"Mutli-state Sales and Use Tax"

Published on: February 24, 2015

FLORIDA DABT LOSES – BLUNT WRAPS NOT TAXABLE

For the past few years, 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 January 9, 2015, our first case went to hearing on the taxability of blunt wraps in Brandy’s – Amen Complaint.pdf
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Published on: February 10, 2015

Click Through Nexus – Michigan Latest to Enact Click-Through Nexus

By Jerry Donnini, Esq.

Although nexus sounds like a terrible disease, it is just a fancy word meaning a connection or link. If a company has enough of a connection or link to a state, then the state can impose its power of the company. With nexus, a state can impose its laws on the business including sales tax laws. From a sales tax perspective it can require the business to charge, collect, and remit state taxes such as sales tax. In 1992, Quill v. North Dakota was decided, which announced that having a physical presence in a state was sufficient nexus to require a company to follow a state’s state and local tax laws. In other words if your business has an office, a warehouse, some inventory, or a person (employee and yes, an independent contractor) then it likely has nexus under the physical presence test in Quill.

For life in the 1990’s this was big news to businesses who engaged in innovative marketing. Businesses that were on the cutting edge that sent things like mail order catalogs and floppy disks to solicit customers were being harassed by states alleging they had nexus. Today, with the internet as the backbone to the modern economy, states are trying the same tactics by creating laws to get more companies under its rule.

In 2008, New York led the innovative charge for click through nexus legislation. Also known as the “Amazon law,” due to its perceived targeting of Amazon, New York created a law that if a New York residents website generated over a certain number of sales in a 12 month period for a particular company, then there was a presumption that such company had nexus in New York. Amazon and Overstock took exception with this law, but ultimately lost at New York’s highest court. Unfortunately, the Supreme Court of the United States declined to hear the case.
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Published on: October 23, 2014

Amazon Fulfillment – Customer Convenience or Sales Tax Disaster

By Jerry Donnini, Esq.

Now more than ever Amazon has been a one stop shop for many consumers. Not only can you buy just about anything you can think of on the Amazon website, but you can also receive lightning fast delivery of whatever you buy. Over the past few years, Amazon has taken their company to the next level. Now, in addition to selling items, Amazon provides a fulfillment service to online retailers.

As Amazon puts it, their fulfillment business “helps you grow your online business by giving you access to Amazon’s world-class fulfillment resources and expertise.” Simply put, the online retailer sends their products to Amazon. Amazon stores the item at one of its distribution centers. Once the item is purchased, Amazon packs and ships your product to the customer. In addition, Amazon provides customer support. While it certainly charges a fee for its services, Amazon boasts that retailers’ sales significantly increase. However, from a state and local tax perspective, this can create a ticking time bomb for the online retailer.
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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: 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 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.
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Published on: July 31, 2013

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

By Jerry Donnini, Esq.

Part 2 Common Pitfalls

There are several issues that often surface during the audit. Many of the issues that surface are that the client does not have records, the client does not have a complete or updated QuickBooks or accounting software file, or the client has collected and remitted the incorrect amount of tax.

The most common issue we face is the situation in which the Florida taxpayer does not have adequate records to do a complete audit. Based on many of our clients, Florida is an extremely dangerous place to live. Until I became a Florida sales and use tax attorney, I was not aware of the high number of floods, fires, earthquakes, tsunamis and other natural disasters that destroy all of a business’s records. On a serious note, many taxpayers believe that not having any records is the best way to escape tax liability. However, generally the opposite is true. The more records that are available, generally, the more we can do to explain discrepancies that arise during the audit. Therefore, we recommend that a Taxpayer does its very best to salvage as many records as possible for review even if they are extremely damaged due to mother nature.

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?
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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”).
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