FLORIDA USE TAX ON INTERNET PURCHASES
Many companies, including our law firm, purchase goods through the internet or by phone from out of state companies. In our case, it may be computer equipment, video recording equipment, office supplies, electronics, marketing materials, evict.com T-Shirts, paper or the myriad items a firm of our size uses throughout the year in conducting business. These purchases are usually delivered by UPS, FedEx, the USPS and other common carriers. The reason for these purchases is simple. We try to save money so we can pass these savings along to our clients, make more money, and not have to raise our rates. When we can buy locally and support Florida businesses, we do, but money is money, and if a product is less expensive and equivalent in value, we will buy from an out of state company. We are not alone. Millions of Floridians, individuals and businesses buy products through the internet.
You may have noticed that most out of state purchases do not include sales tax. Unless a company has an agreement with the Department of Revenue (DOR) or otherwise operates and is registered in Florida, the out of state company does not charge you Florida sales tax or sales tax from its respective state, as it is not required to do so. This amounts to a nice savings indeed. An apartment community may purchase thousands of dollars in supplies or equipment from an out of state company. There may be a great deal on patio furniture or fitness room equipment from a company you found on the internet and you may be able to save a substantial amount of money. You may even attend a trade show where a national supplier who does not have a location in Florida is exhibiting, and one of its selling points is that if you purchase from it, not only are you getting a significantly reduced price, but since the items are coming from its North Carolina location, there is no sales tax, and you will thus save another 6% or more. What a great deal! If you can avoid legally paying a tax, why not? Do not the Florida coffers get enough from us already? Not so fast! You may be doing something completely illegal by not paying the taxes, even though you were not charged the taxes, and NOW, the DOR is beginning to crack down.
Do You Have to Pay Taxes on These Internet or Out of State Purchases?
The purchaser of goods from Florida or any other state MUST pay tax on these purchases, and this means YOU. The tax is not called a sales tax, but rather is called a “use” tax. This use tax is a minimum of 6% and may be more in certain counties or municipalities that have an additional “local option tax” or “discretionary sales surtax”. In fact, 59 of Florida’s 67 counties have a sales tax that exceeds 6%. Here are some examples below.
- Mountain View Apartments in Collier County purchases a $20,000 set of patio furniture from Fred’s Patio World in South Carolina. There is a shipping charge but no sales tax. Result: Mountain View Apartments now owes the DOR a 6% use tax totaling $1200 and MUST report the purchase and pay the use tax.
- XYZ Property Management Company in Orange County needs a new computer router and while looking on Amazon.com finds a great deal on a Linksys router for $600 from Computer World in Chicago. The purchase is made online, and the only extra charge is shipping. Result: XYZ Property management Company now owes the DOR a 7% use tax totaling $42 and MUST report the purchase and pay the use tax.
Why is This Use Tax Just Appearing Now?
The use tax has been in place for years, but most business and individuals are completely unaware of it. Until recently, the DOR did not vigorously pursue the collection or this tax, but the party is OVER. Thousands of businesses like yours and ours were recently sent letters offering Tax Amnesty (which expired on September 30) whereby if you went back 3 years and calculated all that you spent on these out of state purchases and “came clean” on the taxes, there would be no penalty, and only half of the interest on the unpaid amounts were due. Did you throw that letter out when it came in? The Florida DOR collected millions of dollars in use tax in 2010, and they are sure to continue to enforce the tax laws now more than ever. State and county governments are doing everything possible to collect the taxes that already are on the books. For years, state governments have been losing out on billions of dollars due to the massive increase in internet and out of state purchases, and they are not taking it anymore. That company you may be buying products from may receive subpoenas or requests for information from the Florida DOR, and through that information, they WILL find you out. You can run, but you cannot hide.
Are ALL Out of State Purchases Subject to the Use Tax?
The short answer is NO, but MOST are. Let’s say you purchased a Dell computer online. If you look at the bill, you will see that Dell charges you a sales tax, even though you bought it online and it was shipped from Nevada. You see, Dell is registered with Florida or otherwise does actual business in Florida through the use of stores or distribution centers. Therefore, Dell goes ahead and collects and remits the sales tax at the time of sale, and you now owe no further sales tax or use tax. Many other large companies are in this position, so now you need to begin to look at your invoices carefully to see if you have in fact paid the sales tax, as you certainly would not want to pay a use tax that is now not owed. Some, but very few indeed, out of state companies charge you the sales tax that is due in their state when you make a purchase. If that sales tax is less than 6%, you will need to pay the difference in the sales tax paid and the minimum Florida 6% (more in some counties) tax to the DOR. Example the supply costs $100, you paid the 4% Michigan sales tax at the time of purchase, and you now owe at least 2% use tax to the DOR.
How to Begin Paying the Use Tax
There is no better time to start properly paying the taxes that you legitimately owe right now. To do it right, you will need to go back 3 years and look at all your internet or out of state purchases and determine whether you were charged sales tax or not. If you were not, you simply obtain the forms from the DOR, complete them, calculate your interest and penalties, and pay the tax. Once done, they must be paid each quarter and you can rest assured that once you begin paying the use taxes, the DOR will be on top of you to collect them in the future, so do not forget to file or have your accountant file for you.
Is this Something to Worry About?
We feel that paying use taxes is your legal obligation under Florida law, whether we or you like it or not. Evading taxes can result in substantial fines, interest and penalties. If you have made significant purchases and realize you owe use taxes, you may be able to get the interest reduced or penalties waived by the DOR, so we highly recommend you contact your accountant and discuss this issue getting professional tax guidance. The collection efforts of the DOR are not going to stop, but rather they will be on the rise. The DOR has provided online interest calculators if you want to try to do this yourself, and you can register with the DOR online and pay online, with the taxes, penalties and interest, if any due, automatically deducted from the bank account you provide them. If you do not wish to file online, simply download the Out of State Purchase Return, which is form DR-15 MO, fill it out and send it in.
Our necessary disclaimer!
We are not tax professionals or CPA’s, but ignorance is not always bliss when it comes to tax obligations. We highly recommend you speak to your company’s accountant right away, copy this article and send it to your corporate attorney, CFO or broker. Our firm used Noack Mitchell & Company Certified Public Accountants, whose phone number is (239) 936-6144, found on the web at www.noackmitchellcpa.com.
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