State and Local Tax Attorney

Published on: August 19, 2013

Received Florida Sales and Use Tax Audit Notice – What Do I Do?

Part 3: Audit Ends, What Do I Do?
A daunting reality sets in for many Florida taxpayers when the audit report is issued. To say the majority of Florida taxpayers under a Florida sales tax audit have a meltdown is an understatement. Many taxpayers and other Florida tax professionals believe that this is the end of the road for their journey to a sizeable tax bill. However, this is when our job as Florida tax attorneys really begins.

Upon the completion of a Florida tax audit, the Department of Revenue issues a notice of proposed assessment (a “NOPA”). The NOPA is an important document for two reasons. First, it signals that the Florida sales tax auditor is done with the file at the local office and has sent it to Tallahassee. More importantly, if the Taxpayer or the Florida state tax professional does not know what to do, the NOPA means the company better act fast.

Pursuant to Florida law and the NOPA itself, the assessment becomes final in 60 days if it is not contested. This means that the Taxpayer or its CPA or attorney has 2 months to file a protest with Tallahassee. For those of you more familiar with IRS controversy work, this is the equivalent to filing an appeal with the IRS. For the first time, the Taxpayer and its power of attorney is dealing with a different group of theoretically unbiased conferees that evaluate the case with judgment, rather than in black and white, like the auditors are trained to see the world. A well drafted protest can be an impressive presentation by the Taxpayer if done correctly, and it should contain factual and legal assertions to refute the audit assessment. We generally also elect to have a conference with the Department, at which point we very simply lay out the posture of the case and point them to what we believe to be important.
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Published on: July 19, 2013

Received Florida Sales and Use Tax Audit Notice – What Do I Do?

By Jerry Donnini, Esq.

It’s a grim and nerve-racking day for many when they receive the infamous DR-840, Notice of Intent to Audit Books and Records, from our friends at the Florida Department of Revenue. Many Florida taxpayers often ask themselves, “Why me?” Or, “What did my company do wrong in order to receive this notice?” The answer to both of these questions is obtainable from the Florida sales and use tax auditor by simply asking them. In many situations, the company is audited because its exempt sales ratio is out of the average range for similar companies in its industry. Other companies are flagged for audit because the sales reported on their 12 monthly sales and use tax returns do not correspond to the gross sales reported on their federal income tax return. Many other companies are flagged purely at random.

While the reason may be for a variety of reasons, once the notice is received, the reason for its reception is virtually irrelevant. The more relevant inquiry should be, what should we do next? Ideally, it makes sense for many Florida businesses to hire a law firm or a CPA firm versed in Florida sales and use taxes. This is true even if the company has immaculate records and nothing to hide in connection with a Florida sales and use tax audit. Hiring a professional that is experienced in handling a Florida Sales and Use tax audit is an excellent way to walk you or your client through the audit process. In addition, having a Florida sales and use tax professional is invaluable in helping your company or your client’s company organize the information in a presentable manner that will help keep a sales tax assessment to a minimum.

Florida law and the verbiage on the DR-840 clearly states that the FL DOR cannot start the audit for 60 days and it must start the audit within 120 days. The 60 days is waive-able and the auditor will push for a waiver in order to get the audit moving. We generally recommend that the 60 days not be waived, but instead be used as a period in which to get all of your information organized for presentation. We call this the homework period in which the Taxpayer, if they elect to hire us, is given a checklist of homework to complete within the 60 day period.

The obvious next question is, what should I be organizing?
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Published on: July 10, 2013

Florida Tobacco Tax Audit Company Contests $1 Million Assessment?

By Jerry Donnini, Esq.

As many are aware, I have been writing a number of blogs and articles recently discussing the Department of Business and Professional Regulation here in Florida and its potentially unfair audit tactics. Many of you have seen cigar wrappers, or the more scientifically described “blunt wraps”, at convenience stores and gas stations throughout the state and country. Are those items tobacco products subject to Florida’s other tobacco products tax? On the surface it seems questionable, but after digging into the law and writing about this issue for some time now, the law seems to make it clear.

This was exactly the issue in a recent case,New Image Global Inc – Complaint.pdf. In short, the case was filed by New Image Global for a massive other tobacco tax assessment. The tax, penalty, and interest amounted to $1,082,494 at the time of the Complaint. The Assessment has since been reduced, but the argument still remains the same. The case addresses whether or not cigar wrappers, or their more informal title, blunt wraps, are subject to Florida’s other tobacco tax (“OTP”).
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Published on: June 14, 2013

Governor Scott Accepts Amazon Deal

By Jerry Donnini, Esq.

