What to Expect in a Florida Sales Tax Audit
A Florida sales tax audit could happen at any time to businesses in Florida and to businesses that have nexus with Florida. If you have received a DR-840 notice in the mail or want to be prepared just in case, it's important to understand what a Florida sales tax audit involves and how to ensure the best possible result.
The Purpose of Florida Sales Tax Audits
Florida sales tax audits are performed to find out whether businesses have paid the right amount of sales and use tax and submitted all of the sales tax collected to the Florida Department of Revenue.
If it is found that your business didn't fully comply with Florida tax law, you will be billed for the outstanding amount and required either to pay these back taxes immediately or make a payment plan to pay in installments.
How Businesses Are Selected for an Audit
There are two reasons a business owner might be selected for an audit:
You were selected at random.
The DOR had reason to believe that the company is not in compliance, often based on records from the IRS.
If you already invest in small-business bookkeeping services and/or small business accounting services from professionals who are knowledgeable in Florida tax law and have ensured all your records are correct, an audit shouldn't be anything to worry about. However, if you have been preparing your tax returns yourself and weren't aware of all the relevant laws, you could owe a significant amount of back taxes plus hefty fines in penalties and interest.
Businesses with Nexus Can Be Audited Too
It’s important for out-of-state businesses to be aware that it's not only businesses located in Florida that need to pay sales tax. If you are located outside of Florida but receive a significant amount of sales from customers in Florida, you have a legal obligation to register and charge Florida sales tax and submit a return to the DOR.
Likewise, if your business purchased a vehicle or other items outside of Florida and later kept the vehicle in Florida for six months or more, your company is liable for a use tax (at the same rates as Florida sales tax) on the purchase price of the goods minus any sales tax paid in the state of purchase.
The Florida Sales Tax Audit Process
Notice of Intent
The first step of the audit process is that you will receive a DR-840 “Notice of Intent to Audit Books and Records” in the mail. A genuine DR-840 notice always comes by mail. If you receive a phone call or email, it's a scam.
In your DR-840 letter, the Florida Department of Revenue will tell you:
Which taxes are being audited
The timeline for the audit
Any relevant statutes
Preparing for the Audit
According to Florida tax law, you must be given 60 days to prepare the relevant paperwork for your audit. If you accept an audit date before the 60 days are up, you waive your right to the rest of your time allowance.
During this time, you should contact an experienced provider of small business accounting and tax services to help you gather the necessary documentation and inform you of your rights before, during, and after the audit.
To help business owners understand what the Florida tax audit entails, the Florida DOR has published a guide to its audit process that makes it sound simple. However, in reality, an audit is always time-consuming.
The DOR is likely to review:
Federal income tax returns
State tax returns
Property records
Depreciation schedules
Sales and purchase records
General ledgers
Resale certificates
Sales tax exemptions
Receipts and other documentation that verifies your returns
In most cases, you will be required to produce this documentation for a time period of three years. However, if a previous tax return was substantially incorrect, you might be audited for a longer period.
The Audit Meeting
There are two possibilities for your Florida sales tax audit: a Desk Audit, which takes place at a local DOR office, or a Field Audit, which takes place at your business. It's generally not a good idea to invite the auditor to your workplace unless specifically required, as they might investigate your records further than the scope of the audit at hand.
The Audit Findings
After your audit meeting, the DOR will send you a notice with the audit findings. If you owe money, you will make arrangements to pay it either immediately or in installments. In the case that you don't agree with the outcome of the audit, you must notify the auditor within 30 days.
Why Professional Assistance Matters
In an attempt to save money, many business owners try to prepare and present the paperwork for a tax audit themselves. However, this can end up costing you dearly in the form of lost time and (often) more money owed to the DOR at the end.
The best course of action is to consult a knowledgeable tax professional and, if possible, have them handle the audit for you. Tax professionals are well-informed of taxpayers' rights and can help you protect yourself from unnecessary snooping and subtle forms of manipulation.
Prevention Is Better Than Cure
If you're a new business owner or thinking about starting a business in Florida, it's important to think about how you will manage your sales and use tax obligations to avoid problems with an audit later on.
As mentioned earlier, you are more likely to be audited if your paperwork is suspect, but even random selection for an audit can be a nerve-wracking experience if you're not 100% sure that your sales tax is perfectly reconciled.
The best way to prevent any anxiety about a Florida sales tax audit is to have a professional bookkeeper take care of your receipts, sales tax payments, and tax returns. Knowledgeable bookkeepers and accountants know Florida's sales tax laws inside out and will ensure you don't overlook any details that could cost you later on
