Business Law 101 / Sales Tax

Business Law 101 / Sales Tax

By Albert L Kelley, Esq.

Every new business needs to consider their tax liability.  While there are numerous types of taxes (real estate tax, tangible property tax, self- employment tax, etc.), probably the most frequent, and sometimes the most confusing, is the sales tax.   Why is this tax confusing? Well, not everything is taxed, not every county taxes the same amount and not everything even in the same County is taxed at the same level.

What is taxed?  Generally, the retail sale of merchandise is taxable, while the providing of services is not.  However, that is a gross oversimplification. Not all retail sales are taxed, and not all services are untaxed.  Most food is not taxed. However, heated or prepared food, food sold for on-premises consumption, soda and soft drinks (including fruit drinks), alcoholic beverages and candy are all taxable. Many medicines and home based medical diagnosis kits, as well as many home remedies are not taxable. Prosthetics and orthopedic equipment, optical equipment and most feminine hygiene products are exempt.  However, toiletries are generally not exempt. Generally, sales made within the state are taxable, but sales that are shipped to other states are not. As to services, most services are not taxable; however, commercial pest control services, nonresidential cleaning services, commercial security services and detective services are all taxable, as are certain contractors who sell tangible property with their contracting services.  Also the leasing of commercial property is taxable, although leasing nontransient residential real estate is not (For sales tax purposes, nontransient means any lease of six months or less). In addition to the above exemptions, Florida also has a sales tax holiday. Usually in August of each year, there is a weekend set out where the purchase of clothes, computers and school supplies are not taxed. This is to assist families who need to prepare their children for school.

The State Sales Tax rate is normally 6%.  However, starting 2018, the sales tax amount for lease of commercial real estate was reduced to 5.8%.  On top of the State sales tax, each county is authorized to add a discretionary sales surtax. These vary by county.  In Monroe County, the surtax rate is currently 1.5%. So the general sales tax rate in Monroe County would be 7.5% for most items, and 6.8% for commercial real estate leases.

Before you start operating your taxable business, you must register to collect and remit sales tax.  This is done by completing Form DR-1 or simply completing the online application at the Department of Revenue’s website.  While the form is lengthy (10 pages) it is fairly straightforward. It is also serious. Violations of the sales tax laws are criminal.  You can go to jail if you fail to collect, report or remit sales taxes. In order to assure that business owners are aware of the criminal nature of violations, the form can only be completed by an officer of the business, and they have to affirm under penalty of perjury their understanding not only of the criminal nature, but that the liability is personal.  In other words, the officers of the company are personally held accountable for a violation of the law.

Once the application is complete, the Dept. of Revenue will issue a confirmation number.  After three days, you can return to the DOR website to retrieve your Sales Tax Certificate number.  In about two weeks, the Department will send a coupon book to the business, usually requiring monthly reporting of sales.  Each report must include gross sales, exempt sales and taxable sales, along with the amount of tax due. The report must be filed within 20 days of the end of each month.  Generally, the first time you are late with a payment, the Department will let you off with a warning. But each subsequent late payment is subject to interest and penalties.  .

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University.  He is also the author of “Basics of Business Law” “Basics of Florida’s Small Claims Court” and “Basics of Florida’s Landlord-Tenant Law” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice.  If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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