Articles Tagged with “Florida sales tax”

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The Supreme Court of the United States (“SCOTUS”) has had its hands full with tax cases this year. Although largely unpopular and unexciting for the general public, SCOTUS find tax cases even less appealing. In fact, since 1992 in Quill, SCOTUS has not heard a case dealing with sales tax nexus. Despite its unpopularity, the nexus issue is an important one since the advent of the Internet. However, every statistic has its anomaly. From a state tax perspective, SCOTUS issued two opinions in 2 days, which is impossible. The first case, the DMAcase came down yesterday, March 3, 2015, ruling that a taxpayer could embark on a constitutional challenge to a state tax in federal court. Even more riveting, SCOTUS ruled today, March 4, 2015, in theCSX case.

By way of brief background, federal law prohibits states from imposing taxes that “discriminate against rail carriers.” With that in mind, Alabama decided to impose a 4% tax on diesel fuel purchases made by a rail carrier and exempt similar purchases made by other competitors, namely motor and water carriers. However, motor carriers pay 19 cents per gallon of fuel tax on diesel purchases and water carriers don’t pay tax on diesel fuel purchases. Is this the type of discrimination the feds were talking about? Does anyone really care?
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Direct Marketing Association has continued its fight for consumer privacy with Colorado. In September, 2014, I wrote about how DMA has taken its challenge up to the Supreme Court of the United States. DMA filed its opening DMA Brief.pdfin the Supreme Court of the United States on September 9, 2014 and argued that the case should be allowed to be heard in federal court. A summary can be found DMA Summary.pdf. The Supreme Court heard the case in its recent term and announced its opinion on March 3, 2015. From a state and local tax perspective, the case has broad and interesting constitutional issues.

At its heart, Colorado thought it would effective to enact a law that affected “non-collecting retailer.” In Colorado’s eyes, if a company made sales in Colorado over $100,000, then it was subject to a host of regulation, including: provide notices to Colorado purchasers, send annual purchase summaries to the customers and send the report to Colorado. This all had to be done despite the fact the company had no nexus, or connection, with Colorado. DMA, agroup of businesses and organizations that markets products using advertisements, thought this was incredibly onerous and unfair, so it challenged the Colorado law in federal court. At trial, the DMA convinced the trial court that this law was impermissible because it convinced a judge that the law discriminated against, and placed an undue burden on interstate commerce.
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Most states attempt to encourage manufacturers to set up a business in their state. Manufacturers typically provide numerous benefits to a state’s economy such as job creation. One of the carrots typically used by a state is to offer sales and use tax incentive for a manufacturing company. In almost every state with a sales and use tax, machinery and equipment purchased for use in the manufacturing process is exempt from tax. What if a glass manufacturer purchased chemicals, such as nitrogen and hydrogen for use in its glass manufacturing process? Would that be a tax exempt purchase of equipment?
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Although nexus sounds like a terrible disease, it is just a fancy word meaning a connection or link. If a company has enough of a connection or link to a state, then the state can impose its power of the company. With nexus, a state can impose its laws on the business including sales tax laws. From a sales tax perspective it can require the business to charge, collect, and remit state taxes such as sales tax. In 1992, Quill v. North Dakota was decided, which announced that having a physical presence in a state was sufficient nexus to require a company to follow a state’s state and local tax laws. In other words if your business has an office, a warehouse, some inventory, or a person (employee and yes, an independent contractor) then it likely has nexus under the physical presence test in Quill.

For life in the 1990’s this was big news to businesses who engaged in innovative marketing. Businesses that were on the cutting edge that sent things like mail order catalogs and floppy disks to solicit customers were being harassed by states alleging they had nexus. Today, with the internet as the backbone to the modern economy, states are trying the same tactics by creating laws to get more companies under its rule.

In 2008, New York led the innovative charge for click through nexus legislation. Also known as the “Amazon law,” due to its perceived targeting of Amazon, New York created a law that if a New York residents website generated over a certain number of sales in a 12 month period for a particular company, then there was a presumption that such company had nexus in New York. Amazon and Overstock took exception with this law, but ultimately lost at New York’s highest court. Unfortunately, the Supreme Court of the United States declined to hear the case.
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In order to limit liability, many tax professionals and attorneys offer simple advice to their business clients who also own real estate. In order to avoid exposure to valuable real estate, many business owners are advised to segregate the risky business operations into its own legal entity separate from the real estate. While it may be worthwhile from a business liability standpoint, it is often a recipe for disaster for Florida sales tax purposes.

