Florida businesses have numerous obligations and responsibilities to their employees, their customers or clients, and numerous state and federal agencies, among others. The Florida Department of Revenue (DOR) and the Internal Revenue Service (IRS) are two of those agencies. If you are facing a Florida sales tax audit, it can create a lot of additional stress when running your business.
Understanding the process can minimize your worries and make it easier to navigate the process and protect your interests.
Florida Sales Tax
Florida has a sales and use tax set at 6% for most things. Sales taxes apply to rentals, sales, storage, and admissions, unless something is exempt. There are exceptions to the 6% rule, such as the 6.75% sales tax on electricity or the 3% sales tax on new retail mobile homes. Businesses are primarily responsible for the sales tax, but consumers can also be responsible if the business does not include the sales tax for a good or service.
The use tax is applied to transactions without an automatic sales tax applied. If someone buys something and the sales tax is not applied, they must pay the use tax to the DOR.
From 2023 to 2024, the DOR collected $41.2 billion through the sales and use tax. The next tax year, it recovered $41.1 billion.
Understanding Sales Tax Audits
Audits are conducted to determine if a taxpayer’s taxes have been completed accurately and properly by comparing the taxpayer’s financial information with the information provided to the tax agency. A sales tax audit specifically looks at the taxpayer’s sales tax payments and information.
A sales tax audit is usually conducted by the Florida DOR. While the IRS does conduct audits of individual and business taxpayers, they are generally for other obligations, like the federal personal or corporate income tax.
The Florida DOR conducts audits for several reasons, including:
- Information the IRS gathers about taxpayers
- Information provided by other state agencies
- Information provided by other states
- Computer program random selection
- Analysis of the normal taxes paid by businesses on their tax returns in Florida
You will receive a Notice of Intent to Audit Books and Records from the DOR, which provides a 60-day notice prior to the audit. During this time, you should gather important documentation, talk with a tax professional, and ask the DOR any questions you have.
What Documentation Should You Prepare for a Sales Tax Audit?
You will need to provide information related to your state sales and use taxes, as well as potentially your local surcharge taxes. You may need information like:
- Depreciation reports
- Resale information
- Ledgers
- Property deeds
- Receipts for cash and other purchases
- Sales tax exemption records
- Sale records
- Federal and state corporate income tax returns
- Journals for purchase, sales, disbursement, and other transactions
When you are contacted by the DOR for the audit, the notice will inform you what specific aspects of your taxes are being reviewed and the information that is needed. Generally, these audits go back for the past three tax years, although they could go back further if needed.
Resolving a Sales Tax Audit
When a sales tax audit resolves, several things can happen. The audit may determine there are no issues with your taxes, meaning no changes have to be made. The audit may also find errors, discrepancies, or other issues. Based on those issues, the DOR may propose a new assessment for your taxes. It could increase or decrease the amount you owe.
When the DOR informs you through a Notice of Intent to Make Audit Changes of what was determined regarding your taxes, you must agree or disagree with the changes within 30 days. If you agree, then you must pay any greater amount in taxes that was assessed. If you disagree, additional steps will need to happen, including an audit conference with their auditor or their supervisor.
FAQs About Florida Sales Tax Audit
What Should You Expect in a Sales Tax Audit in Florida?
A sales tax audit by the Florida DOR will begin with a notice of the audit and a list of the information you need to have ready for the audit. The agency will assess your financial documents compared to what you paid in taxes for at least the past three years to determine if you have accurately paid local and state sales and use taxes. If the agency finds a discrepancy, it can lead to you paying more in taxes.
What Businesses Have to Be Audited in Florida?
Florida requires audits of certain local governmental agencies, but private businesses do not have required audits in the same manner. Instead, private businesses are selected for audits for reasons similar to individual taxpayers, though often at higher rates. Businesses should always be prepared for an audit by the IRS or Florida DOR by having their documentation clear and concise and working with a professional to protect their business’s interests.
What Are Red Flags That Cause Tax Audits?
There are several red flags that can lead to tax audits, although audits can happen for any reason, and taxpayers cannot always prevent them. Red flags include taking significant deductions or credits, under-reporting your income, taking high deductions as business expenses, or undervaluing the assets you have.
Other red flags include cryptocurrency transactions, a significantly high income, or reporting losses to hobbies as business losses. You may also be audited if you have transactions with another party that is audited.
When Do You Need to Hire a Tax Lawyer in Florida?
You need to hire a Jacksonville state taxes lawyer in Florida if you are facing an audit, are dealing with another dispute with the state or federal tax agencies, or if you are filing taxes as an employer. A tax lawyer can help with each of these issues, protecting your rights and representing you in negotiations with the agency. Taxes are complicated as a business, and an attorney could preemptively avoid errors that cause issues in the future.
Navigating Florida Sales Tax Audit Laws
If your business has received notice of a Florida DOR sales tax audit, another tax audit by the agency, or even an audit conducted by the IRS, you need a dedicated audit defense attorney. At TaxSmith, LLC, we have years of tax law experience and are proud to provide straightforward and actionable tax advice to our community. Reach out to us today.
