Articles Tagged with “Fort Lauderdale Sales Tax Attorney”

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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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Over the past few years the Florida Department of Revenue (“FDOR”) has launched several new campaigns. About 2 years ago, the DOR gained the ability to access the data tracking all tobacco and alcohol items sold to retailers. Armed with third party data, the FDOR did several thousands of audits on those that sold tobacco or alcohol items. With the downturn in the economy, times are tough for the State of Florida and they are launching a similar campaign against auto dealers using DMV records. It was also brought to our attention that the DOR is launching a new campaign by training its auditors for motor fuel tax audits as well.

Has the FDOR reached out to your company or your client’s company about a pending Florida Motor Audit? If you or your client already received the Florida Form DR-840 – Notice of Intent to Audit Books and Records, then that means you have the joy of experiencing an audit. Under Florida law, you have 60 days in which the FDOR cannot bother you unless you waive it. We usually recommend that the Taxpayer use this 60 day period to organize their documents and get prepared for the audit. Around the 120 day mark, a Florida DOR auditor will push to start the audit and they are trained to come into your business with a smile and pretend that they are just there to help.
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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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As a Florida state and local tax attorney I live in the world of strange. Few attorneys or tax professionals are even aware of our peculiar area of the law. Even fewer attorneys or tax professionals have heard of, let alone practiced in the even stranger area of Native American Taxation. During my travels and while earning my LL.M. at NYU, I was one of the few fortunate souls to be exposed to this spin off of state and local tax. In fact, there are only two courses offered in the United States at the LL.M. level on this subject. Native American Taxation is poorly developed, the rules are unclear, and the cases make no sense whatsoever. While this is common for Florida attorneys like me who live in a world with no clear answers, living in this gray area of the law is uncomfortable for most lawyers and professionals.

From a legal perspective, a state’s ability to tax tribal activities turns on 1) whom is being taxed, Indian vs. Non-Indian and 2) where the transaction is taking place, on vs. off the reservation. One of the primitive cases, Utah Railroad, from 1885, stands for the idea that a state’s power to tax is at its weakest if the tax is imposed on a reservation and the burden falls on a member of a tribe. For example, Mescalero says that ad-valorem tax (property tax) cannot be imposed by a state for real estate located on a reservation. Similarly, a case called McClanahan holds that a state cannot tax a Native American’s income if it is derived from within the reservation’s borders. If sales are wholly made to Indians on the reservation then a state cannot impose its sales tax on those transactions. Warren trading.
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On March 28, 2013, Overstock and Amazon lost their challenge of a state tax on online sales in New York’s highest court. Further, the the Supreme Court of United States declined hearing the case, because the court determined that such a law did not violate the federal Commerce Clause. Following the Amazon decision, we expected the states to follow New York’s lead and enact its own click-through-nexus laws.

In 2011, Illinois did just that. Specifically, Illinois has a nexus law that required any company with a place of business in Illinois to collect and remit tax to Illinois. In 2011, Illinois enacted its so-called “Click Through” nexus law, which required a business to collect and remit tax if it has contact with a person or business in Illinois who referred customers to the business’s website for a commission. In this case, the trade group believed the law to be unfair, so it challenged it in court. After enacting its version of the “Click Through” Nexus law in Illinois, the Illinois courts struck it down.

With the “Click Through” Nexus debate rounding third, Illinois threw the state and local tax (“SALT”) community a curve ball with its ruling in Performance Marketing Association v. Hamer. Specifically, the court determined that such a law did violate the federal Commerce Clause and the Internet Tax Freedom Act. Many wondered if Illinois would just draft a new law to attempt to capture online-retailers, similar to the way New York did.

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The Constitution gives the power to Congress, and Congress alone, to regulate commerce with foreign nations. This means the individual states cannot regulate commerce with foreign nations. This concept is known as the Foreign Commerce Clause. While it seldom comes up in the area of state taxation, the Foreign Commerce Clause states, “Congress shall have Power . . . To regulate Commerce with foreign Nations, and among the several States . . .” This idea seems fairly simple conceptually, however, it can be difficult in practice to determine whether a state tax impedes on Foreign Commerce.

Since 2009, Indiana has been wrestling whether a provision of its state corporate income tax impermissibly burdens interstate commerce. Specifically, Caterpillar Inc., the world’s largest manufacturer of construction and mining equipment, took exception with a portion of Indiana’s corporate income tax law. As it turned out, Caterpillar incorporated in Delaware and had its headquarters in Peoria, Illinois and had one of its many plants in Lafayette Indiana. It also happened to own some 250 subsidiaries, most of which were foreign corporations.
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One of the main goals accomplished by legalizing marijuana in Colorado was the perceived increased revenue stream from state tax. Lawmakers strongly believed Colorado would benefit financially from the legalization of marijuana in its state. To their shock and dismay, the legalization has not been as profitable as lawmakers had hoped.

By way of brief background, Colorado enacted a pot tax in 2013. Specifically, on November 5, 2013, Colorado voters passed the pot tax. The tax operated similar to other sin taxes in that it came at a hefty rate. Recreational marijuana sales were subjected to a 25% tax which went into effect on January 1, 2014. Of the 25%, 15% will be tagged for public school construction projects and 10% was earmarked to funding enforcement regulation on the retail pot sales. This excise tax, which is similar to tobacco and cigarette taxes, is in addition to 2.9% sales tax at the retail level. Colorado estimated that the recreational marijuana tax would generate about $100 million in revenue within the first two years. However, as Colorado’s Legislative Council economist Larson Silbaugh eloquently put it “I think our original assumption about cannibalization was wrong.”

