Synopsis: Article discusses two ways that an unregistered company can "properly" remit an outstanding sales tax liability to the FL DOR. Late registration and voluntary disclosure options are detailed and compared.
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Remitting Outstanding Tax Liabilities (FL)
There are two ways for an unregistered company to properly remit an outstanding tax liability: late registration or voluntary disclosure. The severity of the outstanding liability should be considered in choosing the method of remittance as long as the state has not contacted the company regarding the liability. Once a company has been contacted by the state, voluntary disclosure is not an option.
It may be a good idea to call the voluntary disclosure department at 800-352-3671 to discuss the best way to handle a particular situation. Be prepared to describe the situation, including estimates of the amount and duration of the collected and uncollected liabilities.
An anonymous call offers several advantages, including time to prepare the disclosure and/or fund the amount that needs to be paid. It can be helpful to have this call made by a consultant or other third party who will be careful not to divulge the identity of the company in question. If the call is made by a company employee, do not use a company phone or enter a business partner number or other license number into the phone system. It may take longer to connect with someone who can help, but a contact at the department can be very helpful in identifying practical, as opposed to, statutorily acceptable procedures. It is a good idea to mentally prepare for various questions that may come up and to think of an "alternative" name to use for the company. For instance, use "the cleaning company" instead of "FL Kleenerz."
Be aware the statute predominates and that guidance received in this manner is not technically binding. However, document the call with good notes, including the name (properly spelled), the direct or office phone number, the fax number, and possibly the e-mail address of the person called. In practice, advice received from the voluntary disclosure department can be very useful. Late Registration:
A late registration should be considered if the sales tax liability is small and/or the company is only a few months late in registering. Under these circumstances, late registration is probably the most cost effective and quickest solution. In addition, if the company receives a quarterly filing frequency(1) and registers before the end of the first quarter of collected taxes, there will probably not be additional compliance costs. When the liability extends beyond the current quarter or the liability is large and may result in a monthly filing frequency. It is a good idea to negotiate or determine the frequency ahead of time. For late registrations, back returns will have to be filed as well as penalties and interest paid.
One way to minimize costs if the filing frequency is known is to prepare and submit back returns, taxes, penalties, and interest with the registration application. This will minimize interest and expedite the process. If calculating penalties and interest is too difficult, paying only the tax due is also an option. The Department of Revenue will send a bill for the difference. The upfront remittance of the tax may be taken by the Department as a show of good faith. Do submit a request for waiver of penalties and interest with the application package, but do not expect the Department of Revenue to waive more than the penalty for the first return under most circumstances (2). Voluntary Disclosure:
The voluntary disclosure program allows payment of outstanding tax liabilities without most penalties. If tax was collected, but not remitted, a five percent penalty may be enforced. Items that would routinely generate a bill, delinquency, or deficiency are not eligible. Under this program, the Department will only look at the preceding three years instead of the usually longer limitation periods for uncollected taxes. The voluntary disclosure process usually involves negotiation with the state and a written contract between the parties. Anyone who has not been contacted by the Department can participate in the program even if the company is already registered.
Before entering into a voluntary disclosure, the amount of the liability, the level of documentation, the complexity of transactions, and the knowledge and availability of internal resources should be considered. After consideration has been given to all variables, a decision needs to be made to either handle the disclosure internally or hire a consulting firm to file and assist with the disclosure. The level of involvement by a consultant can be tailored based on the internal resources available. Consultants familiar with the process should have good contacts within the Voluntary Disclosure Program and be able to point out areas of opportunity to reduce the expense of the disclosure. For instance, it is possible that one or all of the customers remitted use tax. Documentation to that effect can be used to reduce the liability, but the cost of obtaining the documentation must be considered in relation to the potential decrease in liability. Consultants should be able to time the steps of the process for maximum benefit. A timing consideration exists if a liability is discovered, but further effort is needed to determine the exact amount of the liability. An estimated payment can be negotiated to stop interest from accruing. Usually, the estimated payment is the maximum liability amount. In this case, the contract would need to include a statement that the refund statute will remain open during the determination process so that a reimbursement can be obtained if the liability is reduced. Obviously, there would be little opportunity to negotiate the statute of limitations for a refund if payment is made with the request to enter the program. Requests to enter the voluntary disclosure program must be made in writing. There is not a prescribed format, but the application must include a statement that the taxpayer has not been contacted by the state in regard to the liability, the estimated or actual amount of the outstanding liability, and the conditions resulting in the outstanding liability. If the company is already registered with the state for sales tax purposes, the certificate number and location of the business, including county must be provided. If unregistered, the application form DR-1 must be completed and submitted. If the request is being entered by a consultant, a Power of Attorney should also be included. Improper Practices:
Some companies that are late with registering choose to register using the current start date and remit all taxes due on the first return. This might happen when a new company does not have the resources or knowledge to correctly adjust for a late registration. In addition, this method can stop interest from accruing beyond the point of payment and start the countdown on the statute of limitations. The reason that will probably be apparent to the FLDOR is that the company is attempting to avoid penalties and interest.
This is not a recommended practice. There are serious considerations to be given to using this method. First and foremost, this process is not compliant with Florida Laws. Secondly, if discovered under audit, a company using this method will probably be liable for penalties and interest from the time the liability occurred to the time the tax was paid. Penalties are often waived in an initial audit. However, using this method may result in a situation where the company is seen as "willfully incompliant" and the penalty will probably be enforced. There may be other negatives to using this method that are not mentioned here.
The worst practice a company can undertake in sales tax is to collect taxes and never remit those monies to the state. Taxes collected by a dealer immediately become the property of the state and not remitting monies collected is considered theft from a governmental agency. Once the state has made the discovery that taxes are due, good intent will be difficult to show.
1 Most companies start our on a quarterly frequency, but with late registration, this may be a point that has to be negotiated.
2 The Department may waive penalties and interest under extraordinary circumstances. Extraordinary circumstances might include a victim of a hurricane or an owner in a coma, but do not include a lack of ability or awareness.