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Rise in Florida Department of Revenue Criminal Investigations of Auto Dealers

Our practice has recently seen an increase in criminal investigations of automobile dealers across the state for sales tax collected but not remitted to the Department of Revenue. The reason for this is unclear. However, it is vital for auto dealers to educate themselves on sales tax laws and the difference between a sales tax audit and a sales tax investigation.

A sales tax audit is a traditional audit in which the Department searches through Taxpayer records for compliance. Any noncompliance will result in a monetary assessment. Typically, the Department of Revenue looks at Federal Returns, Sales Tax Returns, and DMV Records in formulating an assessment. Often relying on formulas that produce estimations of additional tax due, these assessments are often grossly exaggerated. In addition, the Department often fails to properly account for repossessed vehicles when Taxpayers erroneously reduce these losses from their taxable sales and report the net amount on their returns. These assessments can be challenged both during audit and after a “proposed assessment” has been issued. However, the window to challenge these assessments is small. It is advisable to seek counsel immediately upon contact of the Department of Revenue to ensure that you preserve your right to challenge any assessment.

Alternatively, auto dealers can be contacted by the Department of Revenue for an investigation. These are the cases that our firm has seen an increase of in recent months. It is important to ask upon first contact by the Department whether they are initiating an audit or an investigation. An investigation is criminal in nature. Yes, a Taxpayer can go to prison for sales tax. Whether it was maliciously stealing tax money or simply keeping poor records and making errors over a period of time, the Department will often approach the investigation in the same way. How bad of a crime is “Willful Intent to Defraud the State?” Like most legal questions, that depends. In these cases, it depends on how much money the Department believes has been taken from the state. The breakdown of severity is as follows:

Willful Intent to Defraud the State

Less than $300                             =             Misdemeanor
Between $300 and $20,000      =             3rd Degree Felony
(Up to 5 years in jail + up to $5,000 in fines)

Between $20k and $100k           =             2nd Degree Felony
Up to 15 years in jail + up to $10,000 in fines

Over $100k                                    =             1st Degree Felony
Up to 30 years in jail + up to $10,000 in fines

See §212.15(2), F.S.

 

Thirty years in jail is terrifying! Unfortunately, as investigations typically go back over a 5-year period, the amount of tax owed for an automobile dealer can easily exceed that $100,000 mark. With the consequences so severe, it is highly advisable to seek counsel immediately upon contact by the Department of Revenue for a sales tax criminal investigation.

Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is also an adjunct professor and assistant editor to the American Bar Association’s The Sales and Use Tax Deskbook. She can be reached at 954-800-4138 or JeanetteMoffa@FloridaSalesTax.com.