Sales Tax in Florida

This is a first....

One of our forum members who lives in Florida has placed a sofa order with me. As I'm looking at the acknowledgment from Leathercraft, I see they have billed me for the Florida Sales Tax on the piece. I've never seen this occur before, billed from the supplier to the dealer.

Normally sales tax is collected by the dealer from the customer, and only where the dealer has a sales presence, in my case it would be Virginia and only Virginia. This doesn't mean the end consumer is 'off the hook' on sales tax, but is supposed to declare it as a use tax on all out-of-state purchases in the state where they live. Of course, almost no one does this as we all know.

I'm concerned enough about this that I've been on the phone all afternoon talking with various company presidents in North Carolina and right now Leathercraft is the only ones doing this. Apparently they were audited by the State of Florida not too long ago. Still, it doesn't seem right for a manufacturer to collect it from the dealer, so I've also got a call into the Florida Dept. of Revenue Collection in Tallahassee and hopefully they will call me back. The VP of Sales at Leathercraft is also going to look into this further and call me back with more details.

I do know that Florida does stop delivery trucks randomly that are coming into the state and does checks on them, then sends the end customers a bill for the use tax. They've been doing that for some time now and maybe one in ten of my Florida customers lets me know they got tagged with it.

This is very odd, and its something all together new for it to be done at what is essentially the wholesale level in the furniture industry.

Hmmm......

I've spent most the day on this issue and have it solved. Spoke with Florida Tax Revenue Dept several times as well as a good friend of mine who is the lead Sales and Use Tax Attorney for Home Depot in Atlanta.

This really confused the people at the state tax office in Florida, so they had to to get the laws off the books and together we spent quite a bit of time working through them on the phone. but here's the reason and the solution.

First of all, the US Supreme Court says that a business must have a nexus in a state to be liable to collect state sales taxes. That's not going to be undone by any state law and stands at the top of all this sales tax mess. A business presence means a store, or a representative, or a targeted solicitation into that state, or servicing goods in the state on a regular basis (such as frequent deliveries with my store-owned truck). As a dealer with a store only in Virginia, I have no nexus in Florida and therefore not liable to collect sales tax outside the state of Virginia.

The vendor in this case is Leathercraft Upholstery. They do have nexus in Florida by having a sales representative in the state, employed by them to solicit business through a dealer network. Florida State Revenue Rule 12A - 1.09(1), subsection D states that if a manufacturer has nexus in the state and sells to unregistered dealers within the state for delivery to a retail customer in Florida, they are bound to collect the sales tax. Leathercraft was audited by the State of Florida and were assessed tax penalties on drop ships from their factory to retail customers in Florida, hence the reason why they have begun charging dealers such as myself Florida Sales Tax on the wholesale amount of the goods when those goods are going from the factory to Florida residents via specialty carrier or other shipper. They are conforming to the letter of the law in doing so.

However, this is not the correct way to do this. First, they are taxing on the wholesale price of the goods top the dealer, not the retail level. That means it covers ONLY the transaction between Leathercraft and The Keeping Room, and the purchase from my store to the retail customer is a separate and distinct transaction. That means, the same sofa can be taxed twice. Once at the wholesale transaction, and again as a retail transaction coming in as a Use Tax to the consumer. There is no protection for the end customer on tax liability.

The solution is for my as a store to get a Florida Resale Tax Certificate, which I applied for today. This is kept on file at Leathercraft and gives them a 'get out of jail free' card for the tax liability if they get another audit, for drop ships done by The Keeping Room. At the same time, I am not required to collect Florida Sales Taxes because I have no nexus in the state (see that Supreme Court Decision mentioned) so therefore I can sent the order on its way with no sales tax.

This does not mean its 'tax free' however. Florida is aggressively stopping delivery trucks at the weigh stations coming into the state and demanding manifests of the deliveries, noting that - and sending end users a bill for the Use Tax on out of state purchases.

So that's where its at today. None of the other big companies I deal with have been audited by Florida, but it may happen to them in the near future as state governments look for revenue. I will ALWAYS abide by the letter of the law on collecting taxes, but will also fight to make sure its done properly to the advantage of my customers as best I am able.

And here's a new law in Colorado on sales tax. This is probably unconstitutional as written - puts an unfair burden on the merchant as I see it

Thats a lot of work for one sofa sale! Hopefully, you'll get a few more Florida sales....

Its the start of a trend, I think. May as well get up-to-speed on it now and know the laws and exceptions because a lot of states are going to go after big-ticket out-of-state purchases. And the key to staying out of trouble is know the law and adhere to it, yet don't get pushed around by the vendors to collect something on behalf of the state when there is a legal remedy to not have to pay it.

I don't think this is something new in other states. About five years ago while living in MD, I ordered a buffet from one of the major N.C. discounters. They charged me MD sales tax, and months later, I received a letter from the state "reminding" me that I had to pay sales tax. Of course, I already had, but had to send in proof. I was told they were checking bills of lading.