Sales and Use Tax

Published on: November 21, 2013

Amazing Amazon Opens Another Californian Facility

Amazon has implemented an interesting sales and use tax strategy over the past few years. The battle between the online juggernaut can be best exemplified in California. In 2011, California attempted to force Amazon to collect California sales and use tax. Amazon called California’s ultimatum by threatening to pull any ties with California which would cost thousands of jobs. On second thought, California agreed to not force Amazon to collect sales and use tax until September 2012 in exchange for a promise by Amazon to open numerous distribution facilities, which would increase job opportunities in the state.

Putting personal feelings and constitutional implications aside, the move makes sense from both sides. California has the highest statewide sales tax rate of about 7.5%, and many localities have an additional .91%. However, in a time of recession, what can be more valuable to a state’s economy than thousands of jobs? Opponents of the settlement will remind us that it is not fair to have special rules for online retail giants like Amazon.

Despite what anyone thinks of the agreement, it was announced that Amazon opened yet another distribution center in Moreno Valley at the end of October, 2013. The fourth Californian facility encompasses some 1.2 million square feet. In addition, the facility will house an estimated 1,000 full time workers. This facility brings Amazon-related jobs to about 2,400 in California. In total, Amazon pledged to spend in the neighborhood of $500 million and create 10,000 jobs by 2015.

Published on: November 8, 2013

Colorado Enacts Pot Tax

By Jerry Donnini, Esq.

Colorado clearly does not stick to the trends. Whether it is legalizing marijuana or attempting to get Northern Colorado to become the 51st state, Colorado has been all over the news during the past year. Recently, the state had on its ballot an interesting tax that stayed in line with Colorado’s unusual politics. Specifically, on November 5, 2013, Colorado voters passed the pot tax.

On its face, the tax appears to operate similar to somewhat steep excise tax. It appears that recreational marijuana sales will be subject to a 25% tax which goes into effect on January 1, 2014. Of the 25%, 15% will be allocated to public school construction projects and 10% will go to funding enforcement regulation on the retail pot sales. This excise tax, which is similar to tobacco and cigarette taxes, is in addition to 2.9% sales tax at the retail level. Colorado estimates that the tax will generate some $35 million in year one and $67 million in year two. In total, pot users will pay an estimated $230-$250 per ounce of weed in Colorado.

Interestingly, the tax is not as steep as Washington’s efforts to impose hefty tax on the newly legalized drug. Washington imposes a 25% tax on every sale in the retail chain and it estimates the tax will raise about $2 billion in Washington in the first five years.

Published on: October 4, 2013

States Offer Amnesty In Attempt to Collect Tax

By Jerry Donnini, Esq.

Each year, many states announce amnesty programs in an effort to incentivize taxpayers to pay state tax. Most programs, in one form or another, offer partial or full interest and penalty abatements if taxpayers pay back taxes owed. While the programs seem like a win for states in theory, as a state and local tax attorney, I can promise that such programs lead to problems. Auditors in the various states are told to close down improperly completed audits in an effort to get taxpayers in the amnesty program. This, in turn, leads to poorly conducted audits that must be protested and litigated. In short, state and local tax professionals in those states should be licking their chops for the bombardment of work that will likely ensue.

The most recent states to implement a version of an amnesty program are Arkansas, Connecticut, and Louisiana.

Arkansas’ amnesty program applies to franchise taxes and runs from September 1st through December 31st, 2013. In order to participate, taxpayers must submit all reports and forms and pay the computed tax to the state. If a taxpayer meets the requirement of the deal, then Arkansas will waive all interest and penalties for delinquent taxpayers.

Published on: September 19, 2013

Judiciary Committee Releases Internet Sales Tax Principles

By Jerry Donnini, Esq.

Reportedly relying on trade groups, taxpayers, industry, and state governments the House Judiciary Committee announced 7 basic principles on remote sales tax collection. Chairman Goodlatte made the announcement to allegedly begin the discussion on the looming problem of Internet sales tax.

The 7 basic principles, announced, are:

1. Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States.

Published on: August 27, 2013

New York Will Take Your Driver’s License for Unpaid Tax

By Jerry Donnini, Esq.

