles
Local-haul vehicle miles
Interchange vehicle miles
Explanation:
See “MOTOR CARRIERS, Special Tax
Considerations”. If the total miles traveled included “piggyback”
miles they total miles traveled must be reduced by the "piggyback"
miles before computing the Florida proration factor.
Choice B is correct.
See Explanation.
8. Air carriers operate in the same manner as motor carriers. The
major difference is that air carriers do not interchange. What
government authority regulates air carriers in Florida?
A.
B.
C.
D.
United States Department of Transportation
Florida Aviation Authority
Florida Department of Transportation
Federal Aviation Authority regulation
Explanation: See “AIR CARRIERS.” Air carriers are governed by
the Federal Aviation Authority (FAA).
Choice D is correct.
15-26
See Explanation.
Program Training
2014
MODULE SIXTEEN ADMISSIONS
OBJECTIVES
Upon completion of this module the participant will:
•
understand the business operations of taxpayers involved in
admissions; and
•
be able to determine the correct tax application for
taxpayers involved in admissions.
INTRODUCTION
Sales and Use Tax on admission charges generates a large portion of
Florida's tax revenues. The imposition of sales tax on admissions is
governed by Section 212.04, F.S., and Rule 12A-1.005, F.A.C. The
concept of a transaction involving an admission and the value given
for it is sometimes very straightforward, as with the purchase of a
movie ticket. Admissions at other times are not so obvious, as with
the charge for a sunset cruise or the membership fee to a country club.
The actual admission transaction is different from those related to
tangible personal property, real property or services. Therefore for
taxing purposes the legislature provides a definition of an admission.
Section 212.02(1), F.S., expresses that the term admission means and
includes the net sum of money after deduction of any federal taxes for
admitting a person or vehicle to any place of amusement, sport or
recreation or for the privilege of entering or staying in a place of
amusement, sport or recreational activity, such as theaters, shows,
exhibitions, games, races or any place where a charge is made by way
of ticket sales, gate charges, seat charges, box charges, season pass
charges, cover charges, greens fees, participation fees, entrance fees,
or other fees.
2014
Program Training
16-1
ADMISSIONS
An admission includes the receipt of anything of value, measured on
an admission, entrance or by the length of stay or seat box
accommodations in any place where there is any exhibition,
amusement, sport or recreation and all dues paid to private clubs
providing recreational facilities, including but not limited to golf,
tennis, swimming, yachting and boating facilities.
The tax implication on admissions may depend on whether the event is
conducted by a profit or a not-for-profit organization or a membership
organization with or without recreational facilities.
Special Tax Considerations
Admission Tickets
Admission tickets are required to indicate the actual sales price of the
admission on either the face of the ticket or prominently display the
price of the admission at the place where the admission charge is
collected. When the amount of the admission is not stated separately,
sales tax is calculated on the gross receipts received for each ticket.
The dealer will be given credit for any sales tax remitted. The dealer’s
effective sales tax rate is calculated (bracket system) on the actual
price of an individual ticket and not on combined total ticket sales.
Responsibilities of Agents and Principals
Admission charges are taxable unless specifically exempt. An agent
who collects admissions on behalf of a principal may forward the
collected tax funds to the principal to be remitted by the principal to
the Department. Both the principal and agent can be held liable for
any failure to timely remit such tax funds to the Department. An agent
shall not, however, be liable for its principal's failure to timely remit
tax funds to the Department if the agent has obtained the principal's
active Florida sales tax number and has disclosed in writing to the
principal that when such agent remits proceeds from the sale of an
admission to the principal the proceeds may include amounts that
represent admissions tax and that it is the principal's obligation to
timely remit any taxes due and owing to the Department.
16-2
Program Training
2014
Purchases of Admissions for Resale
Admissions may not be purchased tax exempt for resale. If an
admission is purchased and later resold at a higher price, tax must be
collected on both the purchase and the sale. A credit may be taken on
the dealer's tax return for tax paid on the purchase when the admission
is resold at a higher price.
Vacation Packages
No tax is due on the sale of a vacation package by a travel agent if the
components are not separately itemized and if applicable tax has been
paid on the initial purchase of all of the taxable components by the
travel agent. All components must be purchased by the travel agent.
If a travel agent itemizes the taxable components and sells them for
more than was paid for them the agent must register and collect and
remit tax, and take a credit for taxes previously paid.
If the admission dealer and the travel agent dealer are members of the
same controlled group of corporations, and the admission dealer sells
an admission to the related travel agent for less than the price charged
to unrelated travel agents, then the related travel agent is required to
itemize the components of the vacation package and collect tax. A
credit may be taken for previously paid taxes on the components of the
vacation package.
Cruises to Nowhere
Charges made by foreign-registered vessels carrying passengers to
international waters where passengers cannot disembark from the
vessel at points other than the origination point (cruises to nowhere)
are taxable. These charges are taxable because cruises to nowhere are
not considered transportation charges. Therefore, the charge is taxed as
an admission.
Party Boats and Head-Boats
Charges for the privilege of recreation, or sightseeing on party boats,
dinner boats, or other boats or vessels are taxable. Also taxable, are
charges for entering or staying upon a head-boat for the purpose of
fishing.
2014
Program Training
16-3
Chartered Fishing Boats
Charges made for chartering a boat or vessel, with crew furnished,
when chartered solely for the purpose of fishing are exempt
admissions under ss. 212.08(7)(y), F.S.
Air Commerce (TIP 12A01-10)
Admissions sold to individuals for sightseeing rides traveling in air
commerce are not subject to tax. Examples; helicopter, airplane, hot
air balloon rides, and skydiving are exempt.
General Tax Due Date (not an event)
Tax on admissions is due at the time of the sale of the admission on
the net sum of money after deduction of any federal taxes. The tax is
to be remitted to the Department on or before the 20th day of the
month following the month in which the admission was sold.
Tax Due Date - Exception for an “Event”
When an event is held at a convention hall, exhibition hall, auditorium,
stadium, theater, arena, civic center, performing arts center, or a
publicly owned recreational facility, the tax is not due and payable to
the Department of Revenue until the first day of the month following
the actual date of the event for which the admission is sold. The tax
becomes delinquent on the 21st day of the month following the actual
date of the event.
Tax must be collected from the ticket purchaser at the time of sale of
an admission. The tax paid on season and series tickets should be
apportioned among each event in the season or series and remitted to
the Department of Revenue accordingly.
Exempt Charges
No sales or use tax is due on the charges for:
16-4
•
State or locally imposed or authorized seat taxes, fees, and
surcharges imposed on the admission.
•
Separately stated ticket service charges imposed by a facility
ticket office or a ticketing service if added to a separately
stated, established ticket price.
Program Training
2014
EFFECTIVE JULY 1, 2000 - JUNE 30, 2009
RENEWED MAY 28, 2010 (taxable 7/1/09 – 5/27/10)
Exempt Events
No sales or use tax is due on the charges for admissions to an event
sponsored by a governmental entity, sports authority, or sports
commission when the event is held in a convention hall, exhibition
hall, auditorium, stadium, theater, arena, civic center, performing arts
center, or a publicly-owned recreational facility if:
•
•
•
100 percent of the funds at risk belongs to the sponsor;
100 percent of the risk of success or failure lies with the
sponsor; and
student or faculty talent is not exclusively used at the event.
The terms "sports authority" and "sports commission" mean a
nonprofit organization exempt from federal income tax under section
501(c)(3) of the Internal Revenue Code that contracts with a county or
municipal government for the purpose of promoting and attracting
sports-tourism events to the community.
MEMBERSHIP ORGANIZATIONS WITHOUT
RECREATIONAL FACILITIES
The Democratic and Republican parties are examples of political
organizations. They conduct regular meetings, and serve as an
information center for political candidates. They also raise funds for
their political parties.
Other membership organizations like the Rotary Club, Optimist Club,
Chamber of Commerce provide community service. These clubs are
made up of business people from the local community. Most of these
clubs meet in public places, and may maintain offices in several
locations. They have annual dues and fund raising events.
Social organizations include the Elks Club and the Moose Lodge.
They usually have a clubhouse where meals can be served. Most of
the social club organizations maintain facilities for serving food and
drinks. They also have annual dues for their members and may
sponsor local events.
2014
Program Training
16-5
Other clubs such as sewing, bowling and dancing are considered to be
organizations that operate without recreational facilities.
Special Tax Considerations
Membership dues paid to organizations that do not provide
recreational facilities are not subject to tax. Recreational facilities are
any place of amusement, sport, recreation, or entertainment.
Purchases, such as supplies and equipment, by these organizations are
fully taxable.
Sales of tangible personal property made by these organizations on a
regular basis and certain admission charges would be taxable.
Admissions to many fund-raising events are taxable. There is an
exception for organizations that are exempted by the federal
government, and have Internal Revenue Code (IRC) Section 501(c)(3)
status.
MEMBERSHIP ORGANIZATIONS WITH
RECREATIONAL FACILITIES
For Profit
Dues paid to any organization which provide physical fitness or
recreational facilities are taxable except when the organization is a s.
501(c)(3) organization or a hospital, both of which must qualify with
Rule 12A-1.005(3)(g) and (j), F.A.C.
Fees paid to clubs as a condition precedent to, in conjunction with, or
for the use of the club's recreational or physical fitness facilities are
taxable.
•
•
•
•
16-6
User fees.
Dining room minimum fees.
Social membership fees, unless charged to equity members.
Periodic fees required to be paid to use the clubs facilities.
Program Training
2014
Fees paid to clubs that do not entitle the payor to use of the club's
recreational or physical fitness facilities are not taxable.
•
•
•
•
•
•
Fees to establish or maintain handicaps or rankings.
Charges for professional instruction.
Capital assessments charged to persons who are, or seek to
become members.
Capital contributions paid by equity members.
Mandatory fees paid to condominium, homeowners', or
cooperative associations as a condition of ownership or
occupancy of real property and the club facilities are part of
the common elements or common areas of the real
property.
Refundable deposits recorded as liabilities to the
organization and evidenced by a promissory note, bond or
other written documentation.
For a fee to qualify as an "equitable ownership interest" in an
organization the interest must entitle a person to receive evidence of
ownership, the right to vote on member/owner issues, and the right to
receive a proportionate share of the organization's assets upon its
dissolution.
For a fee to qualify as "capital contributions, capital assessments, or
additional paid-in-capital" the payments must be intended as an
investment in the organization and do not, by themselves, entitle an
individual to use of the facilities.
Not For Profit
A not-for-profit organization will have a letter of determination from
the Internal Revenue Service (IRC) verifying that it qualifies as
exempt under the IRC. This letter of determination will cite the
section of the IRC that qualifies the organization as a tax-exempt
entity. Many organizations will also have a Florida Consumer's
Certificate of Exemption, issued by the Department of Revenue.
No tax shall be levied on dues, membership fees and admission
charges imposed by not-for-profit sponsoring organizations,
community, or recreation facilities when the organization making any
such charges is qualified under the provisions of Section 501(c)(3) of
the United States IRC of 1954, as amended.
2014
Program Training
16-7
The most common Section 501(c)(3) organizations are religious,
educational and charitable institutions. A chamber of commerce,
which is a 501(c)(6) organization, is not entitled to exemption on its
sale of admissions.
Civic, commercial, cooperative, fraternal, social, labor and veterans'
organizations (except state headquarters of nationally chartered
veteran organizations) are not exempt organizations under Chapter
212, F.S.
The greatest problem associated with membership
organizations arises with not-for-profit organizations. Most of these
membership organizations feel that, since they are exempt from the
federal income tax, they should automatically be exempt from the
Florida sales tax. They tend to improperly make sales and purchases
without collecting or paying tax. Because of this, sales and purchases
must be checked closely. The organization must register and be
approved by the Department for its Florida Consumer's Certificate of
Exemption prior to making any exempt purchases.
RECREATION, SPORTS, ENTERTAINMENT, AND
CULTURAL EVENTS AND FACILITIES
These events can range from football games and concerts to carnivals.
Sometimes the participants may be charged a fee or there may be a
charge to spectators for admission or both participants and spectators
may be charged fees.
The auditor must determine who (the entity) is responsible for the
event or program, for selling admissions, and whether or not the event
was sponsored before he or she can effectively begin auditing records.
When these determinations have been made, the auditor will be able to
apply the proper taxing measures.
When auditing an organization that sells admissions, the auditor must
establish control over all ticket sales. The auditor must review the
numbering sequence, ticket purchases from printers, internal controls
of ticket sales, and the sequence of the selling procedures to determine
whether or not the dealer's records are reliable. If all admissions are
not accounted for in the dealer's records the auditor must make
adjustments based on other relevant information, such as industry
averages, size of the facility used, weather, or newspaper reports
concerning attendance. Unlike reviewing records of dealers of
tangible personal property, the records for dealers of admissions are
not easily verified, documented or controlled.
16-8
Program Training
2014
Special Tax Considerations
If participants of an event are charged a fee and no charge is made for
spectators (admissions), the tax is collected on the participation fee. If
fees are charged for both participation and admission, the tax is
collected on the admission fee and the participation fee is not subject
to tax. Free passes are exempt, unless the passes are provided as part
of a barter arrangement.
Participation fees or sponsorship fees imposed by governmental
entities that sponsor and administer athletic or recreational structured
programs are exempt when the program is administered, planned,
supervised, directed, and controlled by the government entity.
No tax shall be levied on participant fees and admission charges
imposed by not-for-profit sponsoring organizations, community, or
recreation facilities when the organization making any such charges
are qualified under the provisions of Section 501(c)(3) of the United
States Internal Revenue Code of 1954, as amended.
Any performance in Florida for which the operator claims exemption
on admission charges must be supported by proof that such
performance was or is sponsored by an organization that has IRS
Section 501(c)(3) status and that the admissions were sold by the
sponsoring organization.
Admissions to the following are exempt by statute:
2014
•
Admissions to National Football League championship
games are exempt [s. 212.04(2)(a)4., F.S.].
•
any semifinal game or championship game of a national
collegiate tournament [s. 212.04(2)(a)4., F.S.];
•
any Major League Baseball all-star game [s. 212.04(2)(a)4.,
F.S.]; or,
•
any postseason collegiate football game sanctioned by the
National Collegiate Athletic Association [s. 212.04(2)(a)9.,
F.S.].
Program Training
16-9
SUMMARY
Admission sales and the various entities involved with them were
discussed in this module. Membership organizations have different
tax considerations depending on several factors relating to their nature
and facilities. Recreation, sports, entertainment and cultural events
encompass a wide range of activities and facilities. The taxability of
events is dependent on the sponsor and the structure of admission
charges.
16-10
Program Training
2014
SELF – CHECK QUESTIONS
1. The charge for chartering a boat or vessel exclusively for fishing
with crew furnished is:
A.
B.
C.
D.
A taxable admission.
An exempt admission.
A taxable rental.
A taxable service.
2. Which of the following is true when addressing the tax treatment
on the sale of admissions?
A.
B.
C.
D.
the same as the sale of tangible personal property.
exempt unless specifically taxed by statute.
not exempt when purchased for resale.
the same as the sale of real property.
3. An organization with IRC Section 501(c)(3) status is:
A.
B.
C.
D.
2014
exempt from federal taxation.
exempt from Florida sales tax.
exempt from Florida use tax.
all of the above.
Program Training
16-11
4. Dues charged by membership organizations without recreational
facilities are:
A. taxable if the organization is not registered with the DOR.
B. exempt only if the organization is registered with the
DBPR.
C. exempt from tax imposed on admissions.
D. none of the above.
5. When a not-for-profit charitable organization that has IRC Section
501(c)(3) status sells tee shirts to its members, the sale is:
A. exempt.
B. taxable.
C. exempt, but only if the organization also has a Florida
Consumer's Certificate of Exemption.
D. exempt if sold for what they cost or less.
6. Because the Florida Chamber of Commerce is a not-for-profit
organization and has IRC Section 501(c)(6) status,
A.
B.
C.
D.
admissions to its fund-raising events are exempt.
purchases of supplies are exempt.
sales of meals at its weekly luncheons are exempt.
none of the above.
7. A Florida church group traveled by bus to Sea World in Orlando.
The members personally paid a charter bus company for the round
trip bus fare and the Sea World admission fees. How should these
charges be treated for sales tax purposes?
A.
B.
C.
D.
16-12
both charges are exempt.
both charges are taxable.
the bus fare is exempt and the admission fee is taxable.
the bus fare is taxable and the admission fee is exempt.
Program Training
2014
8. When an automobile dealership sponsors a golf tournament, how
are the charges handled?
A.
B.
C.
D.
both the participation and admission fees are taxable.
only the admission fees are taxable.
only the participation fees are taxable.
both the participation and admission fees are exempt .
9. A travel agent sells the following package deal. For $1,200, the
customer receives seven days and nights room accommodations
and three meals a day at Disney World, passes to the Magic
Kingdom and the unlimited use of a rental car. The travel agent
purchased the use of a rental car for one week for $50, room
accommodations for $300, meals for $200 and Magic Kingdom
passes for $200.
