State and local tax (SALT) matters have a way of sneaking up on well-meaning people, especially when it comes to sales tax. In many cases, they’re simply not aware of their obligations. If the Florida Department of Revenue (DOR) detects possible missed taxes, however, they’ll likely require a SALT self-audit.
If you get this notice, don’t panic. A self-audit notice doesn’t mean you’ve done anything wrong. Below we’ll discuss the reasons these notices are sent and what your next steps should be.
(Note that a SALT self-audit is different than full audit; the latter is ordered for more serious or complex possible violations. If you have received a notice for a full audit, we recommend you contact your CPA immediately.)
Know the Requirements for Collecting and Remitting Sales Tax
The DOR requires the collection and remittance of sales tax on the sale of goods or services to end users. This includes online sales through Etsy, Amazon and other third-party facilitators. There are also less obvious situations that can trip you up if you’re not aware of them. Commercial rent payments, an art festival booth and even yard sales (if you hold more than two annually) are subject to sales tax.
Of course, as with many tax laws, this one has exceptions. Individuals who don’t regularly sell merchandise aren’t required to collect sales tax. Such transactions are called occasional sales. So if you sold your old couch on Craigslist, you probably don’t need to worry about the taxes.
Some goods are also considered nontaxable if they fulfill certain requirements. These are included but not limited to:
- Medical items that patients use directly (such as glucose strips, ostomy bags, walkers, etc.). Note this does not include office equipment that facilitates treatment (tools, tables, blood pressure cuffs, lights, etc.).
- Certain agricultural items used for the care of livestock (e.g., feed, medicines, drinking basins).
- Wholesale purchases that will be resold via retail.
- Food items being sold to the end consumer.
- Raw materials and other items used to create something else for sale.
Sales tax must be collected on purchases that don’t fall into an exempt category. If you make such a purchase and see this is not the case, it’s up to you to fulfil this obligation.
If you don’t have a Sales Tax Account with the DOR, you can complete an Out of State Purchase Return (form DR-15MO). This two-page form allows you to document and make a sales tax payment if it wasn’t initially collected at time of purchase. You enter details of the purchase(s) you made and sales taxes required and return it with a check to the DOR.
We recommend having copies of the DR-15MO on hand for quick use. If you make a non-taxed purchase and realize sales tax wasn’t collected (but should’ve been), fill one out and mail it with your tax payment to the DOR. Keep a copy of the form, along with the corresponding invoice or receipt, on file in case you receive a self-audit notice.
The Lowdown on Self-Audit Notices
The self-audit notice can be triggered by any number of reasons. Let’s say another company is undergoing an audit. An examination of invoices shows a sale to you for something you plan to resell. As a result, the state wants to confirm sales tax was collected by you when you resell the item. They might send a self-audit notice to make sure this is the case.
The process can also be triggered randomly. This primarily happens with large online sales transactions in which the goods are shipped to you (for example, a $5,000 generator). If the freight company that shipped the generator is audited, you’ll likely be subject to a self-audit to confirm sales tax was collected. Still others receive a self-audit notice because they’ve been audited before in some capacity.
The good news is a SALT self-audit is relatively simple and painless. You just complete the self-audit notice (which is generally short) and return it to the DOR. If you paid the taxes, you’ll note as such and the matter is resolved. And because SALT self-audits only cover the last three years, you won’t have to dig too far back for receipts.
If you didn’t pay the taxes, you’ll include your payment along with the form. Once DOR receives your form, it will send you a finalized copy with a bill for penalty and interest. That’s it! Even better, your CPA can sometimes get the penalty removed.
Just because it’s simple, however, doesn’t mean a self-audit can be disregarded. Failure to complete the form will lead to a bill from the state for estimated tax liability and possibly penalties—and it’s usually much more than what you actually owe.
If you’ve gotten a SALT self-audit notice, you’re already on the state’s radar. So complete your self-audit and put the matter behind you.
The Beauty of Voluntary Disclosure
You might read this article or talk to your CPA and discover you should’ve collected and remitted sales tax on a recent transaction (such as commercial rent or commercial lease of equipment). Yet you haven’t received a SALT self-audit notice. What should you do?
For these instances, Florida has a process called voluntary disclosure. If you realize your tax obligation before being notified by the state, you can send a worksheet detailing those taxes along with a polite request to waive penalties. In almost every case, the DOR will accept your payment, dismiss penalties and be done with the matter. It only requires that the prior three years be disclosed.
There is one caveat; you can’t use voluntary disclosure for sales tax you’ve collected but not remitted to the state. That becomes a criminal matter and requires the assistance of an attorney well versed in such situations.
If you have questions about sales tax, self-audit notices or other related topics, consult with a CPA well versed in state and local tax obligations.
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