Florida Sales Tax for Manufacturers: Your Questions Answered
Originally published on November 10, 2023
Updated on November 13th, 2023
Navigating the complexities and ever-changing nature of sales tax policy poses a challenge for manufacturers. But it’s important not to overlook this aspect of your operations.
Staying in compliance with Florida sales tax rules keeps you from running afoul of auditors and incurring penalties. It also adds to the long-term value of your business, making it more attractive to potential buyers. Keeping abreast of sales tax laws can even save you money: The state offers a number of sales tax exemptions for manufacturing companies.
Mike Sibley, leader of the James Moore manufacturing team, and Kevin Golden, a team partner and member, join Melody Lechleidner to field manufacturers’ frequently asked questions about Florida sales tax. Melody is a director on James Moore’s state and local tax team. She explains how to take advantage of Florida’s tax benefits for manufacturers and how to avoid common sales tax mistakes.
Because sales tax laws vary by state, be sure to consult rules for your area.
Which items are exempt from Florida sales tax?
Sales tax impacts the entire manufacturing process, from the purchase of equipment to the sale of finished goods. Manufacturers should consider the tax implications of each stage of their production process.
Use this simple framework for determining which items in your business are taxable:
- Exempt: Raw materials and other components that will be converted into a product for sale. Materials and other items purchased to create a final saleable product are typically exempt from Florida sales tax. Provide suppliers with an exemption certificate for these items, and make sure accounting and purchasing professionals double-check invoices to ensure sales tax is not included.
- Not exempt: Items used in regular day-to-day business. “It’s important to pay attention to what you’re purchasing and what you’re using it for,” Melody said. “There could be items that fit into both exempt and non-exempt categories, depending on what you’re manufacturing and how you’re using the good.”
- Usually exempt: Equipment and machinery. Florida provides a sales tax exemption for equipment as long as these three criteria are met:
- Your company must have a manufacturer’s industry classification code.
- The equipment must be used in the manufacturing process. States differ in their definition of the manufacturing process.
- The equipment is permanently affixed. “It needs to be a pretty substantial piece of equipment that you’re not moving around and that is used on a regular basis to manufacture the item that you’re selling,” Melody said.
If your purchase meets these criteria, provide your supplier with an exemption certificate. If you erroneously paid Florida sales tax on a past purchase, you can request a tax refund from the seller or the state, depending on the type of equipment and when it was purchased. The statute of limitations on these refunds is typically three years.
When should manufacturers charge sales tax?
Whether you should charge Florida sales tax depends on if you’re selling to distributors or end users of your product. First, determine whether the product is taxable. Certain goods and services are exempt and do not require documentation.
If you are selling a taxable good, then consider who the customer is:
- End user: If the customer is an end user, collect and remit sales tax on the item.
- Retailer: The transaction is typically exempt from sales tax. This is known as a sale for resale, and the retailer must provide an exemption certificate. Keep these certificates in case of an audit. “The state really is only interested in getting the tax from one person in the line of the transaction,” Melody said.
- Nonprofit organization: This sale might be exempt. Make sure you collect exemption certificates from these entities.
- Federal government: These transactions are exempt. You do not need an exemption certificate.
The bottom line, according to Mike: “Know who your customer is.”
How often do Florida sales tax rules change?
The Florida legislature can change sales tax rules on an annual basis.
“You could be selling something that’s taxable today and exempt tomorrow because the legislature has changed its mind on whether they want to tax that particular item,” Melody said.
Note that exemption certificates typically expire every year. Certificates for tax-exempt entities, such as nonprofits, expire every three years. It’s important to have active exemption certificates on file. Check your records every year to ensure certificates for regular customers are up to date.
“If an audit reveals your exemption certificate has lapsed, the state will come after you for the tax on that item,” Melody said.
What if I should have paid Florida sales tax, but wasn’t charged?
These transactions are still taxable. You can rectify the situation by paying use tax, which is the same rate as sales tax. Report these transactions on the standard sales tax form, which will help you calculate the amount you owe based on the item’s value or cost.
Auditors often target equipment purchased in another state because it can be easily identified among your fixed assets. If the equipment does not meet the manufacturing exemption criteria, you will owe tax (as well as interest and a penalty for not paying the use tax).
“That’s just low-hanging fruit for the state to come in and say, ‘Okay, I didn’t see that reported on your use tax return. You should have paid the 6% state rate plus the applicable county rate when you brought it into the state,’” Melody said.
How do I handle Florida sales tax on commercial leases?
Florida charges sales tax on related party rental transactions — an unusual policy that often catches manufacturing companies by surprise. While this tax rate is set to decline over time (and could eventually disappear), the rule remains in effect.
Leasing space from another entity within the organizational structure incurs a sales tax of 5.5% plus discretionary tax at the county level. This tax is not limited to rent; it can apply to anything paid on behalf of the tenant.
“If you have one entity that handles the property taxes or the insurance for everybody, that can be deemed commercial rent, even if it’s not part of your actual rental lease payment,” Melody said. “That’s another area auditors love to investigate.”
Are items sold to customers in other states taxable?
Historically, manufacturers did not collect and remit sales tax for out-of-state sales if their company did not have a physical presence in the state. This rule has changed. States can impose sales tax on manufacturers that conduct a certain amount of activity within their borders.
This threshold of activity, known as economic nexus, can vary by state and is usually based on dollar value and/or the number of transactions. Once a company crosses this nexus, it is considered to have an economic presence in the state.
A company with nexus is obligated to register with the state and start collecting and remitting sales tax accordingly. This filing obligation is ongoing, even if the company’s activity is sporadic. Economic presence continues until the company formally withdraws from the state or until January, which is when yearly thresholds reset.
How can I make sure my company stays compliant with Florida sales tax laws?
An important step is creating a process that checks for tax implications at every production stage, from purchasing to sales. Review your process every year, and use software or consult a manufacturing CPA to make sure you haven’t overlooked anything.
It can be tempting to ignore the complications of Florida sales tax. However, a robust tax process adds to the value of your business. Sales tax is one of the top areas buyers examine when evaluating your company.
“Brushing these kinds of things under the rug could eventually impact a potential buyer’s feeling about your company,” Kevin said. “Taking the time to establish a clear process results in a long-term payoff.”
All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.
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