Anytime a state agency, such as the Florida Department of Revenue (“FL DOR”) gets their hands on third party reporting, you can rest assured they will be coming after that industry in full force. In 2011, the FL DOR passed a law that required wholesalers of alcohol and tobacco to report all of their sales to retailers directly to the FL DOR. Being that the FL DOR knew what each convenience store, liquor store, restaurant, and bar bought by way of beer and cigarettes, they could easily compare them to the same retailer’s sales tax returns. For those that the FL DOR suspected of underreporting or just pocketing the sales tax, the investigation letters started in late 2011 followed by some 200 audit notices per quarter in early 2012. Now about three years later, one can only suspect that the next FL DOR “campaign” will be focused on the next industry in which the FL DOR could most easily get it hands on. So who’s next?
For years the Department of Revenue had access to DMV reports that could show the cars being sold by a retailer with a Florida dealer license. In late 2013 through early 2014, our friends in Tallahassee formulated a methodology that more quickly, efficiently, and accurately compared the DMV reports and warned us the notices were coming. With that in mind, we knew the auto industry was next on the FL DOR’s hit list.
It seems the auto dealer / used car industry has followed the trend of the c-store “campaign,” or more like the c-store onslaught. Over the last several months, the FL DOR has begun sending audit notices to many in the auto industry. Worse yet, the FL DOR has already hit many with the feared investigation letter. If you have been one of the fortunate souls to have received either of these letters (a DR-840, Notice of Intent to Audit Books and Records (“an audit notice”) or an investigation letter), then there are steps that can be taken to defend your business.
If you received any letter, card, or notification that has the word investigation or investigator on it anywhere, then you are under criminal investigation. It is dangerous to attempt to handle this matter without a professional. It is also important to know that while your accountant is a trusted advisor, there is no protection of confidentiality in criminal proceedings between an accountant and client. Such confidentiality only occurs when speaking with a Florida licensed attorney or an accountant working under an attorney with a Kovell Letter. Even more dangerous is that any statement made to an investigator is an admission and could be used against you or your business in a criminal proceeding.
There are a lot of serious flaws in the Florida Department of Revenue’s logic in these cases. Each and every auto dealer has its own story. Many times, the DMV report has flaws in it. The DMV reports are frequently flawed, and many times the auto dealer does several repossessions or buy here/pay here type deals that are not accounted for in the DMV report. Further, we have found instances where wholesalers have double reported sales figures to dealers, which leaves the retail business owner with an enormous assessment in complete error. These cases are challengeable to say the least.
In a blog written by me in 2012, amidst the c-store onslaught, I said:
We started hearing rumors as early as Spring 2012 that the criminal division was being brought on board for more than 400 cases with over $1,000,000 of allegedly under reported sales tax. It only takes $301 of underreported sales tax to become a 3rd degree felony in Florida and $20,001 to become a 2nd degree felony with a maximum sentence of up to 15 years in prison. If one crossed the $100,000 line of collected but unremitted Florida sales tax, then one is looking at a 1st degree felony and up to 30 years in prison – if convicted. The FL DOR will quickly threaten a taxpayer with these statutory statistics if they really think a business owner has been skimming sales tax. The FL DOR also has other weapons up their sleeve to use against a business owner – such as a legal action to remove the business owner’s sales and use tax registration certificate.
Sound familiar? It seems the FL DOR is following the same trend for the auto dealer industry now.
It can be a colossal mistake to try and take on a state agency in these cases without the help of a very qualified Florida sales tax attorney or other professional to guide your business through the process. It is incredibly dangerous and the stakes are just too high. While there is a real threat of massive civil tax risks at stake, the much bigger fear should be the potential for criminal liability. Even if a taxpayer ends up owing some taxes at the end of the day, we can assist in negotiating a payment plan or potentially compromise some of the taxes, penalties and interest in the right circumstance. Our firm has lawyers who all have CPA certificates or strong accounting backgrounds, are experienced in not only defending civil audits but also handle criminal defense in Florida sales and use tax matters. If you or a client of yours has been contacted (or you fear being contacted) by the Florida Department of Revenue, then please call or email our offices today for a free initial (and confidential) consultation about your matter.
About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email JerryDonnini@Floridasalestax.com or phone at 954-642-9390.