As a Florida sales tax lawyer I thought I have seen it all when it comes to overzealous state agencies attacking its citizens for unpaid taxes. With a narrow corporate income tax and no personal income tax, Florida is notoriously aggressive. In August, 2013, I came across an article that shows how other states are attempting to flex their biceps when it comes to tax collection. Specifically, New York announced its war on taxes by suspending individuals’ driver’s licenses if they owe more than $10,000 in taxes.

No Driving.jpg The Empire State has grown tired of chasing tax delinquents and Governor Andrew M. Cuomo is leading the charge. Put into law as part of the executive budget, New York believes this initiative will increase collection by about $26 million this year. The Governor was quoted as saying:

Our message is simple: tax scofflaws who don’t abide by the same rules as everyone else are not entitled to the same privileges as everyone else . . . . These worst offenders are putting an unfair burden on the overwhelming majority of New Yorkers who are hardworking, law-abiding taxpayers. By enacting these additional consequences, we’re providing additional incentives for the state to receive the money it is owed and we’re keeping scofflaws off the very roads they refuse to pay their fair share to maintain.

Published on: August 21, 2013

Florida Moves Forward With Natural Gas Rebate Program

By Jerry Donnini, Esq.

In May 2013, a bill passed the Florida Legislature which developed rules for Florida’s natural gas vehicle rebate program. In June 2013, Governor Rick Scott signed HB 579, which indicates he was on board with the Legislature’s proposal. Specifically, the bill provides a rebate of $25,000 per commercial fleet vehicle for its conversion to natural gas.

The bill comes during a time which the country is trying to move away from its oil dependence and shift its consumption to a cleaner and more available fuel source. Supporters of the bill believe this step will result in the development of stations to carry the cleaner fuel line and make it more available. Companies such as Clean Energy are obviously ecstatic for the bills passing as it all but ensures greater revenue in Florida. The Natural Gas association released a comment showing its support and enthusiasm for the new legislation.

From my perspective, as a Florida sales and use tax and motor fuel tax attorney, the legislation has some tax benefits as well. Included in the bill is a provision for a state tax break on natural gas consumption that is set to begin in 2019. Further, the tax on natural gas is much lower than its diesel fuel competition from a federal tax perspective. It appears the bill will provide a rebate for fleets of three or more and placed in service after July 1.

Published on: August 19, 2013

Received Florida Sales and Use Tax Audit Notice – What Do I Do?

By Jerry Donnini, Esq.

Part 3: Audit Ends, What Do I Do?
A daunting reality sets in for many Florida taxpayers when the audit report is issued. To say the majority of Florida taxpayers under a Florida sales tax audit have a meltdown is an understatement. Many taxpayers and other Florida tax professionals believe that this is the end of the road for their journey to a sizeable tax bill. However, this is when our job as Florida tax attorneys really begins.

Upon the completion of a Florida tax audit, the Department of Revenue issues a notice of proposed assessment (a “NOPA”). The NOPA is an important document for two reasons. First, it signals that the Florida sales tax auditor is done with the file at the local office and has sent it to Tallahassee. More importantly, if the Taxpayer or the Florida state tax professional does not know what to do, the NOPA means the company better act fast.

Pursuant to Florida law and the NOPA itself, the assessment becomes final in 60 days if it is not contested. This means that the Taxpayer or its CPA or attorney has 2 months to file a protest with Tallahassee. For those of you more familiar with IRS controversy work, this is the equivalent to filing an appeal with the IRS. For the first time, the Taxpayer and its power of attorney is dealing with a different group of theoretically unbiased conferees that evaluate the case with judgment, rather than in black and white, like the auditors are trained to see the world. A well drafted protest can be an impressive presentation by the Taxpayer if done correctly, and it should contain factual and legal assertions to refute the audit assessment. We generally also elect to have a conference with the Department, at which point we very simply lay out the posture of the case and point them to what we believe to be important.
Continue reading

Published on: August 13, 2013

Illinois Responds to Prior Tobacco Tax Court Ruling

By Jerry Donnini, Esq.