A. Because the agent sold the package for more than it cost the
$1,200 package price is taxable but the components may be
purchased tax exempt.
B. Tax should be paid on purchases of taxable components of the
package and the package price is exempt.
C. Tax should be paid on the purchase costs and tax should be
collected on the sales price. The agent should take a credit on
his tax return for taxes paid on the purchases.
D. Both the components of the purchase and the sale of the
package are exempt.
10. A vessel charges passengers to take them into international waters
and does not allow the passengers to disembark from the vessel
other than upon returning to the origination point. How should this
charge be treated for tax purposes?
A. This charge is exempt from tax since it is considered a
transportation charges.
B. This charge is taxable as a cruise to nowhere and is not
considered transportation charges.
C. This charge is taxable if the vessel offers recreational
facilities on board.
D. None of the above.
2014
Program Training
16-13
16-14
Program Training
2014
SELF-CHECK ANSWERS
1. The charge for chartering a boat or vessel exclusively for fishing
with crew furnished is:
A.
B.
C.
D.
A taxable admission.
An exempt admission.
A taxable rental.
A taxable service
Explanation: See “ADMISSIONS, Special Tax Considerations.”
This is an admission that is specifically exempt. Although the charge
for chartering a boat or vessel exclusively for fishing with crew
furnished may appear to be a service, it is defined as an admission and
specifically exempt by Section 212.08(7)(y) F.S.
Choice A is incorrect.
See “ADMISSIONS, Special Tax
Considerations.” Charges made for chartering a boat or vessel, with
crew furnished, when chartered solely for the purpose of fishing are
exempt admissions.
Choice B is correct.
See “ADMISSIONS, Special Tax
Considerations.” Also see: Section 212.08(7)(y), F.S., expresses
“...the charge for chartering any boat or vessel, with the crew
furnished, solely for the purpose of fishing is exempt from the tax
imposed under s. 212.04 or s. 212.05...”, and Rule 12A-1.005(3)(k)2.,
F.A.C., expresses “the charge made by an owner or operator for
chartering any boat or vessel, with a crew furnished, solely for the
purpose of fishing is exempt.”
Choice C is incorrect. Rental of tangible personal property, without an
operator, would be taxable. However, when tangible personal property
is furnished with an operator or “chartered” the transaction is an
exempt service. Also this is not a rental, but a specifically exempt
admission.
2014
Program Training
16-15
Choice D is incorrect. See Module 12. The only services in Florida
that are subject to tax are nonresidential pest control services described
in Rule 12A-1.009, F.A.C., nonresidential cleaning services described
in Rule 12A-1.0091, F.A.C., and detective burglar protection, and
other protection services described in Rule 12A-1.0092, F.A.C.
2. Which of the following is true when addressing the tax treatment on
the sale of admissions?
A.
B.
C.
D.
the same as the sale of tangible personal property.
exempt unless specifically taxed by statute.
not exempt when purchased for resale.
the same as the sale of real property.
Explanation:
See “Special Tax Considerations, Purchases of
Admissions for Resale”. Admissions may not be purchased tax
exempt for resale.
Choice A is incorrect. Tangible personal property is personal property
that may be seen, measured, weighed, or touched and in any manner
that is perceptible to the senses. The sale of tangible personal property
is addressed in 212.05(1)(a), F.S., whereas Admissions are addressed
in Section 212.04, F.S.
Choice B is incorrect. See “Special Tax Considerations”. Admissions
are taxable unless specifically exempt. The burden of proof for
exemptions from tax is the taxpayer’s responsibility. Section
212.08(13), F.S., states that no transactions shall be exempt from the
tax except those expressly exempted.
Choice C is correct. See “Special Tax Considerations”: Admissions
may not be purchased tax exempt for resale, as stated in part in Section
212.04(1)(c), F.S.
Choice D is incorrect. Real Property means the surface land,
improvements thereto, and fixtures, and is synonymous with realty and
real estate. Real Property Remtal is addressed under Section 212.031,
F.S. and Admissions are addressed in Section 212.04, F.S.
16-16
Program Training
2014
3. An organization with IRC Section 501(c)(3) status is:
A.
B.
C.
D.
exempt from federal taxation.
exempt from Florida sales tax.
exempt from Florida use tax.
all of the above.
Explanation: IRC Section 501(c)(3) organizations are only exempt
from federal taxation. They must be registered and approved by the
Department for their Consumer’s Certificate of Exemption prior to
making any exempt purchases.
Choice A is correct. Exempt from federal taxation are not-for-profit
organization that are qualified under Section 501(c)(3) of the United
States IRC of 1954, as amended.
Choice B is incorrect.
Sales of tangible personal property by
501(c)(3) organizations are subject to tax (except by churches).
501(c)(3) organizations can make sales of admissions tax exempt.
Choice C is incorrect. Section titled “NOT FOR PROFIT” states that
a not-for-profit organization must register and be approved by the
Department for its Florida Consumer’s Certificate of Exemption prior
to making any exempt purchases.
Choice D is incorrect since only choice A is correct.
4.
Dues charged by
recreational facilities are:
membership
organizations
without
A. taxable if the organization is not registered with the DOR.
B. exempt only if the organization is registered with the
DBPR.
C. exempt from the tax imposed on admissions.
D. none of the above.
Explanation: See “MEMBERSHIP ORGANIZATION WITHOUT
RECREATIONAL FACILITIES.” Dues charged by membership
organizations without recreational facilities are exempt per Rule 12A1.005(4)(f), F.A.C.
Choice A is incorrect. See explanation. Also, Module 3 expresses that
a basic requirement for registration is that an organization should have
sales that are subject to tax.
2014
Program Training
16-17
Choice B is incorrect.
consequence.
Being registered with DBPR is of no
Choice C is correct. See explanation and Rule 12A-1.061(6), F.A.C.,
regarding membership payments.
Choice D is incorrect. Choice C above is correct.
5. When a not-for-profit charitable organization that has IRC Section
501(c)(3) status sells tee shirts to its members, the sale is:
A. exempt.
B. taxable.
C. exempt, but only if the organization also has a Florida
Consumer's Certificate of Exemption.
D. exempt if sold for what they cost or less.
Explanation: A not-for-profit charitable organization that has IRC
Section 501(c)(3) status is not exempt from tax on sales of tangible
personal property. Sale of tangible personal property is taxable under
section 212.05(1)(a), F.S.
Choice A is incorrect. See explanation.
Choice B is correct. The exemption for sales of admissions by
501(c)(3) organizations in Section 212.04, F.S., does not apply to the
sale of tangible personal property.
Choice C is incorrect. Section titled “NOT FOR PROFIT” states that
a not-for-profit organization must register and be approved by the
Department for its Florida Consumer’s Certificate of Exemption prior
to making any exempt purchases.
Choice D is incorrect. See “Special Tax Considerations.” This is of
no consequence to the sale of tangible personal property by a 501(c)(3)
organization.
16-18
Program Training
2014
6. Because the Florida Chamber of Commerce is a not-for-profit
organization and has IRC Section 501(c)(6) status,
A.
B.
C.
D.
admissions to its fund-raising events are exempt.
purchases of supplies are exempt.
sales of meals at its weekly luncheons are exempt.
none of the above.
Explanation: See “NOT FOR PROFIT.” The greatest problem
associated with membership organizations arises with not-for-profit
organizations. Even though they are exempt from federal income tax,
they are not automatically exempt from Florida Sales Tax.
Choice A is incorrect. See section “NOT FOR PROFIT.” A chamber
of commerce, which is a 501(c)(6) organization, (not a 501(c)(3)), and
is not entitled to exemption on its sale of admissions.
Choice B is incorrect. See section “NOT FOR PROFIT.” The
organization must register and be approved by the Department for its
Consumer’s Certificate of Exemption prior to making any exempt
purchases. A 501(c)(6) organization would not qualify.
Choice C is incorrect. Section 212.05(1) imposes sales tax on tangible
personal property even if sold by the chamber of commerce.
Choice D is correct. See section “NOT FOR PROFIT.” The
organization must register and be approved by the Department for its
Florida Consumer’s Certificate of Exemption prior to making any
exempt purchases. Choice A, B, and C are incorrect for reasons stated
above.
7. A Florida church group traveled by bus to Sea World in Orlando.
The members personally paid a charter bus company for the round trip
bus fare and the Sea World admission fees. How should these charges
be treated for sales tax purposes?
A.
B.
C.
D.
2014
both charges are exempt.
both charges are taxable.
the bus fare is exempt and the admission fee is taxable.
the bus fare is taxable and the admission fee is exempt.
Program Training
16-19
Explanation: See “Special Tax Considerations.” Admission charges
are taxable unless specifically exempt. Although certain organizations
may be exempt from tax on admissions, individual members of the
organization paying separately (personally) are not exempt from tax.
Choice A is incorrect. See “Special Tax Consideration.” Admissions
are taxable unless specifically exempt. The admission to Sea World is
taxable. Rule 12A-1.005(3)(l), F.A.C. , excludes charter bus fare from
taxable admissions. The bus fare is an exempt transportation charge.
See Module 15.
Choice B is incorrect. The bus fare is not taxable. See Rule 12A1.005(3)(l), F.A.C.
Choice C is correct. See “Special Tax Considerations.” Admissions
are taxable unless specifically exempt. Section 212.04, F.S. imposes
the tax on admissions to individuals. Charter bus fare is exempt per
Rule 12A-1.005(2)(j), F.A.C. See Module 15.
Choice D is incorrect. The Charter bus fare is exempt and the
admissions are taxable unless specifically exempt, but only when sold
to an exempt organization with a Consumer’s Certificate of
Exemption.
8. When an automobile dealership sponsors a golf tournament, how are
the charges handled?
A.
B.
C.
D.
both the participation and admission fees are taxable.
only the admission fees are taxable.
only the participation fees are taxable.
both the participation and admission fees are exempt .
Explanation: See “RECREATION, SPORTS, ENTERTAINMENT,
AND CULTURAL EVENTS AND FACILITIES.” The organization
sponsoring a recreational or sports entertainment that charges
admission and participation fees will collect tax on the admission fee
but not the participation fee.
Choice A is incorrect. See “Special Tax Considerations.” If charges
are made for both for both admissions and participation fees, the
participation fee is not subject to tax.
16-20
Program Training
2014
Choice B is correct. See “Special Tax Considerations.” If fees are
charged for both participation and admission, the tax is collected on
the admission fee, but not the participation fee.
Choice C is incorrect. See “Special Tax Considerations.” If no charge
is made for the admission fee, but a fee is charged to the participants,
the participation fees are taxable. In this case, there is an admission
fee charged also.
Choice D is incorrect. See “Special Tax Considerations.” If charges
are made for both for both admissions and participation fees, the
participation fee is not subject to tax.
9. A travel agent sells the following package deal. For $1,200, the
customer receives seven days and nights room accommodations and
three meals a day at Disney World, passes to the Magic Kingdom and
the unlimited use of a rental car. The travel agent purchased the use of
a rental car for one week for $50, room accommodations for $300,
meals for $200 and Magic Kingdom passes for $200.
A. Because the agent sold the package for more than it cost the
$1,200 package price is taxable but the components may be
purchased tax exempt.
B. Tax should be paid on purchases of taxable components of
the package and the package price is exempt.
C. Tax should be paid on the purchase costs and tax should be
collected on the sales price. The agent should take a credit
on his tax return for taxes paid on the purchases.
D. Both the components of the purchase and the sale of the
package are exempt.
Explanation: Package deals sold by travel agents are not taxable to
the customer, but the travel agent must pay tax on the costs of all the
applicable components of the package.
Choice A is incorrect. See “Special Tax Considerations.” Package
deals sold by travel agents are not taxable to the customer, but the
travel agent must pay the tax on the costs of all the applicable
components of the package.
2014
Program Training
16-21
Choice B is correct. See “Special Tax Considerations.” No tax is due
on the sale of a vacation package by a travel agent if the components
are not separately itemized and if applicable tax has been paid on the
initial purchase of ALL taxable components by the travel agent.
Choice C is incorrect. See “Special Tax Considerations.” The lump
sum sale of a vacation package is exempt.
Choice D is incorrect. Choice B above is correct. Also see “Special
Tax Considerations” – Use Tax is due on the taxable components of
the vacation package.
10. A vessel charges passengers to take them into international waters
and does not allow the passengers to disembark from the vessel other
than upon returning to the origination point. How should this charge
be treated for tax purposes?
A. This charge is exempt from tax since it is considered a
transportation charges.
B. This charge is taxable as a cruise to nowhere and is not
considered transportation charges.
C. This charge is taxable if the vessel offers recreational facilities
on board.
D. None of the above.
Explanation: See “Special Tax Considerations.” Charges made by
vessels carrying passengers to international waters where passengers
cannot disembark from the vessel at points other than the origination
point (cruises to nowhere) are taxable admissions.
Choice A is incorrect. See “Special Tax Considerations.” These
charges are taxable because cruises to nowhere are not considered
transportation charges.
Choice B is correct. See explanation.
Choice C is incorrect. The charges are taxable regardless of whether
recreational facilities are offered for the passengers.
Choice D is incorrect since Choice B is correct.
16-22
Program Training
2014
ADMISSIONS
MEMBERSHIP ORGANIZATIONS WITHOUT RECREATION
FACILITIES
POLITICAL BUSINESS SOCIAL
DUES
Exempt
Exempt
Exempt
SALES
Taxable
Taxable
Taxable
ADMISSIONS TO
FUND RAISING
EVENTS *
Taxable
Taxable
Taxable
PURCHASES
Taxable
Taxable
Taxable
MEMBERSHIP ORGANIZATIONS WITH RECREATION
FACILITIES
PROFIT
NONPROFIT
INITIATION FEES
Taxable
Taxable *
REGULAR DUES
Taxable
Taxable *
CAPITAL ASSESSM’T
EQUITABLE INTEREST
(see pg. 17-6 & 7)
Exempt
Exempt
SPAS, TENNIS, GREEN
FEES, POOL,
Taxable
Taxable *
SALES AND RENTALS
OF TPP
Taxable
Taxable
ADMISSIONS TO FUND
RAISING EVENTS,
Taxable
Taxable * / ***
OTHER PURCHASES
Taxable
Taxable **
*
**
***
2014
EXEMPT IF CHARGED BY 501(C)(3) ORGANIZATIONS
EXEMPT IF A HOLDER OF A CONSUMER CERTIFICATE
OF EXEMPTION
MEALS/FUND RAISING EVENTS, MODULE 9
Program Training
16-23
RECREATIONAL, SPORTS ENTERTAINMENT AND
CULTURAL EVENTS AND FACILITIES
PROFIT
NONPROFIT
ADMISSIONS FEE
(NO PARTICIPANTS FEE)
Taxable
Taxable*
PARTICIPATION FEE
(ADMISSION IS FREE)
Taxable
Taxable *
Taxable
Exempt
Taxable *
Exempt
Taxable
Taxable **
BOTH A PARTICIPATION
AND ADMISSION FEE:
ADMISSION FEE
PARTICIPATION FEE
PURCHASES (not for resale)
*
**
16-24
EXEMPT IF CHARGED BY 501(C)(3) ORGANIZATIONS
EXEMPT IF A HOLDER OF A CONSUMER CERTIFICATE
OF EXEMPTION
Program Training
2014
MODULE SEVENTEEN
MANUFACTURING & FARMING
OBJECTIVES
Upon completion of this module, the participant will:
•
understand the business operations of manufacturers;
•
be able to determine the correct tax application of
manufacturers; and
•
understand the tax application for power farm equipment.
INTRODUCTION
Although there is a great degree of diversification among Florida
manufacturers, there are also many similarities. Regardless of the
product manufactured, they all produce, compound, process, fabricate,
refine, or assemble tangible personal property.
Generally, manufacturers purchase raw materials in bulk. The
materials are refined (cut, chemically treated, painted, mixed, heated,
etc.). A manufactured product may be sold ready for consumption,
sold requiring further fabrication, sold for incorporation into another
product, or even used by the manufacturer.
Most manufacturers have a large investment in machinery and
equipment. Because of competitive pressure and changing technology,
the purchase of new and replacement items is an ongoing process.
2014
Program Training
17-1
MANUFACTURERS
Special Tax Considerations
Regardless of the type of manufacturer, there is a basic concept that
can be applied universally, the manufacturing exemption. Simply
stated, items of tangible personal property which intentionally become
a component part or ingredient of a manufactured item for sale, are
exempt. This basic exemption is extended to packaging and labeling
materials that accompany the manufactured item and are for one time
use. Brochures, catalogs, price lists, point-of-sale advertising that
accompany products being sold to advertise other products for sale are
not materials used for packaging tangible personal property for sale and
are subject to tax.
Another basic concept concerns the taxability of items that are
dissipated in the manufacturing process and do not become a
component part or ingredient of the manufactured goods. These items
are subject to tax at cost.