In many states Amazon does not have any physical locations or employees, therefore, Amazon is not required to charge and collect sales tax in many states. States have taken aggressive tactics by arguing that Amazon has affiliates in their state or servers in their state which constitute nexus and require the online retailer to charge and collect tax. Unfortunately, for the states that get pushy with Amazon, Amazon in turn threatens to cancel its affiliate programs which would leave many state residents jobless. What ends up happening is the state gives Amazon immunity from tax collection for a few years and Amazon concedes to nexus after the period. In addition, Amazon also agrees to build a facility that will bring jobs to a state.

On May 16, 2013, the Daily Business Review reported that Governor Rick Scott of Florida rejected a deal to bring Amazon to Florida. The moved shocked many Florida state and local tax professionals as many other states have accepted similar deals to bring Amazon to their state. Further, Amazon did not charge sales tax to Florida residents. While Florida residents are required to pay use tax on online purchases, close to no one remits use tax.

On June 14, 2013, my hometown newspaper, the Palm Beach Post reported the Governor changed his mind. Specifically, between now and 2016, Amazon will move to Florida which will bring thousands of jobs to the state. The project will cost an estimated $300 million. From a state and local tax attorney’s perspective this also means that Amazon will have to start charging tax on its online sales to Floridians. While it was undisclosed one can assume that Amazon will be getting incentives for the construction project. It will be interesting to see where the locations of the new Amazon facilities will be.

Published on: June 10, 2013

The Future of State and Local Tax: Look to the Stars … I Mean the Clouds

By Jerry Donnini, Esq.

Aside from the Marketplace Fairness Act, cloud computing has dominated the sales tax world in 2013. With more and more companies using software as a service (SaaS), platform as a service (“PaaS“), and infrastructure as a service (“IaaS“), more and more uncertainty has arisen in the sales tax world.

Cloud computing is a service that allows users or members of a business to access software from a remote server. It allows businesses to access the same integrated software without the expensive hardware costs because the software is internet based rather than physically based in an office.

Most states with a sales tax, tax software to some extent. Many states tax the purchase of canned software. Canned software is software produced by a manufacturer and not changed or altered for a specific company. If the software is altered, it is not canned software and not subject to sales tax in many states. Still, other states look to whether the customer receives something tangible like a disk with their purchase to determine whether software is taxable or not. But, how does this work if the canned software is accessed in the “cloud”? Is it a sale of tangible personal property? Is it the sale of canned software? A number of problems have been created by this fairly recent innovation, and states are struggling to keep pace.
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Published on: May 8, 2013

Senate Passes Marketplace Fairness Act By Overwhelming Majority

By Jerry Donnini, Esq.

On May 6, 2013, Senate passed the Marketplace Fairness Act . It was announced that the bill passed with a vote of 69 to 27. The bill provides for an exception for businesses with sales of less than $1 million annually. States which are members to the Streamlined Sales and Use Tax Agreement are automatically granted the authority and the remaining states are required to grant the authority. The legislation will now make its way to the House of Representatives, where anything can happen.

The Act is an attempt to provide clarity and certainty in a grey area of the law. While many proponents of the bill seem to think it puts all Internet retailers on a equal playing field, it is really just an enforcement tactic of existing tax law. Those not in favor of the law point to the administrative burdens placed on small taxpayers. It is true that software exists to calculate the tax rates in the countries 45 states with sales tax and some 9,600 jurisdictions, it may becomes extremely burdensome and expensive to determine what is and is not taxable.

I look forward to informing everyone about more developments in this evolving area of the law. I also welcome any comments on the issue.

Published on: April 21, 2013

IRS & Massachusetts Department of Revenue Show Compassion Following Boston Marathon Explosions

By Jerry Donnini, Esq.

It is difficult to change the channel without hearing some development this week in the Boston Marathon explosion. This week in April, 2013 has been mostly a dark one. However, as we tend to in the face of crisis, our nation has shown its resolve and unity. While it can never replace the loss of life and the feeling of fear that stemmed from the incident, there have been some rays of sunshine. Among the acts of good faith to those struck by this horrible event are the IRS and the Massachusetts Department of Revenue. Each has shown some leniency for its respective filing deadlines.

With tax day marked as April 15, 2013, the IRS allowed for an extension as a result of the tragedy. Specifically, the IRS has allowed for a three-month filing and payment extension to Bostonians and others affected by the explosions. Consequently, no filings or payments will be due if completed by July 15, 2013. The three-month leniency applies to all individuals who are residents of Suffolk County, Massachusetts, including the City of Boston. The IRS also allowed an extension for victims and their families, first responders, and those who had preparers that were adversely affected.

Piggybacking on this idea was the Massachusetts Department of Revenue for state and local tax filings. Massachusetts announced that state and local tax payers have another week to file their returns. That means any person or business that has personal, business, or corporate income tax returns has at least until April 23, 2013 to file their returns.