What is meant by a “cigarette” in Illinois? This question has been circulating through the tax community since December 2012. In August, 2013, it was reported that Illinois officially changed the definition of a “cigarette” and a “little cigar” for purposes of the Illinois tobacco tax regime. This is a major victory for tobacco products manufacturers and tobacco distributors in the state of Illinois.
As a starting point, Cigar Association of America v. Hamer, Cook County, 12 L 51033 was decided in December, 2012. That case was centered on a trade association arguing that Illinois’ definition of a cigarette was constitutionally invalid because it was too vague. In Illinois, a cigarette was defined as any roll containing tobacco that is suitable for smoking or if it met two of the following criteria:

(a) the product is sold in packs similar to cigarettes;
(b) the product is available for sale in cartons of ten packs;
(c) the product is sold in soft packs, hard packs, flip-top boxes, clam shells, or other cigarette-type boxes;
(d) the product is of a length and diameter similar to commercially manufactured cigarettes (e) the product has a cellulose acetate or other integrated filter;
(f) the product is marketed or advertised to consumers as a cigarette or cigarette substitute; or
(g) other evidence that the product fits within the definition of cigarette.

The association argued that this definition was too broad and successfully obtained an injunction.
Continue reading

Published on: July 19, 2013

Received Florida Sales and Use Tax Audit Notice – What Do I Do?

By Jerry Donnini, Esq.

It’s a grim and nerve-racking day for many when they receive the infamous DR-840, Notice of Intent to Audit Books and Records, from our friends at the Florida Department of Revenue. Many Florida taxpayers often ask themselves, “Why me?” Or, “What did my company do wrong in order to receive this notice?” The answer to both of these questions is obtainable from the Florida sales and use tax auditor by simply asking them. In many situations, the company is audited because its exempt sales ratio is out of the average range for similar companies in its industry. Other companies are flagged for audit because the sales reported on their 12 monthly sales and use tax returns do not correspond to the gross sales reported on their federal income tax return. Many other companies are flagged purely at random.

While the reason may be for a variety of reasons, once the notice is received, the reason for its reception is virtually irrelevant. The more relevant inquiry should be, what should we do next? Ideally, it makes sense for many Florida businesses to hire a law firm or a CPA firm versed in Florida sales and use taxes. This is true even if the company has immaculate records and nothing to hide in connection with a Florida sales and use tax audit. Hiring a professional that is experienced in handling a Florida Sales and Use tax audit is an excellent way to walk you or your client through the audit process. In addition, having a Florida sales and use tax professional is invaluable in helping your company or your client’s company organize the information in a presentable manner that will help keep a sales tax assessment to a minimum.

Florida law and the verbiage on the DR-840 clearly states that the FL DOR cannot start the audit for 60 days and it must start the audit within 120 days. The 60 days is waive-able and the auditor will push for a waiver in order to get the audit moving. We generally recommend that the 60 days not be waived, but instead be used as a period in which to get all of your information organized for presentation. We call this the homework period in which the Taxpayer, if they elect to hire us, is given a checklist of homework to complete within the 60 day period.

The obvious next question is, what should I be organizing?
Continue reading

Published on: July 10, 2013

Florida Tobacco Tax Audit Company Contests $1 Million Assessment?

By Jerry Donnini, Esq.

As many are aware, I have been writing a number of blogs and articles recently discussing the Department of Business and Professional Regulation here in Florida and its potentially unfair audit tactics. Many of you have seen cigar wrappers, or the more scientifically described “blunt wraps”, at convenience stores and gas stations throughout the state and country. Are those items tobacco products subject to Florida’s other tobacco products tax? On the surface it seems questionable, but after digging into the law and writing about this issue for some time now, the law seems to make it clear.

This was exactly the issue in a recent case,New Image Global Inc – Complaint.pdf. In short, the case was filed by New Image Global for a massive other tobacco tax assessment. The tax, penalty, and interest amounted to $1,082,494 at the time of the Complaint. The Assessment has since been reduced, but the argument still remains the same. The case addresses whether or not cigar wrappers, or their more informal title, blunt wraps, are subject to Florida’s other tobacco tax (“OTP”).
Continue reading