Dual use items used for both purposes listed above are encountered
frequently in manufacturing and should be prorated. Such as
packaging materials that are used to warehouse goods in inventory and
those that go with goods for resale. Packaging materials used to store
goods are subject to sales tax. Packaging materials that are go with
goods for resale and meet the one time use criteria are exempt.
Sales and Use Tax Exemption for Purchases of Industrial
Machinery and Equipment
Effective April 30, 2014, an exemption from sales and use tax is
available for purchases of industrial machinery and equipment used at
a fixed location in Florida by an eligible manufacturing business that
will manufacture, process, compound, or produce for sale items of
tangible personal property. The exemption also includes parts and
accessories for the industrial machinery and equipment if they are
purchased before the date the machinery and equipment are placed in
service.
An “eligible manufacturing business” means any business whose
primary business activity at the location where the industrial
machinery and equipment are located is within the industries classified
under manufacturing NAICS (North American Industry Classification
System) codes 31, 32, and 33 published in 2007 by the Office of
17-2
Program Training
2014
Management and Budget, Executive Office of the President. The
primary business activity of an eligible business is that activity which
represents more than 50 percent of the activities conducted at the
location where the industrial machinery and equipment are located.
Examples of types of manufacturing establishments represented by the
applicable NAICS codes include, but are not limited to, food, apparel,
wood, paper, printing, chemical, pharmaceutical, plastic, rubber,
metal, transportation, and furniture.
The selling dealer (vendor) should obtain a signed certificate from the
purchaser certifying the purchaser’s entitlement to tax exemption
under the exemption statute. The signed certificate will relieve the
selling dealer of any potential tax liability on nonqualifying purchases.
Qualifying purchases made after the effective date of the exemption
are eligible for refund of any tax paid under the refund provisions
provided by section 215.26, F.S., and Rule 12A-1.014, F.A.C.
The exemption is scheduled for repeal effective April 30, 2017.
This exemption does not replace the exemption provided for
qualifying purchases by a new or expanding business under section
212.08(5)(b) and (d), F.S. Each of these exemptions remains in effect
under current statute without change.
Exempt Repairs
Parts, materials and labor used and incorporated in the repair of
machinery and equipment are exempt for many manufacturing
companies. To qualify for the exemption the industrial machinery
being repaired must be used to manufacture or prepare for shipping
tangible personal property. Also, the manufacturer’s standard industry
code must in one of the following major industry groups: 10, 12, 13,
14, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38,
39 and industry group 212.
The specifics of this exemption are discussed in the Repair of Tangible
Personal Property module.
2014
Program Training
17-3
Fabricated Cost
When a dealer fabricates tangible personal property for their own use
at a manufacturing facility use tax is due on the fabricated cost of the
product. The fabricated cost includes:
•
•
•
direct materials & related freight and handling
direct labor cost including payroll burden
production service costs
Equipment Used In Production of Electrical or Steam Energy
The purchase of equipment for use at a fixed location that is necessary
in the production of electrical or steam energy resulting from the
burning of boiler fuels other than residual oil is exempt from tax. Such
electrical or steam energy must be primarily for use in manufacturing
items of tangible personal property for sale. Use of a de minimis
amount of residual fuel to facilitate the burning of nonresidual fuel is
permitted.
In facilities where equipment is necessary to burn both residual and
nonresidual fuels, the exemption shall be prorated. Such proration
shall be based upon the production of electrical or steam energy from
nonresidual fuels as a percentage of electrical or steam energy from all
fuels. If it is determined that 15 percent or less of all electrical or
steam energy generated was produced by burning residual fuel, the full
exemption shall apply.
Purchasers of equipment qualifying for the exemption shall furnish the
vendor with an affidavit stating that the item or items to be exempted
meet the qualifications.
Manufactured Electric and Steam Energy Used in Manufacturing
and Pollution Control
Any person who manufactures or produces energy, including electrical
or steam that is used for space heating, lighting, office equipment, or
air conditioning, or any other non-manufacturing, non-processing,
non-compounding, non-producing, non-fabricating, or non-shipping
activity must pay a tax based upon the cost as defined in Section
212.06, F. S., cost price.
17-4
Program Training
2014
The tax does not apply to electrical power or energy, steam energy, or
other energy manufactured or produced for a person's own use at a
single location, when such power or energy is used directly and
exclusively at such location, or at other locations if the energy is
transferred through facilities of the owner in the operation of
machinery or equipment that is used to manufacture, process,
compound, produce, fabricate, or prepare for shipment tangible
personal property for sale or to operate pollution control equipment,
maintenance equipment, or monitoring or control equipment used in
such operations.
Electrical power or energy generated by a business which is
transmitted through the facilities of a public utility is taxable based
upon the cost price of the power or electricity.
Purchased Electricity Used in Manufacturing
Charges for electricity used at a fixed location to operate the following
are exempt:
•
machinery and equipment used to manufacture, process,
compound, or produce items of tangible personal property for
sale;
•
machinery used to prepare tangible personal property for
shipment;
•
pollution control equipment, recycling equipment, maintenance
equipment, or monitoring or control equipment used in such
operations.
Subject to the following limitations and conditions:
•
2014
a taxpayer's SIC Code must be within the following major
group numbers: 10, 12, 13, 14, 20, 22, 23, 24, 25, 26, 27, 28,
29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39 and industry group
212.
Program Training
17-5
The amount of the exemption for electricity used in the manufacturing
process is based on the percentage of electricity used in the
manufacturing process. The following table lists percentages of
electricity used and the applicable exemption amount:
% of Electricity
Used In
Manufacturing
% of
Exempt
Electricity
At least 75%
at least 50% and less than 75%
less than 50%
100%
50%
0%
Separate metering can be used to establish that a facility meets
the 50% or 75% exemption threshold. A taxpayer may
establish the percentage by providing any satisfactory
documentation, such as engineering reports.
Taxpayers may claim the exemption by providing their electricity
provider with a written certification of entitlement to the statutory
exemption.
Any business that is claiming the exemption from sales tax on
purchases of electricity or steam must submit written certification to its
electricity or steam provider that it is entitled to the exemption. The
certification relieves the seller from the responsibility of collecting tax
on exempt charges. The Department will look solely to the purchaser
for recovery of the tax if the purchaser is not entitled to the exemption.
Semiconductor, Defense and Space Technology Production
Semiconductor, defense, or space technology facilities must be
certified by the Office of Tourism, Trade, and Economic Development
(OTTED) to qualify for the exemptions provided by Florida laws.
Prior to May 30, 2006 the business had to apply for certification
annually. On or after May 30, 2006 certification will be valid for two
calendar years. A certification can be renewed every two years by
submitting a sworn statement to OTTED that there has been no
material change in the conditions or circumstances entitling the
business entity to the original certification.
17-6
Program Training
2014
Following issuance of an original certification, or biennial renewal of
an existing certification, the Department will issue the certified facility
a temporary tax exemption permit that will be valid for two calendar
years. This permit allows certified facilities to conduct purchase or
lease transactions for qualifying machinery and equipment tax exempt.
Semiconductor Technology Facilities
Qualifying industrial machinery and equipment purchased or leased by
certified semiconductor technology facilities to manufacture
semiconductor technology products or to predominately perform
research and development is exempt.
The exemption also includes building materials purchased for use in
manufacturing or expanding clean rooms in semiconductor
manufacturing facilities. A clean room is defined as a manufacturing
facility enclosed in a manner that meets the clean manufacturing
requirements necessary for high-technology semiconductormanufacturing environments.
Defense or Space Technology Facilities
Effective May 30, 2006, certified defense and space technology
facilities became fully exempt from tax on qualifying purchases or
leases of industrial machinery and equipment that is used to design,
manufacture, assemble, process, compound, or produce defense
technology products or space technology products for sale or use by
these facilities. Also, qualifying purchases or leases of machinery and
equipment that will be used predominantly in research and
development are exempt. Purchase transactions completed, or lease
payments required to be made, prior to May 30, 2006, only qualify for
a 25 percent exemption from tax on qualifying machinery and
equipment.
The definition of “space technology products” includes space flight
vehicles and the components of any of the following: space launch
vehicles; space flight vehicles; missiles; satellites or research payloads;
avionics; and, associated control systems and processing systems.
2014
Program Training
17-7
Research and Development
Effective July, 1, 2006, certification by OTTED will no longer be
required for semiconductor, defense, or space technology facilities to
make tax-exempt purchases or leases of machinery and equipment that
will be used predominantly in research and development activities.
To purchase or lease qualifying machinery and equipment for use in
research and development tax-exempt, the purchaser or lessee must
issue an exemption certificate or direct pay permit to the selling dealer.
For purposes of this exemption, “research and development” means
research that has one of the following as its ultimate goal.
Basic research in a scientific field of endeavor;
Advancing knowledge or technology in a scientific or technical field
of endeavor;
The development of a new product, whether or not the new product is
offered for sale;
The improvement of an existing product, whether or not the improved
product is offered for sale;
The development of new uses of an existing product, whether or not a
new use is offered as a rationale to purchase the product; or
The design and development of prototypes, whether or not a resulting
product is offered for sale.
Pollution Control
Facilities, devices, fixtures, equipment or machinery used primarily for
pollution control in manufacturing or industrial, plants or installations,
may be eligible for an exemption from tax.
The following are exempt, if required by a law implemented by or a
permit issued by the Department of Environmental Protection (DEP):
•
17-8
any facility, device, fixture, equipment, or machinery used
primarily for pollution control by businesses engaged in
manufacturing, processing, compounding, or producing articles
of tangible personal property at a fixed location;
Program Training
2014
•
equipment, machinery, and materials for pollution or
contaminant monitoring, prevention, abatement, or control by
privately owned or operated landfills and construction and
demolition debris disposal facilities; and
•
specialty chemicals or bioaugmentation products used
primarily for control or abatement of pollution or contaminates
in wastewater in manufacturing, processing, compounding, or
producing items of tangible personal property at fixed
locations.
Solid waste collection vehicles, compactors, graders, and earthmovers
are excluded from the exemption. The purchase of equipment,
machinery, or materials must meet a law implemented by or a
condition of a permit issued by DEP for the monitoring, prevention,
abatement, or control of pollution or contaminants.
QUALIFIED POWER FARM EQUIPMENT
The sale, rental, lease, use, consumption or storage for use of
qualifying power farm equipment is exempt from sales tax. Repairs of
power farm equipment and purchases of parts to repair power farm
equipment remain subject to sales tax and discretionary sales surtax.
“Power farm equipment” includes: moving or stationary equipment
that contains within itself the means for its own propulsion or power;
and moving or stationary equipment that is dependent upon an external
power source to perform its functions.
The “power farm equipment” must be for exclusive use: on a farm or
in a forest for plowing, planting, cultivating, or harvesting crops or
products produced by agricultural industries included in s. 570.02(1),
F.S.; or for fire prevention and suppression work for such crops or
products.
Examples of qualifying “power farm equipment” include: augers,
combines, conveyors, disks, dozers, feeding systems, harrows, hay
balers, irrigation motors, mowers, plows, pumps, skidders, and
tractors. The exemption now includes generators and power units used
for a qualifying exempt purpose.
2014
Program Training
17-9
The exemption will only be allowed when the purchaser furnishes the
seller with a written statement certifying that the equipment is
purchased for exclusive use on a farm or in a forest for plowing,
planting, cultivating, or harvesting crops or products as produced by
agricultural industries, or for fire prevention and suppression work
with respect to such crops or products.
Electricity Used for Agricultural Purposes
Effective July 1, 2006, electricity used directly and exclusively for the
production or processing of agricultural farm products on a farm is
exempt.
Effective July 1, 2007 the exemption was expanded and now also
applies to electricity used for indirect purposes in the production or
processing of farm products on a farm. Indirect use includes electricity
used to: supply power to facilities located on a farm used to repair
farm equipment, supply power to administrative offices located on the
farm, and supply power for restroom facilities located on a farm.
Effective January 1, 2013, the exemption for the use of electricity is
expanded to include; electricity used for the packing of agricultural
products on a farm or electricity used in a packinghouse for the
production, packing, or processing of agricultural products, including
packinghouses that are not located on a farm. “Packinghouse” means
any building or structure where fruits, vegetables, or meat from cattle
or hogs are packed or otherwise prepared for market or shipment in
fresh form for wholesale distribution.
The exemption does not apply to electricity used in buildings or
structures where agricultural products are sold at retail. The exemption
only applies if the electricity is separately metered from any electricity
used for purposes other than production, packing or processing (such
as in a retail facility), or other non-exempt use.
This exemption only applies if the electricity is separately metered
from the electricity used for non-production or non-processing
purposes such as in a retail facility or other non-exempt use. If the
electricity is centrally metered and the electricity is used for both taxexempt and taxable purposes, the purchase of the electricity is subject
to tax.
“Farmer” means a person who is directly engaged in the business of
producing crops, livestock, or other agricultural commodities. The
17-10
Program Training
2014
term includes, but is not limited to, horse breeders, nurserymen, dairy
farmers, poultry farmers, cattle ranchers, apiarists, and persons raising
fish. (Section 212.02(28), Florida Statutes)
“Processing for agricultural purposes” means the act of changing or
converting the nature of a product after it has been harvested. (Rule
12A-1.087(2)(g), Florida Administrative Code)
Examples of tax-exempt uses of electricity include electricity used to
supply power to farm equipment used directly and exclusively in
producing or processing agricultural products on a farm. Examples of
production equipment include, but are not limited to, irrigation pumps,
milking machines, potting equipment, feeding systems, aerators, and
computerized monitoring equipment. Examples of processing
equipment include, but are not limited to, conveyors, chillers, freezers,
packaging equipment, and computerized processing equipment.
Other tax-exempt uses include electricity that is separately metered
and used to supply power to greenhouses, poultry houses, dairy barns,
horse stables, and processing facilities located on a farm.
If a farmer operates a retail facility in conjunction with a farming
operation, the tax-exempt electricity used for production or processing
operations must be separately metered from the taxable electricity used
in the retail facility to qualify for the exemption.
To qualify for the exemption, the purchasing farmer must furnish the
utility provider with an exemption certificate stating that the electricity
will be used directly and exclusively for the production or processing
of agricultural farm products on a farm. In instances where the utility
provider accepts an exemption certificate in good faith, the
Department will look to the purchaser for any applicable tax, penalty,
or interest due.
2014
Program Training
17-11
SUMMARY
Manufacturers produce, compound, process, fabricate, refine, or
assemble tangible personal property for sale or for their use.
There are many exemptions provided to qualifying manufacturers for
purchases of machinery and parts and accessories to industrial
machinery. Many manufacturers qualify for exempt repairs to
equipment and fabricated and purchased electricity when it is used in
the manufacturing process.
There are also specific exemptions for purchases in semiconductor
industry, defense and space technology production, equipment used in
research and development, and pollution control.
Qualified power farm equipment and electricity for agricultural
purposes is now exempt from sales tax. However, parts and repairs to
the equipment are still taxable.
17-12
Program Training
2014
SELF – CHECK QUESTIONS
1. What is the basic manufacturing exemption that is expressed in this
module?
A. items of tangible personal property (TPP) which intentionally
become a component part or ingredient of a manufactured item
for sale, are exempt.
B. items of real property (RP) which intentionally become a
component part or ingredient of a manufactured item for sale,
are taxable.
C. items of TPP which intentionally become a component part or
ingredient of a manufactured item for sale, are taxable.
D. Any item of TPP that accompanies the manufactured item for
sale, is exempt.
2. What is self-accrual authorization?
A. authority to make sales without charging sales tax to the
purchaser.
B. authority for tax exemption.
C. authority to make purchases without paying sales tax to the
seller.
D. authority to make sales and purchases tax exempt.
2014
Program Training
17-13
3. High Tech Manufacturing’s (Standard Industry Code 36) electric
bill for one month was $10,000. High Tech’s manufacturing
facility has a single electric meter, but their electrical engineers
determined that 30% of the electricity was used for air
conditioning, lighting, and operating equipment in their offices.
What amount of the electric bill is subject to tax?
A.
B.
C.
D.
$7,000
$5,000
$3,000
$
0
4. Manufacturers that qualify to purchase electricity tax exempt
because it is used in the manufacturing process are required to
provide what documentation to their electricity provider?
A. None, they must pay tax on the purchase and apply to the state
for a refund.
B. Their Annual Resale Certificate
C. Their Consumer Certificate of Exemption
D. A written certification of entitlement to the exemption.
Label the following taxable (T) or exempt (E):
5. ___ Direct labor used in the fabrication of tangible personal
property to be used by the business.
6. ___ Electric or steam energy manufactured by a business for its own
use in lighting the manufacturing facility.
7. ___ The purchase of solid waste collection vehicles, compactors,
graders, and earthmovers.
17-14
Program Training
2014
SELF – CHECK ANSWERS
1. What is the basic manufacturing exemption that is expressed in this
module?
