*UPDATE* The plaintiff voluntarily dropped the case against Target and Walmart in an order entered on October 30, 2023.

Sales tax and administrative burdens go together like the Fourth of July and apple pie. A recent lawsuit highlights the burden and the risk to retailers when they improperly charge sales tax. The plaintiff in the case, a Boca Raton real estate agent, Pamela Knopman, filed a class action against Target and Walmart in US District Court on October 16, 2023, charging that the companies unlawfully collected sales tax on the sale of US flags. Ms. Koopman is seeking damages, compensatory damages, statutory damages, and punitive damages, plus litigation costs. While Ms. Koopman originally paid $0.89 and $1.12 in sales tax to Target and Walmart, respectively, on the purchase of two American flags her suit will cost the retailers much more than a refund of $2.01.

The issue in the case stems from Florida’s exemption on the sale of US flags. Florida is one of approximately fifteen states with a sales tax exemption on US Flags. According to the suit, Target and Walmart charged Ms. Koopman sales tax on her purchase of US Flags, one of which was the always stylish car mount. Ms. Koopman also claims the retailers did not remit the tax collected from her to the Florida Department of Revenue because they sought to “maximize profits”, resulting in unjust enrichment.

The case highlights the challenges associated with addressing all aspects of sales tax compliance. While most retailers are focused on the filing and remittance of sales tax, errors in assigning taxability to products and services can be costly. While most errors will not result in litigation, they are the responsibility of the seller and can result in assessments when tax is undercharged or bad publicity when overcharged. The case is evidence that even the largest retailers, with their vast resources, have issues with sales tax compliance.

Businesses that sell taxable goods and services are subject to sales tax collection in more states than ever due to the economic nexus laws that grew out of Wayfair. Taxpayers face many obstacles with multistate sales tax compliance – sales tax rules vary by state and by product or service. It is challenging for any seller, especially one with limited resources, to audit taxability across all states. There are solutions to mitigate risk such as taxability reviews, sales tax software, and self-audits, but perfection is unlikely.

It will be interesting to see how this case proceeds. Many sales tax class action claims are eventually dismissed since other remedies, such as filing a refund claim, exist. The case is Knopman v. Target Corporation et al filed in the United States District Court Southern District of Florida.

If you have questions on sales tax compliance or other SALT matters, please contact HBK’s SALT Advisory Group at hbksalt@hbkcpa.com.

Sales and use tax rules in Florida can be challenging and require interpretation for the construction industry. How your activity is classified – real property improvement or sale of tangible personal property (TPP) – will determine your sales (and use) tax obligations. The first step in evaluating a transaction is to determine whether it is a real property improvement or the sale of tangible personal property.

The state’s sales tax rule on sales by contractors, Rule 12A-1.051, which includes the relevant definitions related to real property contracts, is a good starting point for determining your tax implications. Generally, activities to real property such as building, constructing, repairing, and maintaining are considered improvements to real property. Real property contracts include any agreement to:

The last section warrants attention as the method in which property is affixed is often critical for determining how the sale or contract is classified for Florida sales tax purposes.

Real property contracts do not include situations where the seller does not (also) install the property, even when the tangible personal property will be permanently affixed to the realty. For example, if you sell countertops but do not install them that is not a real property contract even though the countertops will eventually be permanently installed into a home. Sales of machinery and equipment are also not real property contracts.

Types of Contracts

There are five contract price structures addressed in Florida’s rule on contractors. The first four: lump sum contracts; cost plus or fixed fee contracts; upset or guaranteed price contracts; and time and material contracts all follow the same rules in terms of the sales tax considerations. The contractor is considered the consumer and pays sales tax to the vendor (or accrues use tax) on the materials. In these scenarios, the contractor does not charge the customer sales tax on the contract price or any of its elements. The contract price (or bid) should include sales tax paid by the contractor on materials.

The fifth contract type, retail sale plus installation contract, does not apply to many contractors due to the requirements involved in qualifying. First, a retail sale plus installation contract must itemize and price all materials being incorporated into the real property. This is not common amongst or practical for contractors. Second, the purchaser is required to assume title and risk of loss on the materials as they are delivered. Typically, title does not pass until the contractor’s work is complete which makes retail sales plus installation contracts unappealing to customers. Under a retail sale plus installation contract, the contractor purchases the materials exempt from sales tax as a sale for resale, but bills sales tax to the customer for the tangible personal property sold but not for the installation charges.

Anyone, including contractors, that sells and installs tangible personal property (that remains tangible personal property) must collect sales tax on the charge for the property and the installation, unless the contract is a retail sale plus installation contract previously discussed. The fact that a seller separately itemizes the installation charges does not impact the taxability – the installation is taxable. Florida Rule 12A-1.016 addresses several activities that are considered the sale and installation of tangible personal property. Common examples applicable to contractors may include the following: carpets, drapes, blinds, shades; household appliances; mirrors; and window air conditioning units. There are exceptions to the examples listed if the items become real property, for example, carpets that are permanently attached as contrasted to throw rugs or carpets set in place.