Published on: April 3, 2013

Hollingsworth v. Perry: California Same-Sex Marriage Case Will Have Tax Implications As Well

By Jerry Donnini, Esq.

I am sure many people, myself included, have seen the movements on the airwaves and social media discussing the same-sex marriage case out of California. From constant coverage online and on news stations, to many changing their Facebook default picture, the California same-sex marriage case has grabbed the national spotlight over the last few months in 2013. Unaware of exactly what was unfolding, I have attempted to become apprised of the situation in California. Although the ruling will likely have little value for a tax attorney in South Florida, it is interesting from a constitutional and tax law perspective.

By way of background, the status of same-sex marriage is unique in California because the state granted same-sex marriage licenses to couples in June, 2008. The same year in November, Proposition 8 ended same-sex marriages within California. Upset by the state constitutional amendment, a group took the issue to federal court to challenge the constitutionality of Proposition 8 and won on August 4, 2010 (See Perry v. Schwarzenegger). The case was appealed to the 9th Circuit Court of Appeals.

On July 31, 2012, Judges Reinhardt and Smith delivered the opinion of the 9th Circuit. Specifically, California enacted Proposition 8 which stripped the couples of the right to have their relationships recognized by the state as a “marriage.” Conversely, same-sex couples had all other rights and responsibilities, but California classified them as “domestic partners.” The challengers argued that the amendment violated the Fourteenth Amendment of the U.S. Constitution.
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Published on: February 18, 2013

Multi-State Sales and Use Tax: McDonald’s Participates in Sales Tax Savings Program

By Jerry Donnini, Esq.

As many of you are aware, today, February 18, 2013, is President’s Day. For many that means banks are closed and, more importantly, work is closed. For many others, like me, President’s Day really just feels like another day. However, this President’s Day is special thanks to McDonald’s.

Like most of the country, on my drive into work this morning, I heard about McDonald’s special President’s Day promotion. Specifically, if a customer purchases a Big Mac or Quarter Pounder, a second delicious sandwich can be purchased for a penny. Why did McDonald’s charge a penny, rather than just giving it away for free? Perhaps, the corporate executives at McDonald have read my riveting state and local tax blog last week.

For the few of you that did not read my blog I did last week, I wrote about the power of the sale for resale exemption offered by most states in their sales and use tax regime. In a nutshell, this means that when a business purchases something it does not pay tax but rather charges tax to its customer when the item is resold.

The policy behind the sale for resale exemption is that sales and use tax attempts to tax consumption by adding a tax to purchases made by the end consumer of a good or service. While each state varies as to exactly what is and is not taxable, every state that I am aware of has a sale for resale exemption. Conversely, if the business is the end user on items it purchases it owes a use tax on those items. The sale for resale exemption can be a very powerful multi-state sales tax technique if used correctly.
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Published on: February 5, 2013

Courts Headed In The Right Direction In 2012 By Ruling In Trademark Licensing Taxpayers’ Favor PART 5: Scioto Shows Due Process Challenge Still A Viable Avenue to State Income Tax Cases

By Jerry Donnini, Esq.

In 2012, Scioto Insurance Company v. Oklahoma Tax Comm’n, 279 P. 3d 782 (Ok 2012), the Supreme Court of Oklahoma was the most recent high court to tackle the question of foreign intellectual property holding companies. Similar to the line of cases addressed above, Scioto is a Vermont holding company with nothing in Oklahoma. Specifically, Scioto receives fees for the use of its intellectual property used based on a percentage of gross sales made by Wendy’s in Oklahoma.

Digging further into the facts of the case, Scioto was established to insure risks of Wendy’s restaurants. In order to establish Scioto, Wendy’s transferred intellectual property to Scioto. Scioto only insures Wendy’s International and does not insure any restaurants in Oklahoma, rather Wendy’s franchises individual restaurants within Oklahoma’s borders. In exchange for use of the intellectual property, Wendy’s restaurants in Oklahoma pay 4% of their gross sales to Wendy’s International and those amounts are included as income for purposes of its state income tax return. Wendy’s International then pays and deducts 3% of this payment to Scioto for use of the intellectual property.

The court began its analysis by stating that whether or not Wendy’s International received any payments from restaurants in Oklahoma it still had an obligation to pay Scioto for use of the intellectual property. The court went on to distinguish the case from Geoffrey in that Scioto was not a shell corporation and actually had a bonafide business purpose. Perhaps most interesting in the short opinion is the fact that the court seem to decide the case on due process grounds. This highlights the importance to a state and local tax professional to argue due process in addition to commerce clause nexus in state and local tax cases.