A. items of tangible personal property (TPP) which intentionally
become a component part or ingredient of a manufactured item
for sale, are exempt.
B. items of real property (RP) which intentionally become a
component part or ingredient of a manufactured item for sale,
are taxable.
C. items of TPP which intentionally become a component part or
ingredient of a manufactured item for sale, are taxable.
D. Any item of TPP that accompanies the manufactured item for
sale, is exempt.
Explanation: See “Special Tax Considerations”: This is a concept
introduced in the module that describes the general tax treatment of
purchases by a manufacturer that fabricates tangible personal property
for sale. Items purchased for resale are not subject to tax on their
purchase.
Choice A. is correct. See “Special Tax Considerations”: Items of
tangible personal property which intentionally become a component
part or ingredient of a manufactured item for sale, are exempt. This
includes the item manufactured as well as packaging material
(containers, tape, wire, string, rope, steel banding, etc.) and any
instructions, coupons, labels, etc. that accompany the product when resold. S. 212.02(14)(c), F.S.
Choice B. is incorrect. See “Definitions”: Real property can never
become a component part of a manufactured item for sale. It would
cease to be real property.
2014
Program Training
17-15
Choice C. is incorrect. See “Special Tax Considerations”: These items
are never subject to tax when the end product is for resale as tangible
personal property.
Choice D. is incorrect. See “Special Tax Considerations”: Only items
that “intentionally” accompany the product can be purchased exempt
for resale. S. 212.02(14)(c), F.S., expresses that a “retail sale” (sale to
end consumer) includes items used in the manufacturing process that
“...though they may become ingredients or components of the tangible
personal property for sale through accident, wear, tear, erosion,
corrosion, or similar means...”.
2. What is self-accrual authorization?
A. authority to make sales without charging sales tax to the
purchaser.
B. authority for tax exemption.
C. authority to make purchases without paying sales tax to the
seller.
D. authority to make sales and purchases tax exempt.
Explanation: See “Direct Pay Authority”: Qualified manufacturers
may be granted authority under Rule 12A-1.0911, F.A.C., to make
purchases without paying sales tax to their vendor. When applicable,
tax on purchases of this nature, is accrued as use tax and remitted on
Line-B of the manufacturer’s sales tax return.
Choice A. is incorrect. See “Direct Pay Authority”: This is an
exemption on purchases not sales. That authority is granted to the
purchaser not the seller. When the purchaser presents their letter of
authority to the seller the seller will not be held liable for sales tax on
the sale.
Choice B. is incorrect. See “Direct Pay Authority”: This is not a tax
exemption. The purchase is still taxable but rather than pay tax to the
seller the purchaser remits tax directly to the state.
Choice C. is correct. See “Direct Pay Authority”: The purchaser
remits the tax directly to the state rather than to the seller.
Choice D. is incorrect. See “Direct Pay Authority”: Sales tax collected
by the seller must be remitted to the state. Purchases are not exempt.
The tax is self-accrued and remitted directly to the Department.
17-16
Program Training
2014
3. High Tech Manufacturing’s (Standard Industry Code 36) electric
bill for one month was $10,000. High Tech’s manufacturing facility
has a single electric meter, but their electrical engineers determined
that 30% of the electricity was used for air conditioning, lighting, and
operating equipment in their offices. What amount of the electric bill
is subject to tax?
A.
B.
C.
D.
$7,000
$5,000
$3,000
$
0
Explanation: See “Purchased Electricity Used in Manufacturing”:
When at least 50% to 75% of purchased electricity is used in the
manufacturing process, 50% of the amount purchased is subject to tax.
From Module Three, electricity has a base state tax rate of 7%.
Choice A is incorrect. See “Purchased Electricity Used in
Manufacturing”: Because the plant had a single meter the portion
subject to tax is on a bracket system. Also, when separately metered,
electricity used in the manufacturing process is exempt.
Choice B is correct. See “Purchased Electricity Used in
Manufacturing”: 70% of the purchased electricity was used in the
manufacturing process. When at least 50% to 75% of purchased
electricity is used in the manufacturing process 50% of the amount
purchased is subject to tax.
Choice C is incorrect. See “Purchased Electricity Used in
Manufacturing”: Same as B. Had the 30% of electricity used in nonmanufacturing activities been separately metered it would have been
the correct answer.
Choice D is incorrect. See “Purchased Electricity Used in
Manufacturing”: Because the portion of purchased electricity used in
the manufacturing process was not at least 75% of the electricity used,
it is not 100% exempt.
2014
Program Training
17-17
4. Manufacturers that qualify to purchase electricity tax exempt
because it is used in the manufacturing process are required to provide
what documentation to their electricity provider?
A. None, they must pay tax on the purchase and apply to the
state for a refund.
B. Their Annual Resale Certificate
C. Their Consumer Certificate of Exemption
D. A written certification of entitlement to the exemption.
Explanation: See “Purchased Electricity Used in Manufacturing”:
The business claiming the exemption must submit written certification
to the provider that it is entitled to the exemption.
Choice A is incorrect. See “Purchased Electricity Used in
Manufacturing”: The business could qualify for a refund but the
refund would be subject to the statute of limitations and additional
documentation.
Choice B is incorrect. See “Purchased Electricity Used in
Manufacturing”: This would be an improper use of the resale
certificate because the purchase is not for resale.
Choice C is incorrect. See “Purchased Electricity Used in
Manufacturing”: If the business had a Consumer Certificate of
Exemption all of the electricity would be exempt.
Choice D is correct. See “Purchased Electricity Used in
Manufacturing”: The business claiming the exemption must submit
written certification to the provider that it is entitled to the exemption.
This will relieve the seller from being liable for any tax on the sale.
Label the following taxable (T) or exempt (E):
5. ___ Direct labor used in the fabrication of tangible personal
property to be used by the business.
The answer is taxable. See “Fabricated Cost”: Persons that fabricate
tangible personal property for their own use owe tax on the full
fabricated cost which includes material, labor, and services. Also see
“Module 14, Fabricated Cost”.
17-18
Program Training
2014
6. ___ Electric or steam energy manufactured by a business for its own
use in lighting the manufacturing facility.
The answer is taxable. See “Manufactured Electric and Steam Energy
Used in Manufacturing”: Fabricated energy used for nonmanufacturing purposes is taxable. Only fabricated energy used in the
manufacturing process is exempt.
7. ___ The purchase of solid waste collection vehicles, compactors,
graders, and earthmovers.
The answer is taxable. See “Pollution Control”: This equipment is
specifically excluded from the exemption granted by the statute.
2014
Program Training
17-19
17-20
Program Training
2014
MODULE EIGHTEEN GOVERNMENTAL AGENCIES &
APPLICATION OF DISCRETIONARY TAXES
OBJECTIVES
Upon completion of this module the participant will be able to:
•
explain the tax application for sales made by governmental
agencies;
•
understand the tax application for purchases of tangible
personal property made by government agencies;
•
determine the tax responsibilities of contractors on the
purchase of materials, supplies, and equipment for
governmental contracts; and
•
explain the application of discretionary taxes.
INTRODUCTION
Governmental agencies include the United States Government, its
agencies and instrumentalities; the government of the State of Florida,
its counties and municipalities; and any political subdivision, agency,
bureau or department; or other state or local governmental
instrumentality.
Governmental agencies often sell surplus property, which includes
motor vehicles, boats or aircraft, or other tangible personal property.
They sell printed matter to the public, or charge for photocopies, or
electrostatic (Xerox) copies of documents.
Governmental agencies employ contractors who repair and construct
real property. These contractors usually purchase materials, supplies,
and equipment to be used for public works contracts owned by
governmental units. The materials and supplies purchased by the
contractor to be used in a public works contract stay in the contractor's
possession, and title does not pass to the governmental unit until the
materials become realty.
2014
Program Training
18-1
UNITED STATES GOVERNMENT
The United States Government, all of its agencies, and
instrumentalities are not subject to the Florida sales and use tax laws.
Therefore, all U.S. governmental agencies, upon request, shall be
provided with a Florida Consumer's Certificate of Exemption, which
they will issue to their Florida suppliers.
Special Tax Considerations
Although the U.S. Government does not collect sales tax, the taxable
sale, as defined in Section 212.05, F.S., of a motor vehicle, boat, or
aircraft from the U.S. Government, requires the purchaser to pay the
applicable use tax upon registration or title application.
The Armed Services Procurement Act Contract Clauses and
Solicitation Provisions of the U.S. Government provide that purchases
made by a contractor where title passes immediately to the U.S.
Government are not subject to the tax.
Real property contractors employed to perform real property
improvement contracts for a governmental agency do not enjoy the tax
exempt status of the governmental unit, even though the materials,
supplies, and equipment they purchased are used in the contract. Such
contractor who is contracted to perform governmental contracts is
purchasing tangible personal property, and the title to such property
does not pass to the governmental agency until it becomes realty.
Therefore, contractors are considered the ultimate consumers and their
purchases are subject to tax.
STATE OF FLORIDA, COUNTIES AND CITIES
The State of Florida, or local governmental units, its agencies,
counties, municipalities, or subdivisions engaged in taxable sales
under Chapter 212, F.S., shall qualify as a dealer and be required to
register, and collect and remit the applicable tax. Taxable transactions
include admissions, rentals and sales of tangible personal property,
rentals and leases of real property, and transient rentals.
18-2
Program Training
2014
Special Tax Considerations
The rental of governmental real property to a non-governmental or
commercial entity is subject to sales tax. The governmental entity
must register as a landlord, collect and remit sales tax to the
Department. Also, the lessee is subject to Governmental Leasehold
Intangible Personal Property Tax (GLIPPT) levied by section
196.199(2)(b), F.S., and administered under Rule 12C-2, F.A.C. If the
lessee is not filing a GLIPPT annual return, the auditor should obtain a
copy of the lease and notify his or her manager of the situation
and determine the appropriate action needed.
Sales and Rentals of TPP
The sale of tangible personal property, admissions, rentals and leases
of real property, and transient rentals by a governmental agency is
subject to sales tax. Political subdivisions, and agencies of the state of
Florida should register and collect sales tax.
Parking
The lease or rental of parking or storage spaces for motor vehicles,
docking, or storage spaces for boats, and hangar storage, or tie down
fees for aircraft are all taxable transactions. However, on-street
metered parking charges are not taxable.
General Purchases
Most purchases by state, county, and municipal governments are
exempt from sales tax, provided the payment for purchases is made
with governmental funds. These include tangible personal property,
rentals of tangible personal property or real property, and purchases of
admissions and services.
Taxable Governmental Electric Utility Equipment Purchases
However, the general exemption does not include the purchase by a
governmental unit on machines, equipment, parts and accessories
used in the generation, transmission or distribution of electricity as
explained in Rule 12A-1.001, F.A.C.
2014
Program Training
18-3
TRANSIENT RENTALS - LOCAL OPTION TAXES
Local option taxes on transient rentals include:
Local Option Tourist Development Tax, s. 125.0104, F.S.
Tourist Impact Tax, s. 125.0108, F.S.; and
Convention Development Tax, s. 212.0305, F.S.
Every person who rents, leases or lets for consideration any living
quarters or accommodations in any hotel, motel, apartment house,
multiple unit structure (duplex, condominium, rooming house, tourist
or mobile home court, single family dwelling, garage apartment, beach
house or cottage, cooperatively owned apartment, condominium parcel
or mobile home) for a term of six months or less is exercising a taxable
privilege. The tax rate varies by county from one percent to six
percent. The tax is computed on each whole or major fraction of each
dollar of the total rental charged for such lease pursuant to Chapter
212, F.S. The tax does not apply to living accommodations which are
exempt from sales tax.
The local option tax is in addition to the sales and use tax or any other
taxes levied under Chapter 212, F.S.
Transient Rentals - Local Option Taxes (LOT) – Information
Exchange
Many counties (not all) in Florida levy and impose a county tax, LOT,
on transient rentals. Transient rental dealers in these counties must
charge, collect, account for, and remit the tax to the Department of
Revenue unless the county has elected to collect and administer the tax
themselves. The auditor must research the Revenue Law Library to
determine each dealer’s LOT reporting and remitting requirements.
The Department only audits transient rental dealers for LOT in
counties where the dealers remit the tax directly to the department.
However, the department audits all transient rental dealers in Florida
for sales and use tax. When the department conducts a sales and use
tax audit on a transient rental dealer in a county that self administers
the LOT the department is required to follow guidelines prescribed by
the Registration Information Sharing and Exchange Program (RISE).
RISE is an information sharing program between the Florida
Department of Revenue and participating counties.
18-4
Program Training
2014
DISCRETIONARY SALES SURTAXES
Discretionary sales surtaxes in Florida include:
Charter County Transit System Surtax;
Local Government Infrastructure Surtax;
County Public Hospital Surtax;
Small County Indigent Care Surtax;
Small County Surtax;
Indigent Care Surtax; and
School Capital Outlay Surtax.
Pursuant to Section 212.054, F.S. and Rule 12A-15, F.A.C.,
discretionary sales surtaxes are levied upon all transactions that are
subject to the state tax, imposed on sales, use, rentals, admissions, and
other transactions described in Chapter 212, F.S. This surtax, when
approved by the county, is in addition to the state sales tax.
Surtax Limitation on the Sale of TPP
Surtax does not apply to sales amounts above $5,000 on any item of
tangible personal property (including electricity – s. 212.02(19), F.S.).
In order for multiple items to be subject to a single $5,000 surtax
limitation, the items must be sold in a single sale, and they must be
items that are either normally sold in bulk or items that comprise a
working unit when assembled.
Single Sale Test
Items must be sold at the same time to a single purchaser in order to
qualify for the single sale test. A single sale must be documented by
either a single sales invoice or a purchase order.
If the single sale is made by purchase order, the purchase order must
specify a quantity certain of items, and it must specify a specific date
by which all the items must be delivered. If the purchase order results
in multiple deliveries and multiple invoices, the limitation applies to
the purchase order, and not to each invoice. Please note, if the
purchase order is open ended as to the quantity or the date (i.e., "as
needed" purchase orders), then each invoice will be considered a
single sale.
2014
Program Training
18-5
Bulk Sale/Working Unit Test
In addition to meeting the single sale test, multiple items sold in a
single sale must also meet either the bulk sale test or the working unit
test.
A bulk sale is the sale of multiple quantities of a single item that the
seller normally sells in bulk quantities or the purchaser normally
purchases in bulk quantities.
The working unit test can be met in one of the following three ways:
•
•
•
The items are normally sold as a set and the utility of each for
its intended purpose(s) is dependent upon the set being
complete;
The items are normally sold in a single sale by the seller to the
purchaser for use in the normal business practice of the
purchaser as an integrated unit; or
The items are component parts that have no utility unless
assembled with each other to form a working unit or part of a
working unit.
Once a sale meets the single sale test, it must also qualify under one of
the four criteria of the bulk sale/working unit test (bulk sale test or one
of three working unit tests).
Multiple items sold in a single sale that do not meet the bulk
sale/working unit test will have the $5,000 limitation applied
separately to each item.
18-6
Program Training
2014
EXAMPLE: A furniture dealer sells furniture by the room, and
occasionally on an item per item basis. Here the dealer
furnishes an invoice containing the purchase of a bedroom
suite which consists of: Head board; Mattress; Night-stand;
Chest of drawers; for $6,940 and Lamps for $900.
Headboard
Mattress
Night-stand
Chest of drawer
Bedroom Suite
Lamps
Total
$6,940
900
$7,840
Surtax applies to $5,900 on this sale, the first $5,000 for the
bedroom suite and $900 for the lamps.
Surtax Limitation on the Lease of TPP
When tangible personal property is leased, each lease payment made,
or contracted to be paid, by a lessee represents one taxable transaction.
The surtax applies to the first $5,000 of the lease payment when the
lease payment is due. Liability for the immediate payment of the tax
on all the payments required under the lease or rental does not arise at
the time of the execution of the lease or rental.
Example: In a one year lease of office equipment the contract calls for
$1,000 lease payments on the first of each month. Based on the lease
contract, surtax must be remitted to the state each month by the lessor.
The amount of surtax remitted is calculated on the contract’s monthly
payment amount as required by the contract. The required lease
payment of $1,000 is subject to surtax because it is less than $5,000.
Since tax is due to the state on the sale or lease of tangible personal
property at the time of the sale and NOT when a payment is made, the
lessor is required to remit sales tax and surtax even when the lessee
fails to timely remit lease payments to the lesser. Also, if the lessee
were to pay the full years lease amount in a lump sum of $12,000 to
avoid surtax on the amount over $5,000, surtax is still due on the lump
sum payment because the lease contract calls for monthly payments of
$1,000.
2014
Program Training
18-7
Example: A crane dealer charges $3,000 per day for the rental of a
crane. The rental contract calls for payment in full when the crane is
returned or every 30 days whichever is less. The crane was rented for
5 days ($15,000) by the lessee. Surtax on this rental contract is only
due on the first $5,000 of the rental charge because the contract calls
for a single payment on a 5 day rental.