In fact Colorado’s projection on its pot tax was off by about 60 percent. In its first fiscal year, the tax generated just over $12 million, which was down from its $33.5 million projection. This also scaled back its year 2 projections from the $100 million number to about $30 million.

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Anytime I go out to eat or to a fast food restaurant, my mind automatically thinks in terms of ways a company can save wasteful state tax dollars in its operation. Whether I am at a restaurant that hands out silverware, a fast-food chain that offers plastic silverware, or a restaurant that gives away items, the use tax issues can likely be avoided if the company practiced careful sales and use tax planning techniques.

Over the past few years, a couple of cases in Alabama showcase the ongoing dilemma. The first case involved Logan’s Roadhouse. Many of us have been to a Logan’s across the country and enjoy the ability to eat peanuts and throw the shells all over the floor. But how many of us, aside from me, actually analyze the sales and use tax implications of this practice? Peanut Shells.jpgAre the peanuts being purchased by Logan’s and resold to its customers? Or is Logan’s purchasing the peanuts for its own use as a giveaway to its customers?

In a similar case, Kelly’s Food Concepts (KFC, Popeye’s, and Church’s Chicken) illustrates a common restaurant problem that has been litigated since the creation of the sales tax. Are items purchased by a restaurant such as napkins, utensils, straws, stirrers, trays, kitchen supplies, ketchup, salt and pepper, toilet paper, and other items on the table, for the restaurants use or resold to the customer for its use?

Without immediately diving into the cases, it seems appropriate to explain a common problem faced by the state and local tax professional. Most states (45) have a state sales tax regime. The sales tax attempts to tax consumption by adding a tax to the end-user of tangible personal property (“TPP”). While each state various as to exactly what is and is not taxable, every state that I am aware of has a sale for resale exemption. That means that when a business purchases something it does not pay tax but rather charges tax to its customer when the item is resold. Conversely, the business is the end user on items it purchases for its own use (items not for resale) and it owes a use tax on those items. While it seems obvious whether an item is an exempt sale for resale, as shown by a couple simple examples above, this inquiry can become quite complicated.

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As many of my readers know, I have been a regular author for the FPMA over the past year. I have spent the better part of that period discussing the onslaught of convenience stores by the Florida Department of Revenue. While our firm has been successful in reducing many assessments against dozens of C-stores throughout the state, I found it appropriate to discuss something in a positive light.

Last year in 2012, I discussed a case known as Micjo. In Micjo, the crux of the case was whether the Department could charge tobacco tax on shipping charges and excise taxes. Specifically, Florida Law imposes taxes of about 85% on other tobacco products (“OTP Tax”), based on the so-called “wholesale sales price” as defined in section 210.25, Florida Statutes (“F.S.”). Under Florida Law, the “wholesale sales price” means “the established price for which a manufacturer sells a tobacco product to the distributor.”

While this seems like a fairly straightforward analysis, the Division of Alcohol and Tobacco (“ABT”), believed the “wholesale sales price” was the total amount on the invoice, which included the amount the wholesaler paid for the tobacco, shipping, and federal excise taxes. Like many agencies tend to do, ABT “reminded” the court that the court owed it deference in statutory interpretation. Taking the contrary position, the court agreed with Micjo in that the “wholesale sales price” was clear in that it meant the price of the tobacco only.

While it appeared to be a fairly straightforward opinion, our state and local tax firm has seen in practice over the past year that in many counties (outside of the second district), ABT has “shockingly” ignored the opinion. Can it do this? Of course! It is the all-mighty agency.
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Without getting into a tedious history of a sales tax, the tax was essentially created during the Great Depression in the 1930’s. The first sales tax laws were hastily and poorly drafted. The poorly drafted laws were copied from state to state. The sales tax regime was designed to tax individuals on the price of goods acquired for personal consumption. Conversely, the tax should not apply to the purchases made for business use, or what is known as business inputs.

In the early days, the easiest (not necessarily the correct) way was to tax the retail sale of tangible personal property (“TPP”). It is this primitive ideal which is embedded in the 50-60 year old sales tax laws that has created many of the issues in our much more complex economy of the 2000’s. Even with the changing of the times and the economy, our lawmakers and courts continue to ask the age old question that comes along with the foundation of the sales tax policy and design. Courts and lawmakers continue to struggle with what is “TPP” as opposed to real or intangible property. Why has no one stopped to think whether this should be the question at all? Shouldn’t the question be whether the goods are personally consumed as opposed to a business input? It is this fundamental problem and the state’s unwillingness to ask this question that has led to many of the inconsistent and puzzling rulings. These issues have been in the forefront for several decades and until the states change their way of thinking, these issues will continue to be problematic in effectively administering a state sales tax.

A classic example of the TPP versus intangible conundrum is Washington Times Herald v. District of Columbia, 213 F. 2d 23 (D.C. Cir. 1954). This case involved a newspaper publisher which purchased comic strips from an artist. The comic strips were delivered on mats (TPP). In this case the court was confronted with whether the newspaper was purchasing taxable TPP or nontaxable service contracts. The court decided that the transaction was for nontaxable artistic services because without the art the mats were practically worthless.

In a strikingly similar scenario, the D.C. District Court was faced with the same problem in 1964 in District of Columbia v. Norwood, 336 F. 2d 746. Instead of newspaper mats, Norwood purchased motion pictures. Clearly if a drawing delivered on a mat is for professional services, a motion picture delivered on a film is for services as well, right? Without much analysis the court stated that the sales were clearly of taxable TPP.Movie FIlm.jpg
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