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Enforcement of Florida's Use Tax

Asked by: Bryan - 23 May, 2012
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/default.png-f1597c1da25f30f8c1a941405e8391c8 We are incorporated in Florida to sell retail equipment. We are about to ink a deal with a very large retail chain in South Florida. In the bidding process with this retailer, we are concerned that our competitors will be selling to this retailer from out of state and they will avoid charging this retailer sales tax. So if we sell to the retailer in state we will be 6% less competitive, and if we get the bid, we will have an additional 6% cutting into our margin on a very large order.

That being said, we are interested in creative solutions to avoid the sales tax charged by the state if that is possible. Of course, we would only want to do this if it is legal and within the bounds of company structure. We have additional company branches in California and Mexico. Is there any way that we could sell our products over the internet to this retailer in Florida from California or Mexico and avoid charging sales tax?

Also, if we were to avoid charging sales tax, would the retailer in Florida have to pay a use tax anyway? If so, how readily is the use tax enforced? Do major retailers in Florida like Walmart, Publix, and Family Dollar pay a use tax on all items purchased out of state?
Answered by: Mary Dubitsky - 25 May, 2012
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/549.jpg-00236ee2cca4d3f88de0a8444bbb050d Bryan,

Since the company has nexus in Florida it should collect sales tax on all purchases that are subject to state sales tax in Florida. Selling from California or Mexico would not likely solve your problem - the company has nexus in Florida since it has presence in Florida regardless of where the equipment is shipping from.

With that being said, your disadvantage could well be temporary - it seems like even if your competitors do not have nexus and even if these competitors would not be collecting sales tax because they were not required to, it is likely they will be required to soon.

Here are two articles to help you understand this point: Online sales tax receives lobbying push from states and Application of Florida's Sales Tax to Sales By Out-of-State Retailers. The Marketplace Fairness Act has gained an enormous amount of support over the last few months and with the majority of states desperate for ways to close their budget deficits, it is very likely that if the federal regulation passes (effectively providing an end-around the old nexus cases prohibiting states from requiring out of state retailers to collect sales tax) then states will begin passing regulations requiring out of state retailers to collect tax from in state purchasers ??“ too much money is being left on the table.

It is, indeed, hard to enforce the use tax requirement but some of these competing vendors may have nexus in FL through other means. Assuming they do not, then the in-state company purchasing the un-taxed equipment and not paying the use tax is probably violating the law. We believe that to be an unlikely business practice of a "large retail chain."

We don't know for sure, but it seems like there is a good chance that the Marketplace Awareness Act would be passed, and if it does could make this question moot. Also, we obviously can't speak to what other large retailers do, but those companies are big targets so we doubt they are looking for "creative" ways to avoid paying a use tax when a seller does not collect sales tax.

Finally, I would advise you to secure legal representation for a more formal opinion. I hope all that gives you some food for thought :)

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