SURTAX ON SALES
Subparagraph 212.054(3)(a)1., F.S., expresses the general rule that
when the transaction involves a sale of tangible personal property, it is
deemed to occur in a surtax county if the property is delivered in the
county. If delivery of the taxable item occurs in a county imposing
surtax, the selling dealer must collect surtax, at the county surtax rate
where the delivery occurs. This rate may be a different tax rate that
the dealer’s county rate. (see Module 3, DR-15 exhibits for tax return
filing information).
Out-Of-State Dealers
S. 212.054(3)(a), F.S., expresses that when goods are delivered into a
surtax county surtax applies to the transaction at the rate effective in
the county where the goods were delivered, including sales from out of
state dealers. Out-of-state dealers registered to collect Florida sales
tax that sell and deliver taxable merchandise or a taxable service to a
location within a county imposing a surtax are required to collect the
surtax at the rate imposed in the county where the delivery is made.
Mail Order Sales
S. 212.0596(1), F.S., defines mail order sales as sales of tangible
personal property,
•
•
•
ordered by mail or other means of communication (definitely
not in person),
from a dealer who receives the order in another state or area
under the jurisdiction of the U.S., (order not received in
Florida) and
causes the property to be transported from any jurisdiction of
the U.S. (including Florida) to any person in Florida.
Any dealer making mail order sales into the state of Florida is required
to collect Florida sales tax on the sale when the dealer has “nexus” in
Florida.
18-8
Program Training
2014
Mail order sales & discretionary sales surtax:
Section 212.0596(6), F.S., specifically exempts surtax on sales
delivered into surtax counties that qualify as “mail order sales”, unless
the order is placed through the dealer's location in a surtax county, and
the property purchased is delivered into a surtax county.
For a sale to be exempt from surtax it must qualify as a mail order sale.
•
•
•
The transaction must be communicated to the dealer in another
state by a means other than “in person”. (mail, email,
telephone, internet, etc.)
The transaction must originate with a dealer’s location outside
of Florida. (A transaction that originates with a dealer’s
location in Florida does not qualify as a mail order sale.)
The transaction must be delivered into Florida from a
commonwealth, territory, or other area under the jurisdiction of
the U.S., including Florida, to a person in this state. (A
transaction that originates in another country, except those
under the jurisdiction of the U.S., does not qualify as a mail
order sale.)
Example: The Photo Shop, a multi-state company that has stores
located in Florida and a mail order division located in New York.
They warehouse all their merchandise in New York. The mail order
division receives a customer telephone order for a camera to be
delivered to a Florida customer’s residence in a surtax county.
Question: Does this transaction qualify as a mail order sale?
Response: Yes, the order was placed by phone and received in another
state. The camera was delivered from a U.S. location to a Florida
location.
Question: Is this transaction subject to Florida sales tax?
Response: Yes, because the dealer has locations in Florida.
Question: Is this transaction subject to county surtax?
Response: No, because this is a qualified mail order sale, regardless of
what county the camera was delivered to, it is not subject to surtax.
2014
Program Training
18-9
Service Warranty
A person receiving the consideration for the issuance of a service
warranty from the service warranty agreement holder is required to
collect surtax at the rate imposed by the county where the tangible
personal property indemnified by the service warranty is delivered or
located. The $5,000 per item surtax limitation does not apply to sales
of service warranties, only tangible personal property.
Admissions
For the purpose of admission, surtax is due if the county where the
event is being conducted is a surtax county.
Utility Services
If the utility services are provided to a location within a county
imposing the surtax, surtax is due at the consumers’ county surtax rate.
Electricity, natural gas and liquid petroleum are tangible personal
property and therefore surtax is subject to the $5,000 surtax limitation.
Subscriptions
A sale of a subscription (unless otherwise exempt) or copy of a
newspaper, magazine, or other publication is subject to a county's
surtax if the publication is delivered to a purchaser located in a county
imposing a surtax. See Module 13, for subscriptions not subject to tax.
Florists
Discretionary sales surtax must be collected at the tax rate of the
county where the florist taking the original order to sell TPP is located,
instead of the tax rate of the county where the TPP is delivered.
Real Property Rentals
Surtax is due if the real property which is leased or rented, or upon
which a license for use is granted is in a county imposing a surtax.
The surtax limitation ($5,000) does not apply to rental or license to use
real property.
18-10
Program Training
2014
Transient Rentals
Surtax is due if the transient rental transaction occurs in a county
imposing a surtax. The surtax limitation ($5,000) does not apply to
transient rental.
SURTAX ON PURCHASES
If a dealer is in a county imposing the surtax purchases supplies from
an out-of-state dealer who is not registered with Florida to collect sales
tax, the purchasing dealer is required to remit the state use tax at the
rate of six percent plus the surtax at his county's rate.
Any person who has purchased at retail, used, consumed, distributed
or stored for use or consumption in this state tangible personal
property, admissions, taxable services, utility services, or leased
tangible personal property or who has leased real property, and cannot
prove that the state sales and use tax or county surtax has been paid to
the vendor or lessor shall be directly liable to the state for any tax,
interest, or penalty due on any such taxable transaction.
Paragraph 212.054(3)(j), F.S., provides that a transaction is deemed to
occur in a surtax county when a dealer who owes use tax on a purchase
or lease of tangible personal property is located in a surtax county. It
is important to note that a dealer will only owe use tax on an item of
tangible personal property if that dealer did not pay Florida sales tax to
the vendor when the item was purchased. If a dealer buys property for
his own use from an out-of-state dealer who does not collect any
Florida tax, the dealer will have to accrue Florida use tax. In that case,
the dealer will also have to accrue and report surtax if the taxable use
occurs in a surtax county. Similarly, a dealer who used a resale
certificate when purchasing property that the dealer then puts to use in
a surtax county will owe both the state tax and the county surtax. Any
dealer who takes delivery of tangible personal property in a non-surtax
county and paid sales tax on the item to the vendor at the time of sale
owes no surtax on that item if it is later moved to a surtax county.
Example: A business owner in surtax County A who purchases and
takes delivery of supplies in non-surtax County B owes no surtax on
those supplies so long as sales tax is paid to the selling vendor. If tax
is not paid to the seller because the business owner is registered and
offers a resale certificate in lieu of paying the tax, the business owner
must accrue County A surtax at the same time he accrues the state use
tax.
2014
Program Training
18-11
Example: A real property contractor engaged in a construction project
in surtax County A owes no surtax on building materials he purchases
and pays tax on to the vendor in non-surtax County B if he takes
delivery in County B. His subsequent transport of and use of the
materials on the project in County A does not subject the purchases to
surtax.
Use Tax on Fabrication of Tangible Personal Property
Rule 12A-1.043(1)(a), F.A.C., expresses that when a business
fabricates material in Florida for its own use the fabricated cost is
subject to tax. If sales tax and surtax is paid on the purchase of direct
materials, the county in which the seller delivers the materials to the
buyer determines the surtax rate. If sales tax or surtax is not paid on
the purchase of direct materials use tax must be accrued when the
fabrication is completed and surtax must also be accrued when the
fabrication occurs within a county imposing surtax. Subsequent use of
the fabricated items in another jurisdiction (county, state or country)
does not affect the taxation of the fabrication costs.
When a business purchases and fabricates material in another state and
brings them into Florida for its own use, tax is due on the full
fabricated cost of the materials based on the location where the
materials were used. Credit is allowed for legally imposed taxes paid
on the fabricated materials in other states. Materials which were used
in other states for six months or longer before being imported into
Florida are not subject to Florida taxes. (If the business is a real
property improvement contractor, contractors do not normally
incorporate ‘used materials’ into real property jobs, so it is unlikely
that this exception would apply.)
Determining the surtax $5,000 limitation on fabricated items used
in real property contracts:
Rule 12A-15.008(1)(c)4., F.A.C., expresses that the $5,000 surtax
limitation is applicable to the fabricated cost when the contractor has a
written real property improvement contract that specifies the particular
project for which the fabricated item of tangible personal property is to
be used. The application of the $5,000 surtax limitation on the
fabrication of tangible personal property is restricted to taxpayers that
accrue use tax on material costs at the time of fabrication rather than
pay tax at the time of the sale/purchase.
18-12
Program Training
2014
Motor Vehicle and Mobile Home Dealers
If the motor vehicle dealer is located in a surtax county, and the
purchaser of the motor vehicle or mobile home also has a residence
address in the same county, as identified on the registration or title
document, the selling dealer shall report and remit the surtax directly
to the Department of Revenue on his sales and use tax return.
If the motor vehicle dealer is located in a surtax county, and the
purchaser of the motor vehicle or mobile home has a residence address
in another county imposing the surtax as identified on the registration
or title document, the selling dealer shall collect tax at the purchaser's
county rate and remit the surtax directly to the Department of Revenue
on his sales and use tax return.
If the motor vehicle dealer is located in a non-surtax county, and the
purchaser of the motor vehicle or mobile home has a residence address
in another county imposing the surtax as identified on the registration
or title document, the selling dealer shall collect tax at the purchaser's
county rate, and remit the surtax directly to the Department of
Revenue on his sales and use tax return.
The sale of a motor vehicle or mobile home from an out-of-state dealer
to a purchaser whose residence address is in a county imposing the
surtax as identified on the registration or title document the sale is
subject to surtax. The purchaser shall pay the surtax to any county tax
collector, or to the department.
Aircraft and Boat Dealers
If the selling dealer is located in a taxing county and the transaction
involves the sale of an aircraft or boat, the selling dealer shall collect
the tax, notwithstanding the fact the purchaser is not a resident of a
taxing county. The selling dealer shall remit the discretionary sales
surtax on their DR-15 sales and use tax report.
If the selling dealer is not located in a taxing county but delivery of
any aircraft or boat of a class or type which is required to be
registered, licensed, titled, or documented in this state or by the United
States Government is to a location in a taxing county, the selling
dealer shall collect the tax.
2014
Program Training
18-13
If the user of any aircraft or boat of a class or type required to be
registered, licensed, titled, or documented in this state or by the United
States Government imports into any taxing county any aircraft or boat
for use, consumption, distribution, or storage in a taxing county, the
user of such aircraft or boat shall pay the tax only to the county tax
collector or the Department of Revenue
The sale of a boat or aircraft by or through a registered dealer in a
taxing county to a purchaser who removes such boat or aircraft from
this state within 10 days after the date of purchase or, when the boat or
aircraft is repaired or altered, within 20 days after completion of such
repairs or alterations, is exempt from discretionary sales surtax,
provided the purchaser furnishes the dealer an affidavit and
documentation as outlined in Rule 12A-1.007, F.A.C.
The above application does not apply to the sale of flyable aircraft by a
manufacturer. See Section 212.08(11), F.S., for sales of flyable aircraft
by a manufacturer.
Partial Exemption for Transportation Companies
The partial exemption granted to transportation companies for sales
tax purposes is also applicable to county discretionary sales surtaxes.
The proration factor that is calculated and applied to a carrier's
qualified motor vehicles, vessels, rail cars and parts purchases, is also
used to calculate discretionary sales surtaxes. The proration factor is
applied to Florida purchases which are delivered or sold in a county
imposing discretionary sales surtax. The proration factor is applied
first to the qualified purchase transaction amount, to calculate the
"adjusted taxable amount" for purposes of applying the $5,000
discretionary surtax limitation.
EXAMPLE
18-14
$10,000 taxable vehicle part
x..25 dealer has a 25% taxable proration
$ 2,500 adjusted taxable amount
Program Training
2014
The surtax rate is applied to the $2,500 adjusted taxable amount since
the adjusted taxable amount is less than $5,000.
EXAMPLE
$100,000 taxable motor vehicle
x .25 dealer has a 25% taxable proration
$25,000 adjusted taxable amount
The surtax rate is applied to only $5000 of the adjusted taxable
amount since the adjusted taxable amount is greater than
$5,000.
SUMMARY
This module exposed participants to the proper tax application for
sales and purchases by governmental agencies. Local option taxes are
imposed on taxable transient living accommodations. Discretionary
sales surtaxes are imposed on all taxable transactions. Only the first
$5,000 is subject to discretionary sales surtax on the sale of an item of
TPP.
2014
Program Training
18-15
18-16
Program Training
2014
SELF – CHECK QUESTIONS
Multiple Choice
1. Sales of tangible personal property by state, county, and
municipal governmental agencies are:
A.
B.
C.
D.
these entities are not required to charge sales tax.
exempt sales.
subject to tax.
these entities do not sell tangible personal property.
2. The purchase of tangible personal property by contractors for
the performance of government lump sum contracts should be:
A. exempt because government agencies are exempt from use
tax.
B. taxable because contractors working on lump sum
governmental contracts are the ultimate consumers of the
tangible personal property used.
C. exempt because at the end of the contract the property will
be transferred to the government agency.
D. exempt when the contractor uses the government’s
certificate of exemption.
2014
Program Training
18-17
3. If a person who resides in a surtax county (has a residence
address) purchases a motor vehicle from a dealer in another
surtax county, what rate of surtax, if any, should be collected
by the dealer?
A.
B.
C.
D.
The selling dealer’s county surtax rate.
The purchaser’s county surtax rate.
No surtax is due.
The higher county surtax rate.
4. If the sale of tangible personal property occurs in a surtax
county and delivery is made to a different surtax county, what
surtax rate would be due on the sale?
A.
B.
C.
D.
The selling dealer’s county surtax rate.
The county surtax rate where delivery occurred.
The higher surtax county rate.
The average on the two county surtax rates.
5. A registered motor vehicle dealer, located in a surtax county,
would not charge surtax on the sale and delivery, in the
dealer’s surtax county, of a boat or aircraft if the purchaser
does what?
A. Removes the boat or aircraft within 20 days of the
purchase.
B. Furnishes an affidavit, as outlined in Rule 12A-1.007,
F.A.C., to the dealer and removes the boat or aircraft from
the state within 20 days of the purchase.
C. Removes the boat or aircraft from this state within 10 days
after purchase, or within 20 days after completion of repairs
or alterations, and provides the dealer an affidavit as
outlined in Rule 12A-1.007, F.A.C.
D. Removes the boat or aircraft from this state within 10 days
after purchase, or within 20 days after completion of repairs
or alterations.
18-18
Program Training
2014
6. The surtax $5,000 limitation on the sale of tangible personal
property does not apply to which one of the following:
A. A purchase order which specifies a quantity of certain
items and a specified
date by which all items must be
delivered, which may result in multiple deliveries and
invoices.
B. The sell of electricity per Section 212.02(19), F.S.
C. The rental of tangible personal property.
D. The rental of real property in a surtax county.
7. Which one of the following taxes is not a county tax that is
specifically on transient rentals?
A.
B.
C.
D.
Local Option Tourist Development Tax.
Charter County Transit System Surtax
Convention Development Tax
Tourist Impact Tax
8. Ace Accounting Services is located in a 1% surtax county.
Ace’s employee purchased two computers. Ace paid $8,000 plus
$480 sales tax for each computer.
The first computer was
purchased in a store in the same county that
Ace is located in
and the second computer was purchased in a store in a nonsurtax county. The second computer was immediately brought
back to Ace’s
offices to be used. How much surtax does Ace
owe to the Department?
A.
B.
C.
D.
2014
$ 50
$ 80
$100
$160
Program Training
18-19
9. A florist dealer in a 1% surtax county received three $100
separate orders for flowers from customers that were in the florist
shop when the sales were prepared. The first order was to be
delivered to a city in a non-surtax county. The second order was
to be delivered to a city in a 1.5% surtax county. The third order
was taken from the store by the customer. How much total surtax
should the florist charge on these three sales?
A.
B.
C.
D.
18-20
$1.00
$1.50
$2.50
$3.00
Program Training
2014
SELF – CHECK ANSWERS
Multiple Choice
1. Sales of tangible personal property by state, county, and
municipal governmental agencies are:
A.
B.
C.
D.
these entities are not required to charge sales tax.
exempt sales.
subject to tax.
these entities do not sell tangible personal property.
Explanation: See “State of Florida, Counties and Cities”. The sale of
tangible personal property, admissions, rentals and leases of real
property, and transient rentals by a governmental agency are subject to
sales tax.
Choice A is incorrect. See “State of Florida, Counties and Cities.’
When these entities make sales that are subject they must register as
dealers and charge and collect tax.
Choice B is incorrect. “State of Florida, Counties and Cities, Sales
and Rentals of TPP”. The State of Florida, or local governmental
units, its agencies, counties, municipalities, or subdivisions engaged in
taxable sales under Chapter 212, F.S., shall qualify as a dealer and be
required to register, and collect and remit the applicable tax.
Choice C is correct. “State of Florida, Counties and Cities, Sales and
Rentals of TPP”. The sale of tangible personal property, admissions,
rentals and leases of real property, and transient rentals by a
governmental agency is subject to sales tax. Political subdivisions and
agencies of the state of Florida must collect sales tax.
