DOR Update

Sales Tax Holiday, Gas Tax Break Are on Tap for This Summer Sales Tax Holiday, Gas Tax Break Are on Tap for This Summer

Florida CPAs will have several new opportunities to add value for clients during the summer of 2004, as the Florida Department of Revenue (DOR) moves to implement new state laws regarding taxes and continues its integrated compliance-enforcement initiative.

While Florida lawmakers did not enact major changes to state tax law during the 2004 legislative session, lawmakers revived and even expanded the popular tax holiday concept for this summer.

Under HB 237, signed into law in late May by Florida Gov. Jeb Bush, Florida will offer an estimated $90 million in tax relief during summer 2004. The tax holiday legislation provides that:

• No sales tax will be charged from 12:01 a.m. on July 24 through midnight on Aug. 1 on clothing, footwear, and certain accessories with a selling price of $50 or less.
• No sales tax will be charged on certain school supplies with a selling price of $10 or less.
• No sales tax will be charged on books selling for $50 or less.
• State gasoline taxes will be reduced by 8 cents per gallon from Aug. 1 through Aug. 31.

Taxpayers will save an estimated $35.5 million in state and local sales taxes, as well as $59.7 million in gas taxes, during the tax holidays.

At press time, the DOR was preparing Taxpayer Information Publications (TIPs) and other material to help Florida CPAs and their clients prepare to comply with the tax holidays law. The TIPS will provide specific details on how to comply with the statute. For example, the DOR is producing materials that specify what kinds of items are subject to sales tax holidays, as well as extensive materials on the gas-tax holiday.

DOR Executive Director Jim Zingale urged CPAs to help their clients review these publications carefully. “Florida businesses have gotten used to administering tax holidays in the years since Florida held the first tax holiday in 1998,” Zingale said. “However, the law on tax holidays changed slightly every year. It is very important that CPAs help their clients go through the information we’re sending so that businesses understand the law.”

For example, this will be the first year that books are included in the sales tax holiday. CPAs whose clients sell books at retail may add value for these clients by helping them understand this new provision. For example, the tax holiday extends to books, but sales tax still applies to newspapers, magazines and other periodicals.

In addition, CPAs may add value for clients engaged in the gasoline industry by helping them to understand the provisions of the gas-tax holiday. Under the statute, state gasoline taxes will be reduced by 8 cents per gallon from 12:01 a.m. on Aug. 1 through midnight on Aug. 31. Gasoline terminal suppliers, wholesalers, importers, resellers, and retail gasoline dealers are required to pass along the 8 cents per gallon savings to consumers. Businesses that fail to comply with this provision could face prosecution by Attorney General Charlie Crist’s Office of State-wide Prosecutor for a third-degree felony, punishable by up to five years in prison and up to $5,000 in fines. In addition, a business convicted of violating the law could lose its state fuel dealer’s license.

Integrated Compliance Enforcement Initiative Moves Forward

In other updates, the DOR continues to move forward with its Integrated Compliance Enforcement initiative, as reported in recent columns. The Department continues to conduct data-mining operations using its advanced SUNTAX tax-integration and related technologies. The new technology is providing the DOR with more and better information than ever before on patterns of tax compliance.

Using these capabilities, the Department has been engaged for several months in efforts to improve the fairness and uniformity of administration of sales tax law on commercial rentals. Under Florida law, rental payments for commercial rentals are taxable.

As of late May 2004, the DOR had collected more than $28.75 million in back taxes, penalty and interest from approximately 23,000 owners of commercial property across Florida. But nearly 20,000 other businesses either had not yet responded to repeated DOR contacts seeking information about their commercial rental and tax arrangements, or their cases still were being processed. The DOR is moving forward with enforcement of tax law in these and other cases. Taxpayers who find that they owe back tax, penalty, and interest may need significant assistance from CPAs to bring their accounts into compliance.

In addition, the DOR is reviewing records of dry-cleaning companies, identifying patterns of tax compliance with tax laws affecting this industry. CPAs whose clients include such firms may wish to advise their clients to have their tax accounts closely reviewed to assure compliance.

In both the instance of the commercial-rental compliance effort and the dry-cleaning compliance review, the DOR is using data-matching capabilities to identify patterns of tax compliance.

Leaders of the Department’s General Tax Administration Program have alerted senior DOR leaders that significant amounts of compliance enforcement information soon will be available from the Department’s SUNTAX business intelligence functionality regarding patterns of tax compliance in other industries. For example, Florida law imposes intangible personal property tax on leasehold payments for government pro-perty leased for non-public use, such as at airports. However, DOR data searches indicate that tax compliance could be improved in this area. DOR sent letters to certain taxpayers who leased airport business locations earlier this summer, asking them to perform a self-analysis of their tax liability and send information to DOR. Florida CPAs may wish to review clients’ liability for this tax and take advantage of existing methods of resolving liability before the client faces an audit.

Clients have several options if they discover significant tax liabilities as a result of DOR contacts through the help of their CPAs. One such option is to participate in the joint FICPA-DOR Certified Audit Program. Tax-payers can experience significant benefits by engaging a CPA certified by DOR to conduct a sales tax audit, including reductions of penalty and interest. For more information, CPAs and their clients should review the Certified Audit Program information available on either the DOR Web site or the FICPA Web site.

In addition, taxpayers may wish to pursue the Department’s voluntary disclosure program, which provides for waiver of penalty and reductions in interest if taxpayers voluntarily disclose a tax liability.

Fact-Finding Workshops Continue on Substitute Communications Systems

In early June, the DOR posted notice in the Florida Administrative Weekly that a fact-finding workshop would be held at 9:30 a.m. on June 22 at the R.A. Gray Building in Tallahassee to gather input from interested parties on the application of Communication Services Tax to substitute communications systems.

Florida lawmakers adopted a law streamlining state and local telecommunications taxes in 2001. In 2003, focus shifted to how the 2001 statute applied to recently deployed communications systems, including systems for routing data between or among computers, point-of-sale inventory systems, PBX telephone systems, radio-dispatch systems, and other systems. The DOR held a workshop in September 2003 and presented comments to Florida legislators and interested parties before the 2004 session.

Legislation that would have deferred enforcement action while the scope of the substitute systems statute was studied and clarified was proposed in 2004, but the session ended before the legislation was adopted by both houses of the Legislature.

Because the issues involved in the application of this tax law are extremely complex, the DOR plans at least one and perhaps a series of additional fact-finding workshops to review how the statute affects businesses. Florida CPAs whose clients’ businesses may include substitute communications systems should monitor the workshops and consider participating in the fact-finding process.