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Florida Sales Tax Audit – Former Florida Sales Tax Auditor
A Florida sales tax audit can be a very expensive educational lesson for compliance with the Florida sales tax laws.
The Florida Department continue to seek more tax dollars from the taxpayers of Florida and targeting certain industries within the state is a sure way to collect back taxes.
Targeting specific industries like the construction industry because there is low hanging fruit for a revenue agent to pick.
The histories of the construction, real properties and general contractors are easy tax dollars for Florida sales tax department of revenue.
There are always funds to be found in specific industries like the construction industry (2nd largest industry in Florida) to add to the General Revenue of The State of Florida.
Frank Lamantia of Fresh Start Tax LLC is one of our own seasoned tax professionals that will represent your best interest if you are undergoing a Florida Sales Tax Audit.
Frank is a 16 year veteran with of the Florida Department of Revenue and with numerous exposures to audits in all industries.
Real property contractors
Real property contractors generally maintain a substantial amount of fixed assets such as heavy off-road equipment used to prepare construction sites or roads prior to the actual construction of building or facility.
These fixed assets are subject Florida sales taxes and if not paid to the vendor should be accrued and paid to Florida as a use tax. Many times taxpayers forget to include this tax.
Types of Contractors
In Florida, the sale of real property is not subject to sales tax.
Real property contractors and repairers purchase tangible personal property and convert it to real property. Real property contractors operate under lump sum, cost plus/fixed fee or upset/guaranteed price, or time and materials contracts are actually selling real property and should not charge sales tax on their contract.
Sales or use tax should be paid on all their material and supply purchases the contractor is the ultimate consumer of the tangible personal property performance of these contracts.
General contractor – the party responsible for the entire construction project.
A general contractor will typically enter into a contract (referred to as the prime contract) with the owner of the property to be improved and oversee the entire project, performing anywhere from the majority to none of the actual work.
The portion of the work the general contractor does not perform will be “subbed” out to a qualified subcontractor.
Subcontractor – a contractor with special expertise, such as electrical, mechanical, excavation, or steel erection.
Defense contractor – a contractor who performs work for the federal government
Information – Types of Contracts
The method the contractors or subcontractors use to arrive at the total contract price charged for repair, alteration, improvement, and construction of real property or for combination of work on both real property and personal property must be determined for the purpose of determining whether the receipt from the sales made to or by them are taxable.
Rule 12A-1.051(3), F.A.C., outlines five general methods used by these contractors in writing contracts:
• lump sum – contracts in which the contractor or subcontractor agrees to furnish the materials and supplies and necessary services for a “lump sum”
• cost-plus or fixed fee – contracts in which the contractor or subcontractor agrees to furnish the materials and supplies and necessary services on a cost plus or fixed fee basis. The contractor will be paid an amount equal to the cost, as defined in the contract and specified overhead and profit rates, in a cost-plus contract. The fee or profit element may be specified as a lump sum rather than a percentage of the cost.
• upset or Guaranteed Price – contracts in which the contractor or subcontractor agrees to furnish materials and supplies and necessary services with an upset or a guaranteed price that may not be exceeded.
• retail sale plus installation or “(3)(d)” contracts – Contracts in which the contractor or subcontractor repairs, alters, improves or constructs real property and wherein the contractor agrees as a part of the original contract to sell specifically described an itemized materials and supplies at an agreed price or at a regular retail price and to complete the work easier for an additional agreed price or on the basis of time consumed.
A “time and materials contract is not a (3)(d) contract.
The attachment of an itemized list of materials to invoice after work has been performed does not create a (3)(d) contract. Contractors to perform retail sale plus installation contracts to sell tangible personal property and they should register as dealers and provide a copy of their annual resale certificate to the selling dealer to purchase tax exempt materials that are itemized and resold.
• time and materials – contracts in which the contractor agrees to complete a job and charges an amount for material and an additional amount (usually in increments of time required to complete the job). Time and material contracts differ from “(3)(d)” contracts because the materials are not completely identified, itemized, and priced in in advance and because the property owner is contracting for a finished job rather than the purchase of materials.
Pursuant to Florida administrative code and court decisions, a class 3(d) contract must:
• itemized each and every separate item of tangible personal property used in fulfilling the contract
• itemized each and every separate items price
• be issued in writing, expressing the necessary itemization in advance of the work performed; and
• pass ownership of the materials directly to the customer upon delivery, along with all the risks and responsibilities of ownership
A detailed invoice issued upon completion of service on real property does not constitute a class 3(d) contract.
Example
For example, service jobs on HVAC systems which involve a detailed billing after the work is completed, but which do not involve the preparing of the contract, setting forth the materials to be used in the price of the materials, in advance of the work are considered time and material jobs, not 3(d) contracts.
Due to these requirements, it is difficult for a contractor to enter into a 3(d) contract.
In cases where a transaction involves a contract falling under Rule 12A-1-051(3)(d), F.A.C., the contractor is selling tangible personal property and should charge the appropriate tax on the customers invoice.
We are a full-service tax firm that specializes in federal tax representation and are one of Florida’s most experienced for sales tax audit defense.
Our staff consists of tax attorneys, certified public accountants, former IRS agents and a former sales tax auditor with over 16 years of direct work experience with the Florida Department of revenue.
Feel free to contact us for initial tax consulting for Florida sales tax audit defense.
We will completely review your case and give you a full assessment of your audit status so you can make an informed and confident decision of how to fully resolve your sales tax audit case.