2014
Program Training
18-21
Choice D is incorrect. “State of Florida, Counties and Cities, Sales
and Rentals of TPP”. These entities frequently have sales of tangible
personal property, admissions, rentals and leases of real property, and
transient rentals.
2. The purchase of tangible personal property by contractors for the
performance of government lump sum contracts should be:
A. exempt because government agencies are exempt from use
tax.
B. taxable because contractors working on lump sum
governmental contracts are the ultimate consumers of the
tangible personal property used.
C. exempt because at the end of the contract the property will
be transferred to the government agency.
D. exempt when the contractor uses the government’s
certificate of exemption.
Explanation: See “UNITED STATES GOVERNMENT”. Real
property contractors working under lump sum contracts for
governmental agencies are considered the ultimate consumers of the
tangible personal property used in the contract; therefore they are
liable for the tax on all of their purchases.
Choice A is incorrect: See “Special Tax Considerations”. Real
property contractors employed to perform under contracts for a
governmental agency do not enjoy the tax exempt status of the
governmental unit, even though the materials, supplies, and equipment
they purchased are used in the contract.
Choice B is correct: See Explanation.
Choice C is incorrect. See “Introduction”. The materials and supplies
purchased by the contractor to be used in a public works contracts stay
in the contractor’s possession, and title does not pass to the
governmental unit until the materials become realty.
Choice D is incorrect. See “Module 3, Consumer Certificate of
Exemption”. Only the entity on the certificate can use it to purchase
tax exempt.
18-22
Program Training
2014
3. If a person who resides in a surtax county (has a residence
address) purchases a motor vehicle from a dealer in another surtax
county, what rate of surtax, if any, should be collected by the
dealer?
A.
B.
C.
D.
The selling dealer’s county surtax rate.
The purchaser’s county surtax rate.
No surtax is due.
The higher county surtax rate.
Explanation: “Motor Vehicle and Mobile Home Dealers”. If a motor
dealer is located in a surtax county, and the purchaser of the motor
vehicle has a residence address in another surtax county as identified
on the registration or title document, the selling dealer shall collect
surtax at the purchaser’s county rate.
Choice B is correct: See Explanation.
4. If the sale of tangible personal property occurs in a surtax
county and delivery is
made to a different surtax county, what
surtax rate would be due on the sale?
A.
B.
C.
D.
The selling dealer’s county surtax rate.
The county surtax rate where delivery occurred.
The higher surtax county rate.
The average on the two county surtax rates.
Explanation: “DISCRETIONARY SALES SURTAXES, Surtax on
Sales”. Chapter 212.054(3)(a)1., F.S. provides that when a
transaction involves the sale of tangible personal property, it is deemed
to occur in a surtax county if the property is delivered in the county. If
delivery of the taxable item occurs in a county imposing surtax, the
selling dealer must collect surtax, at the county surtax rate where the
delivery occurs.
Choice B is correct: See Explanation.
2014
Program Training
18-23
5. A registered motor vehicle dealer, located in a surtax county,
would not charge surtax on the sale and delivery, in the dealer’s
surtax county, of a boat or aircraft if the purchaser does what?
A. Removes the boat or aircraft within 20 days of the
purchase.
B. Furnishes an affidavit, as outlined in Rule 12A-1.007,
F.A.C., to the dealer and removes the boat or aircraft from
the state within 20 days of the purchase.
C. Removes the boat or aircraft from this state within 10 days
after purchase, or within 20 days after completion of
repairs or alterations, and provides the dealer an affidavit
as outlined in Rule 12A-1.007, F.A.C.
D. Removes the boat or aircraft from this state within 10 days
after purchase, or within 20 days after completion of
repairs or alterations.
Explanation: See “Aircraft and Boat Dealers”. The sale of a boat or
aircraft by a registered dealer in a surtax county to a purchaser who
removes such boat or aircraft from this state within 10 days after the
date of purchase or, within 20 days after completion or repairs or
alterations, is exempt from surtax, provided the purchaser furnishes the
dealer an affidavit and documentation as outlined in Rule 12A-1.007,
F.A.C.
Choice C is correct: See Explanation.
18-24
Program Training
2014
6. The surtax $5,000 limitation on the sale of tangible personal
property does not apply to which one of the following:
A. A purchase order which specifies a quantity of certain
items and a specified date by which all items must be
delivered, which may result in multiple deliveries and
invoices.
B. The sell of electricity per Section 212.02(19), F.S.
C. The rental of tangible personal property.
D. The rental of real property in a surtax county.
Explanation: See “DISCRITIONARY SALES SURTAX”. Surtax
does not apply to sales amounts above $5,000 on any item of tangible
personal property (including electricity – s. 212.02(19), F.S.). In order
for multiple items to be subject to a single $5,000 surtax limitation, the
items must be sold in a single sale, and they must be items that are
either normally sold in bulk or items that comprise a working unit
when assembled.
Choice A is incorrect: See Explanation. The $5,000 surtax limitation
applies to this purchase.
Choice B is incorrect: See Explanation.
Choice C is incorrect: See Explanation and “Surtax Limitation on the
Lease of TPP”. The $5,000 surtax limitation on the rental of tangible
personal property is determined by the amount billed on each rental
payment.
Choice D is correct: See Explanation and “Surtax on Sales, Real
Property Rentals”. The surtax limitation only applies to the sales and
purchases of tangible personal property.
2014
Program Training
18-25
7. Which one of the following taxes is not a county tax that is
specifically on transient rentals?
A.
B.
C.
D.
Local Option Tourist Development Tax.
Charter County Transit System Surtax
Convention Development Tax
Tourist Impact Tax
Explanation: “TRANSIENT RENTALS – LOCAL OPTION
TAXES”. Local Option Taxes are imposed specifically on transient
rentals (rental of living accommodations for a term of 6 months or
less).
Choice A is incorrect: “TRANSIENT RENTALS – LOCAL OPTION
TAXES”. Local Option Tourist Development Tax is imposed on
transient rentals per Chapter 125.0104, F.S.
Choice B is correct: “DISCRETIONARY SALES SURTAX”.
Charter County Transit System Surtax is not specifically imposed on
transient rentals. It is levied on all transactions that are subject to the
sales tax in Chapter 212, F. S.
Choice C is incorrect: “TRANSIENT RENTALS – LOCAL OPTION
TAXES”. Convention Development Tax is imposed on transient
rentals per Chapter 212.0305, F.S.
Choice D is incorrect: “TRANSIENT RENTALS – LOCAL OPTION
TAXES”. Tourist Impact Tax is imposed on transient rentals per
Chapter 125.0108, F.S.
8. Ace Accounting Services is located in a 1% surtax county. Ace’s
employee purchased two computers. Ace paid $8,000 plus $480 sales
tax for each computer. The first computer was purchased in a store in
the same county that Ace is located in and the second computer was
purchased in a store in a non-surtax county. The second computer was
immediately brought back to Ace’s offices to be used. How much
surtax does Ace owe to the Department?
A.
B.
C.
D.
18-26
$ 50
$ 80
$100
$160
Program Training
2014
Explanation: See “Surtax on Purchases and Surtax Limitation on the
Sale of TPP”. Any dealer who takes delivery of tangible personal
property in a non-surtax county and paid sales tax on the item to the
vendor at the time of sale owes no surtax on that item if it is later
moved to a surtax county. Surtax does not apply to sales amounts
above $5,000 on any item of tangible personal property. Therefore,
the only surtax due from Ace is on the purchase of the computer in his
surtax county at 1% of $5,000 or $50 surtax.
Choice A is correct. See Explanation.
9. A florist dealer in a 1% surtax county received three $100 separate
orders for flowers from customers that were in the florist shop when
the sales were prepared. The first order was to be delivered to a city in
a non-surtax county. The second order was to be delivered to a city in
a 1.5% surtax county. The third order was taken from the store by the
customer. How much total surtax should the florist charge on these
three sales?
A.
B.
C.
D.
$1.00
$1.50
$2.50
$3.00
Explanation: “SURTAX ON SALES, Florist”. Discretionary sales
surtax must be collected at the tax rate of the county where the florist
taking the original order to sell TPP is located, instead of the tax rate
of the county where the TPP is delivered. Since the selling dealer is
located in a 1% surtax county the seller should charge $1.00 surtax on
each of the three sales, a total of $3.00 surtax.
($100 x 1% = $1.00 x 3 = $3.00)
Choice D. is correct. See Explanation.
2014
Program Training
18-27
18-28
Program Training
2014
MODULE NINETEEN REFUNDS AND CREDITS
OBJECTIVES
Upon completion of this module, the participant will be able to:
•
apply the statute of limitation to credits/repossessions/refunds;
•
calculate a bad debt credit/refund;
•
calculate a repossession credit/refund; and
•
understand and apply audit procedures for conducting a refund
audit.
INTRODUCTION
A DOR auditor must be familiar with the sales and use tax laws
administered by the Department. The sales and use tax laws address
not only taxable transactions but exempt transactions as well. When
exempt transactions are incorrectly taxed, or have statutory exemption,
the person paying such tax to the State is entitled to a credit or refund.
The procedures for auditing a credit or refund are similar to procedures
used for determining tax liabilities. However, the documentation
requirements may vary.
This module presents existing policy and procedures for conducting
sales and use tax credit/refund audits.
2014
Program Training
19-1
REFUND AUTHORITY
Section 215.26, F.S., authorizes the Department of Revenue to receive
refund applications and advise the Chief Financial Officer whether or
not to pay refund claims.
Section 215.26, F.S., also addresses the repayment of funds paid into
the State Treasury and states in pertinent part:
"(1) The Chief Financial Officer of the state may refund to the person
who paid same, or his or her heirs, personal representatives, or assigns,
any moneys paid into the State Treasury which constitute:
(a) An overpayment of any tax, license, or account due;
(b) A payment where no tax, license, or account is due; and
(c) Any payment made into the State Treasury in error; and
if any such payment has been credited to an appropriation, such
appropriation shall at the time of making any such refund, be
charged therewith. There are appropriated from the proper
respective funds from time to time such sums as may be
necessary for such refunds."
Some transactions that create possible credits or refunds are:
•
•
•
cancelled and returned sales
tax charged in error
items purchased were intended for use but were sold and
not used
The first and second transactions are common. They will be supported
by invoices or credit memorandums and may be washed through the
sales tax accrual account on a daily basis.
Adequate, detailed records must be maintained by the dealer covering
all tax refunds and credits. If the dealer collects tax from a customer
in error, he must refund the tax to the customer before he is entitled to
a refund or credit.
19-2
Program Training
2014
Dealers and tax auditors should be knowledgeable of the following
rules when claims for credits or refunds are made:
•
•
Rule 12A-1.012, F.A.C., Repossessed Merchandise and
Bad Debts;
Rule 12A-1.014, F.A.C., Refunds and Credits for Sales Tax
Erroneously Paid.
When a dealer determines that a credit is due for any of the situations
discussed so far and has paid the tax directly to the state of Florida,
he/she would first obtain copies of all the documents relating to the
transactions involved. Using the documents, the dealer will arrive at a
tax credit claim amount. This amount is entered on the appropriate
line of the tax return if the tax due is equal to or greater than the credit.
DOR cannot process negative returns. The taxpayer would have to
request the credit over a period longer than one return, if the credit is
larger than the amount of tax due on one return.
A dealer requesting a refund would follow the same procedures
outlined for claiming a credit on the tax return, but rather than a tax
return, the dealer would complete an Application for Refund Sales and
Use Tax (Form DR-26S).
STATUTE OF LIMITATIONS
Section 215.26(1), F.S., express that the state may refund to the person
who paid same or his or her assigns any moneys paid into the State
Treasury…
Section 215.26(2), F.S., expresses that for tax payments made after
June 30, 1999, the refund application (DR-26S) must be received by
the Department within three (3) years from the date the tax was paid
into the State Treasury. Section 213.345, F.S., expresses that when a
compliance audit is conducted the Notice of Intent to Audit Books and
Records (DR-840) must be issued within three (3) years from the date
the tax was paid into the State Treasury.
Rule 12A-1.014(4), F.A.C., provides that a taxpayer who has overpaid
tax to a dealer, or who has paid tax to a dealer when no tax is due,
must secure a refund of the tax from the dealer and not from the
Department of Revenue.
2014
Program Training
19-3
Based on the provisions above the party who paid the tax to the
Department is entitled to the refund from the Department. When a
vendor has collected tax from the vendor’s purchaser and has remitted
the tax to the Department the vendor must obtain the refund from the
Department unless the vendor’s purchaser who paid the tax to the
vendor obtains an assignment of rights from the vendor. Section
215.26(1), F.S., permits the vendor’s purchaser to obtain the right to a
refund. The assignee receiving this right in the refund receives the
same right as the vendor. Thus, the payment date of the tax by the
vendor is applicable as to the determination of the three year
limitation, not the date the purchaser paid tax to the vendor.
AUDIT PRIORITY
All Refund Verification Audits are specially coded and issued as a
High Priority. The refund file should be immediately assigned to an
auditor upon receipt by the Service Center.
RETURNS, BAD DEBTS AND REPOSSESSIONS
The full amount of tax is due at the time of the sale of tangible
personal property for all credit sales, in the same manner as cash sales.
Sales tax must be remitted to the Department by the 20th of the month
following the month in which the sale was made. For this reason, a
system of refunds and credits is provided to allow a taxpayer to
recover the tax remitted on cash and credit sales which later are
returned or become repossessions or bad debts.
Returned merchandise (Rule 12A-1.014(3), F.A.C.)
When purchases are returned to the selling dealer by the purchaser,
after the tax imposed has been collected or charged to the account of
the consumer and paid to the state, the dealer shall be entitled to
reimbursement of the amount of tax charged and/or collected by them,
but only after the dealer has refunded/credited the tax to the customer.
When this occurs, the dealer is allowed 36 months from the date the
tax was paid to the State to lawfully take the credit or apply for a
refund for tax paid to the Department.
19-4
Program Training
2014
Bad Debts (Rule 12A-1.012(3), F.A.C.)
A dealer who has paid the tax on tangible personal property or services
may take a credit or obtain a refund for any tax paid on the unpaid
balance due on worthless accounts within 12 months following the
month in which the bad debt has been charged off for federal income
tax purposes. If any accounts charged off for which a credit or refund
has been received are subsequently, in whole or in part, paid to the
dealer, tax is due on the amount paid and shall be included as part of
the first return filed after such collection/payment.
"Charged off for federal income tax purposes" means either the date
the debt is written off the dealer's books or the end of the dealer's fiscal
year. Therefore, a dealer is allowed to take a credit or obtain a refund
for tax paid on an account written off as a bad debt beginning on the
date the dealer deducts the bad debt account from its books through 12
months after the end of the dealer's fiscal year. The date on which the
dealer files a federal income tax return that includes the bad debt
accounts is irrelevant and should not be used to determine the
availability of a credit or refund.
Example 1: A dealer writes off a worthless account on his books on
February 1, 2003. The dealer uses the calendar year, so that his fiscal
year ends on December 31, 2003. The dealer is allowed to take a
credit for the tax remitted on the worthless account on his February
2003 sales and use tax return, due March 20, 2003. The dealer may
instead choose to seek a refund of the tax remitted on the worthless
account. The application for refund must be dated between February
1, 2003, and December 31, 2004.
Example 2: Same facts as Example 1, except the dealer does not take a
credit on his February 2003 sales and use tax return. The dealer can
take a credit or seek a refund for 12 months following the end of his
fiscal year. The dealer's fiscal year is the calendar year; therefore, the
dealer can take a credit or seek a refund for 12 months following
December 31, 2003.
Example 3: A dealer carries several bad debt accounts on its books
during its 2002 fiscal year, which is the same as the calendar year.
The dealer writes off those debts in December 2002. The dealer can
take a credit or apply for a refund for tax remitted on those accounts at
any time during the 2003 calendar year.
2014
Program Training
19-5
The credit/refund for bad debts may include only that portion of a sale
which was subject to the tax initially. No credit/refund will be allowed
for bad debts involving sales which were exempt from the tax or for
any nontaxable charges included in the sale, (e.g., transportation
charge, finance charges, exempt products or services, collection fees).
EXAMPLE:
following:
ABC sells furniture to XYZ and bills the
1 Sofa (Brown)
1 Easy Chair (Brown)
Taxable Amount
Sales tax @ 6%
Delivery
Total
$ 985.00
195.00
$1,180.00
70.80
155.00
$1,405.80
XYZ agrees to pay $205.80 down and $100.00 a month for 12
months. XYZ failed to make any of the monthly payments and
ABC charges off the accounts receivable as uncollectible.
ABC is entitled to the following credit or refund.
Calculate the percentage of the total transaction applicable to
tax by dividing the tax charged by the total transaction amount,
including the tax.
$70.80 ÷ $1,405.80 = .050363, ratio of tax to the total
transaction
Calculate the balance due on the sale at the time the bad debt is
written off by subtracting the total payments made, from the
transaction total.