Florida is the only state that taxes commercial rent. In fact, many tax professionals take it a step further. Man times, for federal tax and cash flow purposes, attorneys set up a lease between the real estate entity and the business entity, often equal to the mortgage, insurance, and property tax costs. In other situations, and often with no formal lease in place, the corporate attorney will just have the business entity pay the mortgage, property insurance, and real estate taxes directly on behalf of the real estate company. Whether there is a lease, or if the tenant company pays the expenses directly, or even if the companies are related then Florida sales tax still applies. Below are 4 simple rules to keep in mind when it comes to Florida sales tax on commercial rent Continue reading

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Anytime I need a gift for just about any reason, 1-800 Flowers or Flowers.com, is where I turn to first. The online retailers make it incredibly easy for someone who needs as much help as I normally do to send gifts to others. I can just go online, pick one of their pre-packaged gifts, give them my credit card, and then the recipient magically receives the gift as quickly as I need it. Recently, the Florida Department of Revenue decided that it is entitled to sales tax whether the flowers are delivered in Florida or outside of its borders. Being that this is contrary to normal sales tax destination rules, the taxpayer decided to fight back.
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It never ceases to amaze me, the wide variety of companies that state agencies attempt to extort money from. Most states impose a sales tax on the sale or rental of tangible personal property. But what happens when the sale is part tangible personal property, part service (“known to the sales and use tax attorney as a “mixed transaction”)? Is the entire transaction subject to tax? Many states take the incredibly helpful, “it depends” approach and look to an even more helpful “object of the transaction” test. In reality, it truly seems like state agencies and courts reach a conclusion and fill in the reasons later.

By way of brief background, since the mid-1900’s, when states enacted their first versions of a sales tax, many courts created this “object of the transaction” test. The test attempted to formulate what the customer was really buying, product vs service. If it was a service then it is generally not taxable, but if it is a product then it typically is subject to sales tax. For example, if you went to a lawyer for advice and left with a tangible document, like a will, then you were obviously buying a service and the will was incidental. Conversely, if one goes to a restaurant, they are clearly buying the food, not the service involved in a chef using his or her expertise to put a well tasting meal together. Viewing everything in this light, one can make an argument in virtually any item it buys. If you buy a photo are you buying the tangible photo or the artistic service involved in taking or creating the picture? At the dentist’s office are you buying a professional service or the tangible cavity filling when you get your tooth fixed? The list can go on and on.
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Now more than ever Amazon has been a one stop shop for many consumers. Not only can you buy just about anything you can think of on the Amazon website, but you can also receive lightning fast delivery of whatever you buy. Over the past few years, Amazon has taken their company to the next level. Now, in addition to selling items, Amazon provides a fulfillment service to online retailers.

As Amazon puts it, their fulfillment business “helps you grow your online business by giving you access to Amazon’s world-class fulfillment resources and expertise.” Simply put, the online retailer sends their products to Amazon. Amazon stores the item at one of its distribution centers. Once the item is purchased, Amazon packs and ships your product to the customer. In addition, Amazon provides customer support. While it certainly charges a fee for its services, Amazon boasts that retailers’ sales significantly increase. However, from a state and local tax perspective, this can create a ticking time bomb for the online retailer.
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Many states, like my home state of Florida, have broad freedom of information laws. Known in Florida as the Sunshine Laws, the state’s citizens can request a wide range of information from the government. Under the laws, so long as the information is not made confidential by a specific statute/law, then the government has an obligation to provide the citizen with whatever is requested. As a state and local tax (“SALT”) practitioner, I often use this knowledge to my advantage. I often request documents and statistics from the state that I find beneficial to myself, my client, or my practice.

Other states have similar laws. In Kentucky, the Open Records Act gives its citizens a mechanism to request a broad spectrum of information from its government. Like many state agencies believe, the Kentucky Department of Revenue thought it was above the law. In a decision sounded on no legal basis, the DOR in Kentucky did not make available to its citizens some 700 administrative court decisions because it feared it would disclose confidential taxpayer information. Further, the DOR argued that producing some 700 opinions was overly burdensome and would not be helpful to its citizens. Mark Sommer, an attorney in Louisville, had a fundamental problem with the secrecy of the government and challenged the DOR’s interpretation of the law by filing suit.
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In May 2013, a bill passed the Florida Legislature which developed rules for Florida’s natural gas vehicle rebate program. In June 2013, Governor Rick Scott signed HB 579, which indicates he was on board with the Legislature’s proposal. Specifically, the bill provides a rebate of $25,000 per commercial fleet vehicle for its conversion to natural gas.

The bill comes during a time which the country is trying to move away from its oil dependence and shift its consumption to a cleaner and more available fuel source. Supporters of the bill believe this step will result in the development of stations to carry the cleaner fuel line and make it more available. Companies such as Clean Energy are obviously ecstatic for the bills passing as it all but ensures greater revenue in Florida. The Natural Gas association released a comment showing its support and enthusiasm for the new legislation.

From my perspective, as a Florida sales and use tax and motor fuel tax attorney, the legislation has some tax benefits as well. Included in the bill is a provision for a state tax break on natural gas consumption that is set to begin in 2019. Further, the tax on natural gas is much lower than its diesel fuel competition from a federal tax perspective. It appears the bill will provide a rebate for fleets of three or more and placed in service after July 1.

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