Articles Tagged with “Tampa Sales Tax Attorney”

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Many state and local tax (“SALT”) practitioners often refer to state and local transaction taxes as “gotcha” taxes. Over ambitious state agencies seek to extort money from businesses all the time by using fire first, ask question later type tactics. SALT auditors write up whatever they can as taxable and force businesses to prove them wrong. Similar to state and local sales and use taxes, motor fuel tax can often be a mine field for the unsuspecting business. In a 2014 decision, a Pennsylvania court agreed with the revenue agency’s “gotcha” mentality in Luther P Miller Inc v. Pennsylvania, 88 A. 3d 304 (Pa. Comm’w Ct 2014).
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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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Anytime a state agency, such as the Florida Department of Revenue (“FL DOR”) gets their hands on third party reporting, you can rest assured they will be coming after that industry in full force. In 2011, the FL DOR passed a law that required wholesalers of alcohol and tobacco to report all of their sales to retailers directly to the FL DOR. Being that the FL DOR knew what each convenience store, liquor store, restaurant, and bar bought by way of beer and cigarettes, they could easily compare them to the same retailer’s sales tax returns. For those that the FL DOR suspected of underreporting or just pocketing the sales tax, the investigation letters started in late 2011 followed by some 200 audit notices per quarter in early 2012. Now about three years later, one can only suspect that the next FL DOR “campaign” will be focused on the next industry in which the FL DOR could most easily get it hands on. So who’s next?

For years the Department of Revenue had access to DMV reports that could show the cars being sold by a retailer with a Florida dealer license. In late 2013 through early 2014, our friends in Tallahassee formulated a methodology that more quickly, efficiently, and accurately compared the DMV reports and warned us the notices were coming. With that in mind, we knew the auto industry was next on the FL DOR’s hit list.
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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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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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