$1,405.80 - $205.80 = $1,200, balance due
Calculate the tax credit or refund by multiplying the ratio of
tax, expressed as a decimal, times the balance due.
.050363 x $1,200 = $60.44, tax credit or refund due/allowed
19-6
Program Training
2014
Repossessions (Rule 12A-1.012(2), F.A.C.)
A dealer who has remitted sales tax on the full selling price of taxable
tangible personal property sold under a retained title, conditional sale,
or similar contract may, upon repossession of the property, take credit
on a subsequent return or obtain a refund for that portion of the tax that
is applicable to the unpaid balance of the contract. When such
repossessed property is resold, the sale is again subject to the tax.
Detailed records are required on refunds and credits resulting from
repossession. The request for a refund or credit must be made within
12 months following the month in which the property was repossessed.
The credit/refund for repossessions may include only that portion of a
sale which was subject to the tax initially. No credit/refund will be
allowed for repossessions involving sales which were exempt from
tax or for any nontaxable charges included in the sale, (e.g.,
transportation charge, finance charges, exempt products or services,
collection fees). The method for calculating the tax refund or credit is
the same as for bad debts in the previous example.
GENERAL REFUND INFORMATION
Audit Scope
The refund audit is limited to a verification of taxpayer-generated
refund claims and need not be in conjunction with a compliance audit.
In other words, each refund verification audit must stand on its own.
However, if during the course of a refund verification audit the auditor
determines that a compliance audit is warranted, an audit may be
scheduled for a future date. This does not prevent the auditor from
performing a refund verification audit concurrently with a compliance
audit that is already in progress. Work papers need to be kept
separate. However, an overpayment may be used to offset a liability
when appropriate. (See the Auditor Handbook for the appropriate
procedure)
Taxpayer Documentation
Each refund audit file must be documented properly and completely
before it can be approved for payment. The auditor must obtain all
documented evidence that is necessary to process the refund claim. If
the documented evidence is insufficient, the auditor should request the
2014
Program Training
19-7
needed information from the dealer or from the appropriate section
within the Department.
Audit Techniques
Any person who is required to report or pay sales and use tax, must
maintain records and other information which will allow the
Department to determine the correct amount of tax due.
Records - Inadequate
According to paragraph (6)(b) of Section 212.12, F.S., if a dealer does
not have adequate records of retail sales or purchases, the Department
may project a deficiency from a sample of the dealer's available
records, but may not project an overpayment. If the dealer is unable
to provide adequate documentation, the refund claim will be denied.
Records - Adequate / Voluminous
If the records are adequate but voluminous, sampling and projecting
deficiencies and overpayments is permitted by s. 212.12(6)(c), F.S.,
for both compliance audits and refund verification audits, except for
fixed assets. When the results of the audit is an overpayment of tax the
restrictions and requirements of s. 215.26, F.S., must be met and
verified before the refund can be approved. Such verification includes
statute of limitation restrictions, obtaining assignment of rights from
vendors to whom tax was paid, and the use of generally accepted
auditing procedures.
Fixed assets may be statistically sampled and projected for all audits
conducted after July 1, 2007. (for details see Module 4, Audit
Authority, When Records are Adequate but Voluminous in Nature)
Records - Adequate / Not Voluminous
If the records are adequate but NOT voluminous, a detailed
examination of all pertinent records must be performed in order to
determine the validity of the refund claim.
19-8
Program Training
2014
Compliance Audits – Sampling and Projecting Overpayments
(GTAPB 04ADM04 – Adequate Records)
For a compliance audit, the taxpayer's records must be adequate
overall for the entire audit period in order to project an overpayment
(credit or refund) using a sample.
Example: During a compliance audit, an auditor determines the
taxpayer's records are adequate for sales, but inadequate for purchases.
The auditor samples six months of sales resulting in a credit of
$600.00 or $100.00 per month. The sample results cannot be projected
over the whole 36 months of the audit period because the taxpayer
does not have adequate records overall.
Refund Verification Audits - Sampling / Projecting Overpayments
(GTAPB 04ADM04 – Adequate Records)
For a refund verification audit, the taxpayer's records must be adequate
for the population under refund in order to sample.
Example: During a refund verification audit, an auditor determines
that the taxpayer's records are adequate for the first half of the refund
request, but inadequate for the last half. The auditor may sample and
project within the first half of the refund period. The auditor may not
sample or project the second half of the refund period unless the
taxpayer provides adequate records for the second half of the refund
period. The auditor must detail the portion of the refund period without
adequate records, denying any items without supporting
documentation.
Audit Procedures - Assignment of Rights - GTAPB 02(A)-001
Rule 12A-1.014(4), F.A.C., provides that a taxpayer who has paid tax
to a dealer when no tax is due, must secure a refund from the dealer.
Once the dealer has refunded the tax to the purchaser, the dealer may
apply to the Department for a refund or take a credit on the dealer's
next tax return. The rule is consistent with Section 215.26(1), F.S.,
which requires the Department to refund taxes paid in error to the
person who has remitted the tax to the state.
If the dealer is not willing to refund the tax to the purchaser, the dealer
may issue an assignment of rights to his/her customer in lieu of a
refund. This allows the customer, (purchaser) to apply for a refund of
the overpaid taxes.
2014
Program Training
19-9
Issue #1: An auditor discovers that tax was paid in error by the
purchaser (taxpayer being audited) on specific transactions occurring
during the audit period. As a result, the taxpayer under audit may be
entitled to a credit or refund of taxes paid on the transactions.
Procedure: According to the provisions of 12A-1.014(4), F.A.C., and
s. 215.26(1), F.S., the auditor should first, instruct the purchaser to
obtain a refund from the dealer. If the dealer is not willing to refund
the tax, but instead, provides the purchaser with a properly executed
"assignment of rights", the Department may give the purchaser credit
for the overpayment in the audit. An assignment of rights must be
obtained regardless of whether the net result is a refund or deficiency
to ensure that tax was paid to the state. Auditors are required to verify
that the dealers that collected the tax have remitted at least as much tax
in the appropriate applied months as was determined to be overpaid by
the purchaser (audited taxpayer).
A properly executed "assignment of rights" should include the dealer
name and specific sales tax number(s) (not an "80" consolidated
account number) under which the tax was remitted. The document
does not have to identify the specific invoices included in the
overpayment determination, but should include language indicating
that the assignment covers all transactions (subject to the
overpayment) between the two parties for the entire audit period.
When prepared, the document will put both parties on notice, that no
other refunds or credits are authorized for transactions occurring
during the referenced time period. While this will not completely
eliminate the potential for duplicate payment, it should minimize risk.
If the dealer is not willing to refund the tax, and refuses to provide the
purchaser with an assignment of rights, a credit should not be allowed
for the related overpayments.
Issue #2: During a sampling audit, the auditor determines that a
purchaser (taxpayer being audited) has overpaid tax to the dealer(s),
for transactions in the sample. When audited, the results of the sample
will be projected to the entire audit period (population.)
Procedure: With regard to sampling, the Department may project an
overpayment of the dealer's sales and use tax paid in error (including
fixed assets that are statistically sampled) from a sample of the dealer's
records only if the records are adequate and voluminous in nature and
substance. The Department may not project an overpayment of tax
19-10
Program Training
2014
from a sample of the dealer's records if the records are determined to
be inadequate.
With regard to the treatment of the overpayment(s), the auditor should
instruct the purchaser to obtain a refund from the dealer. If the dealer
is not willing to refund the tax, but instead, provides the purchaser
with a properly executed assignment of rights, all related invoices
should remain in the sample as credits, and the effect should flow
through the projection. When using a sampling technique, the auditor
must exercise caution, to ensure that the sample is representative of the
purchaser's business activities for the entire audit period.
When using a sampling technique, only those transactions occurring
during the sample are reviewed in detail. When projecting
overpayments, there is no way to identify which specific transactions
result in overpayments. To minimize risk of duplicate refunds/credits,
the Department and taxpayer should enter into a closing agreement at
the conclusion of the audit. This agreement should include a provision
that the taxpayer may not request a refund or credit for any
overpayments to a dealer for transactions included in the audit period.
If the taxpayer refuses to enter into a closing agreement at the
conclusion of the audit, the auditor should remove all related invoices
from the sample.
In addition, if the dealer is not willing to refund the tax, and refuses to
provide the purchaser with an assignment of rights, the auditor should
remove all related invoices from the sample, so these invoices are not
considered for credit or refund.
Issue #3: Distribution of an audit recovery, refund or credit, when a
sampling technique is used.
Procedure: Since a detail review is conducted on the sample only,
there is no way of knowing in what counties the overpayments actually
occurred for the entire population. Therefore, the distribution of the
overpayment shall be allocated across the county(ies) of the selling
dealer(s) for the transactions included in the sample.
GTAPB 02(A)-001, provides suggested formats for Assignment of
Rights when conducting detailed audits and sampling audits. They are
presented in Exhibits 19-1 and 19-2 of this Module.
2014
Program Training
19-11
Refund Verification Audits
Once a refund verification audit has been received in a service center,
the file should be reviewed immediately to determine the subject of the
refund request. The intake reviewer should then assure that the refund
request is assigned to an auditor. Keeping in mind that refund audits
are of utmost priority the auditor should immediately analyze the
reason(s) for the claim and identify issue(s) pertaining to the case and
make necessary arrangements to proceed with the verification process.
The auditor should review statutes, rules and regulations, TUBs, ITAs,
and other departmental training and educational materials pertinent to
the issues established in the pre-audit analysis. As previously stated,
the taxpayer must provide required documentation to substantiate the
claim for refund.
The auditor must complete an Audit Report for all refund verification
cases. The amount of information contained in the report will be
determined by the various issues and situations encountered during the
audit/verification process. At a very minimum, the procedures used by
the auditor should be documented.
Audit procedures include but are not limited to the following:
19-12
•
Entries on the Case Activity Report, form DR-815, should reflect
in chronological order the date, action(s) taken by the tax auditor
and location. Comments should accompany each action. Record
and describe all events, situations, etc., which are relevant to the
refund request. Describe the actions taken, the process used, and
the determinations made that support the auditor's actions;
•
Indicate the legal authority used (e.g., Florida Statute, Florida
Administrative Code, etc.) to support the reason(s) the refund was
approved, partially denied or fully denied;
•
Verify if the Customer was charged tax. Verify tax collected was
remitted to the State. Cross check the DR-15 as filed with DOR
vs. Taxpayer's records. Verify line six deductions to ensure that
the taxpayer has not already taken credit for the requested refund
claim;
•
If reviewing sales verify that the taxpayer has refunded or credited
the customer prior to applying for a refund from the state. Check
to see if the refund amount has been credited against the sales tax
payable account on the taxpayer's records;
Program Training
2014
•
Generally when reviewing purchases where the tax was paid to a
vendor, the taxpayer must seek the refund from the vendor and not
the Department. However there are exceptions that permit
taxpayers to seek refunds directly from the Department even
though such taxes were paid to a vendor. In most cases in order to
refund directly to the claimant, an Assignment of Rights or
Certification of Payment will be required. The original copy of the
Assignment of Rights or Certification of Payment should be
included in the refund audit file. Also, there are other specific
situations where the statutes permit dealers to apply directly to the
Department, among them are; business property used in an
enterprise zone, motion picture industry, and broadband
technology refunds;
•
If the taxpayer self-accrues the tax, verify that tax was remitted to
the Department.
The Standard Audit Report (SAR) in a refund audit is limited to refund
issues only. It should contain the taxpayer’s and Department’s position
on any unagreed issues and a detailed description of all the steps taken
and all documents reviewed in the refund verification process (e.g.,
copies of lease agreements, original and amended returns, copies of
invoices, proof of refund to customers if tax was collected in error, and
documents required by statute).
Alternative records are not permissible for refunds. An alternative
record is a document presented by the taxpayer in lieu of actual
documents required to support the refund claim. For example, if the
refund claim relates to a lease issue, then the auditor would need a
copy of the original lease agreement.
Taxes are refunded in the same manner in which they are paid to the
Department. Therefore, when a refund is approved we must assure
that the tax refunded is applied to the correct revenue
fund\appropriation and the correct county.
Consolidated Tax Number: Each individual account under the 80 code
must be computed separately.
Ensure all the forms required for processing the audit to completion
are properly prepared, reviewed locally, and are ready to be mailed to
the Review Section.
2014
Program Training
19-13
ORDER OF FILE FOR REFUND VERIFICATION AUDITS
LEFT SIDE: (Top to Bottom)
1) Case Activity Record (form DR-815)
RIGHT SIDE:
1) Power of Attorney
2) Copy of Application for Refund DR-26S
3) Mutual Agreement
4) Standard Audit Report (limited to refund issues only)
5) Taxpayer correspondence – (chronological order)
6) DR-1200R
7) Audit workpapers and documents
8) Copies of taxpayer documentation
9) Letter or DR-840 (if utilized) and records checklist
SUMMARY
Section 215.26,F.S., grants the department authority to receive refund
applications and advise the State Comptroller on their status.
The general Statute of Limitations for refunds and credits applies as
follows:
•
19-14
For tax payments made after June 30, 1999, the refund
application must be filed within three (3) years from the
date the tax was paid to the state.
Program Training
2014
SELF-CHECK QUESTIONS
True or False
1. ______ The Department of Revenue is not only tasked with the
legislative responsibility of collecting taxes, but also has the
sole responsibility for refunding these same taxes.
2. ______ Refund verification audits are treated the same as
compliance audits.
3. ______ Bad debt and repossession credit/refund have the same
basic statute of limitations, 12 months.
4. ______ Bad debt and repossession credit/refund may have the
same statute of limitation but the amount claimed will be
different.
Multiple Choice
1. Once a dealer has determined an account to be worthless and
uncollectible, how long does the dealer have to either claim a
credit or request a refund of the tax paid on these bad debts?
A.
B.
C.
D.
2014
The dealer has 36 months to file an application for refund
(form DR-26S) with the department.
The dealer may take a credit or obtain a refund for
worthless accounts within 12 months following the month
in which the bad debt has been charged off for federal
income tax purposes.
The dealer may take a credit or obtain a refund for
worthless accounts within 36 months following the month
in which the bad debt has been charged off for federal
income tax purposes.
The dealer has 60 months to file an application for refund
(form DR-26) with the department.
Program Training
19-15
19-16
Program Training
2014
SELF-CHECK ANSWERS
True or False
1. ______ The Department of Revenue is not only tasked with the
legislative responsibility of collecting taxes, but also has the
sole responsibility for refunding these same taxes.
Correct Answer: False
Explanation:
REFUND AUTHORITY.
Section 215.26, F.S.
authorizes the Department of Revenue to receive refund applications
and advise the Chief Financial Officer of the state whether or not to
pay refund claims.
2. ______ Refund verification audits are treated the same as
compliance audits.
Correct Answer: False
Explanation: See “Audit Priority” and “Audit Scope”. All Refund
Verification Audits are specially coded and issued as a Priority Three
(3) Assignment (the highest priority). The refund file should be
immediately assigned to an auditor upon receipt by the Service Center
Manager. The refund audit is limited in scope to verification of the
refund claimed by the taxpayer and need not to in conjunction with a
compliance audit.
3. ______ Bad debt and repossession credit/refund have the same
basic statute of limitations, 12 months.
Correct Answer: True
2014
Program Training
19-17
Explanation: RETURNS, BAD DEBTS AND REPOSSESSIONS.
A dealer who has paid the tax on tangible personal property or services
may take a credit or obtain a refund for any tax paid on the unpaid
balance due on worthless accounts, within 12 months following the
month in which the bad debt has been charged off for federal income
tax purposes. Also, a dealer who has remitted sales tax on the full
selling price of taxable tangible personal property and upon possession
of the property, take credit on a subsequent return or obtain a refund
for that portion of the tax that is applicable to the unpaid balance of the
contract, within 12 months following the month in which the property
was repossessed.
4. ______ Bad debt and repossession credit/refund may have the
same statute of limitation but the amount claimed will be
different.
Correct Answer: False
Explanation: The tax credit or refund for both bad debts and
repossessions is based on the “unpaid balance due” to the dealer by
their customers within their specific statute of limitations.
Multiple Choice
1. Once a dealer has determined an account to be worthless and
uncollectible, how long does the dealer have to either claim a
credit or request a refund of the tax paid on these bad debts?
A. The dealer has 36 months to file an application for refund
(form DR-26S) with the department.
B. The dealer may take a credit or obtain a refund for
worthless accounts within 12 months following the month
in which the bad debt has been charged off for federal
income tax purposes.
C. The dealer may take a credit or obtain a refund for
worthless accounts within 36 months following the month
in which the bad debt has been charged off for federal
income tax purposes.
D. The dealer has 60 months to file an application for refund
(form DR-26) with the department.
