FLORIDA TAXES—AN OVERVIEW
By: Dr. John Stancil
Although Florida does not have a personal income tax, there are numerous taxes that are levied on individuals and businesses within the state. Failure to be aware of these can result in penalties and interest, in addition to the amount of the tax.
The reemployment tax is simply the unemployment tax, renamed in 2012. Some other states have moved in this direction, but many states still refer to the unemployment tax. In today’s economy, companies are seeking to cut costs in order to survive and, hopefully, prosper. Unfortunately, a part of this cost-cutting may come from layoffs of employees. When an employee’s job is terminated, it is usually for one of three basic reasons – layoffs due to downsizing, the employee is terminated with cause, or the employee voluntarily resigns. In many cases, the terminated employee may file for reemployment compensation benefits. The full cost of reemployment taxes is borne by the employer, this tax is not levied on the employee.
While the cost of reemployment taxes cannot be eliminated, steps can be taken to minimize this expense. But first, a determination should be made in regard to liability for reemployment taxes. The basic requirement for liability is that wages of $1,500 were paid in any quarter or the company employed at least one worker for any portion of a day in 20 different weeks in a calendar year. Other eligibility triggers are governmental agencies, 501(c) (3) organizations with 4 or more employees, and agricultural employers with $10,000 quarterly payroll or with 5 or more employees. Additionally there is a liability if $1,000 was paid in a quarter to household employees, a liability exists for federal unemployment taxes, or the company was previously liable for Florida reemployment taxes. Any one of these creates a liability.
The amount of unemployment tax is based on an experience rating. The rate for new employers is 2.7% of the first $7,000 paid to each employee annually. After 10 quarters, this rate may be adjusted based on experience. This adjustment can be up or down and can go as high as 5.4%. The Department of Revenue sets up an account for each employer and credits that account for payments. When employees draw reemployment compensation, the benefits may be charged to that account. The larger the balance in the account, the lower the tax rate will be.
When a former employee applies for reemployment compensation, the former employer will be sent a notice asking for details of the employee’s separation from employment. The response to this will affect the experience rating. If the employee was terminated with cause, the benefits received by the employee may not be charged to the employer’s account, helping maintain the experience rating. But this can only happen if the employer responds promptly and truthfully to the notice from the Department of Revenue. The savings can be substantial. A one percent change in the rate on eligible payroll of $100,000 can mean $1,000 in tax savings.
Although many Floridians may not be aware of it, they may be subject to Florida’s use tax law. The Florida Department of Revenue lists the use tax as its number one audit problem. So, what is the use tax, who may owe the tax, and how is it collected? The use tax is a substitute for the sales tax and is due, at the sales tax rate, on purchases when sales tax is not paid at the time of the transaction. A use tax liability will arise primarily under three circumstances. First, if a taxable purchase is made within the state and the seller does not collect the sales tax, the purchaser may be held liable for use tax on the transaction. As an example, commercial leases in Florida are subject to sales tax. If a lease agreement states the rent as $1,000 per month inclusive and that is the amount paid the landlord, the tenant can be held liable for the six-percent tax on the lease amount. Since the tax was not collected at the time of the transaction, it is use tax.
A second situation occurs when a merchant has purchased merchandise for resale and not paid sales tax on the purchase. This of course, is legitimate. With a resale certificate, one does not have to pay sales tax on items purchased for resale. However, if the merchant withdraws goods from inventory for personal or business use, those items will not be resold. They are now subject to the use tax. If a merchant sell electronics, and takes a new HDTV set home for personal use, use tax will be owed on that withdrawal.
The third common instance of use tax liability occurs when merchandise is purchased out of state and a sales tax is not paid at the time of purchase. This frequently occurs with internet or mail-order purchases, magazine subscriptions, and cases where the merchandise is purchased in another state and shipped to a location in Florida. Purchases made on eBay, Amazon.com, or at a North Carolina furniture store may be subject to the use tax.
If sales tax is paid on the item and the rate is less than the six-percent rate in Florida, use tax will be owed on the difference.
Consumers as well as businesses are subject to the use tax. If a business files a DR-15, Florida Sales and Use Tax Return, purchases subject to the use tax should be included on line B. In the course of a regular sales tax audit by the Department of Revenue it is not difficult for the auditors to detect transactions giving rise to a use tax liability.
A consumer or a business not holding a sales tax certificate is still liable for any applicable use tax. This can be done by filing a Form DR-15MO by the 20th of April, July, October, or January for purchases made during the prior calendar quarter.
Admittedly, the DOR does not have the manpower or capability to track down every transaction subject to the use tax. However, with increased data exchange between governments and implementation of some federal tax law changes, it is becoming more feasible for states to track purchases and collect amounts due as use tax. In addition, as states face increasing budgetary pressures, they are looking for additional sources of revenue, and the use tax is one case of “low-hanging fruit.”
This also makes a good argument for collection of sales tax on internet and other such purchases. It is technically not a tax increase, as the tax is legally owed. It is merely the collection of sales taxes on purchases that have not previously been taxed at the state level. By requiring companies such as Amazon to collect and pay sales tax, state revenues are enhanced and the local small business is more readily able to compete with internet companies.
Corporate Income Tax
Florida’s corporate income tax is levied on corporations and other entities that conduct business or earn or receive income in Florida. A return must be filed even if no tax is due. This includes LLCs that have elected to be taxed as a corporation for federal tax purposes. An LLC that has elected partnership tax treatment for federal purposes must file a Form F-1065. S Corporations and tax-exempt organizations are not normally required to file a Florida corporate income tax return if they do not have federal taxable income. Homeowner Associations filing Form 1120-H with the IRS do not have to file in Florida.
The Florida corporate income tax is computed using Florida federal taxable income, with certain adjustments:
- A corporation doing business outside of Florida may apportion its income based on a weighted average of property, payroll, and sales. Sales receives a 50% weighting, while the other two are weighted at 25% each.
- Federal bonus depreciation is not allowed for Florida corporate returns.
- The expensing of certain property above a specified limit is disallowed, contrary to Federal law.
- There is a $25,000 exemption for Florida corporate income tax. Simply subtract $25,000 from the federal amount after other adjustments to determine the taxable income.
The Florida income tax rate is 5.5 percent of Florida taxable income. In addition, there is a Florida AMT that must be paid if the corporation was subject to the Federal AMT. This rate is 3.3 percent.
A Florida short form (F-1120A) is available for companies that meet all of the following criteria:
- Florida net income not exceeding $45,000.
- Conducts 100 percent of its business in Florida.
- Does not report any additions or subtractions from federal taxable income other than a NOL deduction and state income taxes.
- Is not included in a Florida or federal consolidated income tax return.
- Claims no credits other than tentative tax or estimated payments.
- Does not have to pay the Federal AMT.
The Florida return is due on or before the first day of the fourth month following the close of the tax year. For a calendar year business, this would be a due date of April 1. Care must be taken to assure it is filed timely as the due date does not coincide with Federal requirement. An extension may be requested and will be granted for a six month period.
About the Author:
Dr. John Stancil, CPA, is professor of Accounting at Florida Southern College, Lakeland, FL. He is a member of the NATO, AICPA, FICPA, and IMA. Dr. Stancil’s teaching specialty is taxation and he has published numerous articles in this area. In addition, he has prepared taxes professionally for over 30 years. He currently serves on the FICPA Federal Taxation Committee. He is Treasurer for His Nets a not-for-profit organization that distributes insecticide-treated mosquito nets in sub-Saharan Africa and is Chairman of the Finance Team at Legacy Christian Church. His webpage is www.mybaldcpa.com.