19-18
Program Training
2014
Explanation: See “Bad Debts”: A dealer who has paid the tax on
tangible personal property or services may take a credit or obtain a
refund for any tax paid on the unpaid balance due on worthless
accounts within 12 months following the month in which the bad debt
has been charged off for federal income tax purposes.
Choice A is incorrect: See Explanation.
Choice B is correct: See Explanation.
Choice C is incorrect: See Explanation.
Choice D is incorrect: See Explanation.
2014
Program Training
19-19
19-20
Program Training
2014
Exhibits
Exhibit 19-1 ................................................................ Assignment of Rights – Detail Audit
Exhibit 19-2 ...................................................................... Assignment of Rights – Sampling Audit
2014
Program Training
19-21
19-22
Program Training
2014
Exhibit 19-1
Suggested Format - Detail Audit
ASSIGNMENT OF RIGHTS TO REFUND OF SALES TAX
Dealer Registration Number: ____________________________
____________________________ ("Assignor"), a Florida registered
dealer whose registration number is shown above, by and through the
undersigned duly authorized corporate officer, general partner, or other
authorized
agent
or
representative,
hereby
assigns
to
________________________ ("Assignee") any and all rights which
Assignor has to recover sales and use tax paid to the Florida
Department of Revenue, totaling the sum of $_____________ for the
transactions occurring during the period _______________ and
reflected on the attached invoices or similar documentation of the
transactions for which refund is claimed. The taxes indicated on such
invoices or documentation were collected by Assignor upon the sales
so documented. Assignor has not and will not itself seek a refund in
regard to the taxes that are the subject of this Assignment.
STATE OF FLORIDA
COUNTY OF ______________________
DATE: ____________________________
Notary Public (SEAL) _______________________
Title
Signature of Authorized Representative of Seller
_________________________________
2014
Program Training
19-23
19-24
Program Training
2014
Exhibit 19-2
Suggested Format - Sampling Audit
ASSIGNMENT OF RIGHTS TO REFUND OF SALES TAX
Dealer Registration Number: ____________________________
_______________________________ ("Assignor"), a Florida
registered dealer whose registration number is shown above, by and
through the undersigned duly authorized corporate officer, general
partner, or other authorized agent or representative, hereby assigns to
___________________________ ("Assignee") any and all rights
which Assignor has to recover sales and use tax paid to the Florida
Department of Revenue, for the transactions occurring during the
period __________________ (audit period). Assignor also
acknowledges that sales and use tax in the amount of $ ___________
and reflected on the attached invoices or similar documentation of the
transactions for the periods ______________________, (sample
period), was collected and remitted on the sales so documented.
Assignor has not and will not itself seek a refund in regard to the taxes
that are the subject of this Assignment.
STATE OF FLORIDA
COUNTY OF ______________________
DATE: ____________________________
Notary Public (SEAL) _______________________
Title
Signature of Authorized Representative of Seller
_________________________________
2014
Program Training
19-25
19-26
Program Training
2014
MODULE TWENTY
PROTEST AND APPEAL PROCEDURES
OBJECTIVES
Upon completion of this module, the participant will:
•
understand the taxpayer's right to protest and/or appeal any
action taken against them by the Department;
•
understand the protest and appeals process;
•
be aware of time factors and limitations involved; and
•
know and better understand the Taxpayer Bill of Rights.
INTRODUCTION
This module is intended to make the auditor aware of and able to
describe the taxpayer’s right to protest and appeal any action taken
against them by the Department. Also, the auditor will be introduced
to the Taxpayer Bill of Rights.
PROTESTS BY THE TAXPAYER
Field Conferences
While conducting and upon completion of an audit, the auditor will
discuss the audit issues with the taxpayer or the taxpayer's
representative with whom the auditor has been working. The objective
is to try to resolve all issues and obtain an agreed case.
The time frame for requesting a field conference starts on the date the
Notice of Intent to Make Sales and Use Tax Audit Changes is issued
(form DR-1215) to the taxpayer. One of the many purposes the DR-
2014
Program Training
20-1
1215 serves is to give the taxpayer 30 days notice to address any issue
at the field level.
When a taxpayer, during this initial 30 day period, presents
documentation that tax scheduled in the DR-1215 is not due, the
auditor must revise the DR-1215 and present it to the taxpayer. Any
time the DR-1215 is revised the taxpayer also receives an additional
30 days to review and object to the revision at the field level. It is
possible for DR-1215's to be revised many times.
If there are issues that cannot be resolved during the audit exit
interview, the auditor should take the following actions:
•
document the unresolved issues including the taxpayer's
and the auditor's positions;
•
advise the taxpayer of the protest procedures available;
•
if one of the unresolved issues is the absence of resale and
exemption certificates to support exempt sales, the auditor
should advise the taxpayer that they must provide the
Department with the proper certificates during either the
conduct of the audit or the protest period. Section
212.07(1)(b), F.S., expresses that resale certificates “may
not be accepted in any proceeding under chapter 120 or
any circuit court action instituted under chapter 72”.
An annual resale certificate does not exempt sales for resale
that occurred prior to the year for which the certificate was
issued. These transactions are treated as undocumented
sales and sales tax should be assessed by the auditor unless
the auditor can justify the exempt status on the basis
expressed under the Dealer’s Failure to Document
Exempt Sales for Resale section of Module 3.
•
inform the Process Group Manager of unresolved issues.
The PGM contacts the taxpayer and attempts to resolve the disputed
issues.
Compliance Standards - Tallahassee
When the audit is closed at the field level a Notice of Proposed
Assessment (NOPA) is issued in Tallahassee by Compliance
20-2
Program Training
2014
Standards. The NOPA becomes a final assessment 60 days (150 days
if outside the U.S.) after the date the NOPA is issued. Taxpayers must
protest, in writing, the proposed assessment to the DOR during this 60
day period or lose their right to an informal protest within the
Department. Also, all NOPA’s include a brochure, "How to Pay Your
Audit Assessment" and "Notice of Taxpayer Rights". This document
is designed to provide the taxpayer with the necessary information on
how to pay or protest the NOPA.
Technical Assistance Dispute Resolution (TADR) – Tallahassee
When the taxpayer protests the auditor’s findings in the NOPA within
the 60 day informal protest period the audit file receives a final review
in the Compliance Support Process and is then sent to TADR.
TADR will evaluate the auditor’s findings and the taxpayer’s protest.
They will contact the auditor and/or taxpayer when additional input is
needed and write the Department’s final determination by issuing a
Notice of Decision (NOD) to the taxpayer.
All proceedings conducted by the Department of Revenue are viewed
as informal. Do not use the term hearing in conversation or in
correspondence with the taxpayer or their representative when you are
talking about actions by the Department of Revenue.
APPEALS BY THE TAXPAYER
Once the taxpayer's protest goes outside the Department's authority it
is treated as a formal proceeding. Appeals are formal proceedings and
may be initiated by the taxpayer after exhausting the informal protest
methods, or may be initiated without informal proceedings.
When a Notice of Decision (NOD) is issued through informal protest
procedures, a petition for a formal hearing (Chapter 120 or Circuit
Court) must be received by the Department within 60 days from the
date on the NOD . The taxpayer may file action directly in the District
Court of Appeals within 30 days from the date on the NOD.
Taxpayers that do not seek an informal protest have 120 days from the
date the NOPA is issued to petition for a formal hearing under Chapter
120, Administrative Procedures Act, or file action in Circuit Court.
A taxpayer cannot seek both a Chapter 120 hearing and circuit court
action (may choose only 1).
2014
Program Training
20-3
An Administrative Hearing under Chapter 120, F.S., is a formal
proceeding conducted by the Department of Management Services,
Division of Hearings (DOAH). Chapter 120 hearings cannot rule on
questions concerning the constitutionality of the law.
Circuit Court and District Court of Appeals may hear and rule on all
tax questions.
A flow chart of the protest process is provided on page 20-13.
TAXPAYER'S BILL OF RIGHTS
Florida taxpayers' rights to fair and equitable treatment are enumerated
throughout various statutes and administrative rules, but are
specifically addressed in s. 213.015, F.S. These rights are known as
the Taxpayer's Bill of Rights, which represents the commitment of the
Florida Department of Revenue to assure that those rights are fully
provided. The Bill of Rights provides the taxpayer with;
The right to available information and prompt, accurate responses to
questions and requests for tax assistance;
The right to request assistance from a taxpayers' rights advocate of the
department who shall facilitate the resolution of taxpayer complaints
and problems not resolved through the normal administrative channels
within the department, including any taxpayer complaints regarding
unsatisfactory treatment by department employees;
The right to be represented or advised by counsel or other qualified
representatives at any time in administrative interactions with the
department, the right to have procedural safeguards with respect to
recording of interviews during tax determination or collection
processes conducted by the department, the right to be treated in a
professional manner by department personnel, and the right to have
audits, inspections of records, and interviews conducted at a
reasonable time and place except in criminal and internal
investigations;
The right to freedom from penalty attributable to any taxes
administered by the Department of Revenue; freedom from payment
of uncollected sales, use, motor or special fuel, or other transactionbased excise taxes administrated by the Department of Revenue, when
the taxpayer reasonably relies upon binding written advice furnished to
20-4
Program Training
2014
the taxpayer by the department through authorized representatives in
response to the taxpayer's specific written request which provided
adequate and accurate information;
The right to obtain simple, nontechnical statements which explain the
reason for audit selection and the procedures, remedies and rights
available during audit, appeals and collection proceedings, including
but not limited to, the rights pursuant to the Taxpayer's Bill of Rights,
and the right to be provided with a narrative description which
explains the basis of audit changes, proposed assessments, assessments
and denials of refunds; identifies any amount of tax, interest, or
penalty due; and states the consequences of the taxpayer's failure to
comply with the notice;
The right to be informed of impending collection actions which require
sale or seizure of property or freezing of assets, except jeopardy
assessments, and the right to at least 30 days notice in which to pay the
liability or seek further review;
The right to have other collection actions attempted before a jeopardy
assessment unless delay will endanger collection, and, after jeopardy
assessment, the right to have an immediate review of the jeopardy
assessment;
The right to seek review, through formal or informal proceedings, of
any adverse decisions relating to determinations in the audit or
collections processes;
The right to have the taxpayer's tax information kept confidential,
unless otherwise specified by law;
The right to procedures for retirement of tax obligations by installment
payment agreements which recognize both the taxpayer's financial
condition and the best interests of the state, provided that the taxpayer
gives accurate, current information and meets all other tax obligations
on schedule;
The right to procedures for requesting cancellation, release, or
modification of liens filed by the department and for requesting that
any lien which is filed in error be so noted on the lien cancellation
filed by the department, in public notice, and in notice to any credit
agency at the taxpayer's request;
2014
Program Training
20-5
The right to assurance that the individual employees of the department
are not paid, evaluated, or promoted on the basis of the amount of
assessments or collections from taxpayers;
The right to an action at law within the limitations of s. 768.28,
relating to sovereign immunity, to recover damages against the state or
the Department of Revenue for injury caused by the wrongful or
negligent act or mission of a department officer or employee;
The right of the taxpayer or the Department, as the prevailing party in
a judicial or administrative action brought or maintained without the
support of justifiable issues of fact or law, to recover all costs of the
administrative or judicial action, including attorney's fees;
The right to have the department begin and complete its audits in a
timely and expeditious manner after notification of intent to audit;
The right to have the department actively identify and review
multistate proposals that offer more efficient and effective methods for
administering the revenue sources of this state;
The right to have the department actively investigate and, where
appropriate, implement automated or electronic business methods that
enable the department to more efficiently and effectively administer
the revenue sources of this state at less cost and effort for taxpayers;
The right to waiver of interest that accrues as the result of errors or
delays caused by a department employee;
The right to participate in free educational activities that help the
taxpayer successfully comply with the revenue laws of this state;
The right to pay a reasonable fine or percentage of tax, whichever is
less, to reinstate an exemption from any tax which a taxpayer would
have been entitled to receive but which was lost because the taxpayer
failed to properly register as a tax dealer in this state or obtain the
necessary certificates entitling the taxpayer to the exemption;
The right to fair and consistent application of the tax laws of this state
by the Department of Revenue.
20-6
Program Training
2014
SELF-CHECK QUESTIONS
1. How many days after the Notice of Proposed Assessment (NOPA)
is issued does a taxpayer have to file a protest with the
Department?
A.
B.
C.
D.
30 days.
60 days.
90 days.
120 days.
2. When a taxpayer disagrees with the outcome of an audit, they may
choose to do the following:
A. Petition for a formal hearing under Chapter 120,
Administrative Procedures Act or file an action in Circuit
Court within 120 days of the date the NOPA is issued.
B. Petition the District Court of Appeals within 30 days of the
date of a Notice of Decision or Notice of Reconsideration.
C. Protest the proposed assessment (NOPA) to the department
within 60 days of the date the NOPA was issued.
D. All of the above.
2014
Program Training
20-7
20-8
Program Training
2014
SELF – CHECK ANSWERS
1. How many days after the Notice of Proposed Assessment
(NOPA) is issued does a taxpayer have to file a protest with the
Department?
A.
B.
C.
D.
30 days.
60 days.
90 days.
120 days.
Explanation:
See “PROTESTS BY THE TAXPAYER, Field
Conferences”. When the audit is closed at the field level a Notice of
Proposed Assessment (NOPA) is issued in Tallahassee by the
Compliance Support Process. Taxpayers must protest, in writing, the
proposed assessment to the DOR within 60 days or lose their right to
an informal protest within the Department.
Choice A is incorrect. See “Field Conferences”. The taxpayer has 60
days to file a written protest or lose their right to an informal protest
within the Department.
Choice B is correct. See “PROTESTS BY THE TAXPAYER, Field
Conferences”. When the audit is closed at the field level a Notice of
Proposed Assessment (NOPA) is issued in Tallahassee by the
Compliance Support Process. Taxpayers must protest, in writing, the
proposed assessment to the DOR within 60 days or lose their right to
an informal protest within the Department.
Choice C is incorrect. See “Field Conferences”. The taxpayer has 60
days (not 90 days) to file a written protest or lose their right to an
informal protest within the Department.
Choice D is incorrect. Taxpayers that do not seek an informal protest
have 120 days from the date the NOPA is issued to petition for a
formal hearing under chapter 120, Administrative Procedures Act, or
2014
Program Training
20-9
file action in Circuit Court. See “Field Conferences”. The taxpayer
has 60 days (not 120 days) to file a written protest or lose their right to
an informal protest within the Department.
2. When a taxpayer disagrees with the outcome of an audit, they
may choose to do the following:
A. Petition for a formal hearing under Chapter 120,
Administrative Procedures Act or file an action in Circuit
Court within 120 days of the date the NOPA is issued.
B. Petition the District Court of Appeals within 30 days of
the date of a Notice of Decision or Notice of
Reconsideration.
C. Protest the proposed assessment (NOPA) to the
department within 60 days of the date the NOPA was
issued.
D. All of the above.
Explanation: See Module 20. If a taxpayer disagrees with the
outcome of an audit they may protest the NOPA to the Department
within 60 days. They may also petition for a formal hearing under
Chapter 120, or file an action in Circuit Court within 120 days of
the date of the NOPA. The taxpayer may also file action directly
in the District Court of Appeals within 30 days from the date on
the Notice of Decision (NOD) or Notice of Reconsideration
(NOR).
Choice A is incorrect. Although choice A is a correct answer,
since choice B and C are also correct, the best answer is choice D
“all of the above”.
Choice B is incorrect. Although choice B is a correct answer,
since choice A and C are also correct, the best answer is choice D
“all of the above”.
Choice C is incorrect. Although choice C is a correct answer,
since choice A and B are also correct, the best answer is choice D
“all of the above”.
Choice D is correct. See Module 20. If a taxpayer disagrees with
the outcome of an audit they may protest the NOPA to the
Department within 60 days. They may also petition for a formal
hearing under Chapter 120, or file an action in Circuit Court within
20-10
Program Training
2014
120 days of the date of the NOPA. The taxpayer may also file
action directly in the District Court of Appeals within 30 days from
the date on the Notice of Decision (NOD) or Notice of
Reconsideration (NOR).
2014
Program Training
20-11
20-12
Program Training
2014
FLORIDA TAXPAYER PROTEST AND APPEAL PROCESS
DR-1215
(NOI)
Within 30 days
Taxpayer
Conference
Taxpayer Agrees
Taxpayer
Agrees
Notice of
Proposed
Assessment
(NOPA)
Within 120 days
Within 60 days
Taxpayer
Petitions for
Within 60 days Administrative
Hearing or Files
in Circuit Court
Taxpayer Protests
Assessment with
Compliance
Support Process
Resolved
TADR Issues
Notice of
Decision
(NOD)
Within 30 days
Taxpayer
Petitions for
Reconsideration
(NOR)
TADR Notifies
Taxpayer of
Final Decision
2014
Program Training
Within 30 days
Decision
Rendered
Appeal
Decision to
District Court
of Appeals
20-13
20-14
Program Training
2014