Mixed Contracts

The most demanding area of taxation for contractors is mixed contracts. Mixed contracts include real property improvements along with the sale of tangible personal property. The default treatment of mixed contracts is based on the predominant nature of the contract. If most of the contract is for real property, then the contract follows the real property sales tax rules. The classification of the contract predominance will control the sales tax rules on purchases related to the contract. Contractors have the option of allocating contract price within a mixed contract between real property and tangible personal property and following the applicable tax rules for each type of contract.

The examples provided in Florida’s rule involve a home builder that also includes free standing appliances in its contract to construct a home. If the contract separately states the price for the sale and installation on the appliances, that sale is treated under the rules for the sale of tangible personal property, meaning the contractor buys the appliances exempt as a sale for resale, but charges sales tax to the homeowner on the sale and installation. If the same contractor provides free standing appliances as part of the cost to construct a new home, the contractor is treated as the consumer, under real property contract rules, of the appliances and pays sales tax on the appliances. The homeowner is not billed sales tax separately.

Specific Activities

Florida’s rule on contractors specifies activities and whether they are generally considered real property contracts or not. The complete listing can be viewed in section 17 of the rule (Rule 12A-1.051). Common activities for homebuilders that are classified as real property contracts include: block, brick, and stone masonry; burglar and fire alarm system installation; cabinetry; carpeting with tacks or glue; door and window installation; electrical system installation and repair; foundations; HVAC systems; plumbing work; roofing work; solar systems; and water, sewer, and drainage systems.

Activities not classified as real property contracts include the sale, installation, maintenance, or repair of the following: area rugs and carpets; freestanding cabinets or shelving; drapes, curtains, blinds, shades; entertainment systems; furniture; appliances (unless built in and directly wired); equipment used to provide communication services; and window air conditioning units.

Fabrication

Contractors that manufacture, produce, or fabricate items for use in real property contracts owe use tax on the fabricated cost of these items. This issue is common for many contractors that produce all or part of the materials used in their contracting activities (for example, cabinetry or countertops). The use tax is based on the cost of the property produced including materials, labor, services, and transportation. Labor provided at the job site and transportation costs from the plant to the job site may be excluded from the fabrication costs. If fabrication costs are an issue for your contracting business, review Rule 12A-1.043 for a complete explanation of the calculation for use tax purposes. The rule contains a detailed explanation of items included by category with examples.

Discretionary Sales Surtax

Florida’s discretionary sales surtax applies to purchases and sales made in Florida. From a contractor’s perspective, the vendor should charge sales tax on materials based on where the materials are delivered. Contractors that purchase taxable materials from an out of state seller or through the internet do not owe surtax if they are not required to be registered as a dealer in Florida.

There is a limit on the discretionary sales surtax to the first $5,000 on sales of tangible personal property. The exemption applies to a single sale, which generally includes items sold as a set (dining room set), multiple quantities of a single item, or the items that are component parts of no use until assembled as part of a working unit. The $5,000 limit does not apply to services, sales of service warranties, or leases of real property. A full explanation of the discretionary sales tax surtax is included in Florida guideline GT-800019.

Services

Florida taxes a limited number of services including detective and other protection services; fingerprinting services; nonresidential cleaning services; and nonresidential building pest control services. Within the detective and other protection services category, the state taxes burglar and fire alarm monitoring and maintenance which some contactors may provide. More information is available in Florida guideline GT-800018.

In addition, repairs to tangible personal property are subject to tax if any property is incorporated into the repair. If the repair charge is for labor only then it is not subject to tax, but it is important to emphasize that if any parts or materials are part of the repair the entire charge is subject to tax.

Assistance

If you or your company have questions or issues surrounding Florida sales or use tax, please contact the HBK SALT Advisory Group at hbksalt@hbkcpa.com. We assist clients with state and local tax (SALT) consulting, controversy, and compliance. We are always willing to schedule a no-cost initial call to review your SALT needs.

Citations and Resources

Rule 12A-1.006, Charges by Dealers Who Adjust, Apply, Alter, Install, Maintain, Remodel, or Repair Tangible Personal Property

Rule 12A-1.016, Sales; Installation Charges

Rule 12A-1.051, Sales to or by Contractors Who Repair, Alter, Improve and Construct Real Property

Rule 12A-15.004, Specific Limitations, Discretionary Sales Surtax

Rule 12AER21-16, Construction Contractors Who Repair, Alter, Improve, and Construct Real Property

GT-800007: Sales and Use Tax on Building Contractors

GT-800010; Sales and Use Tax Repairs to Tangible Personal Property

GT-800018; Sales and Use Tax on Detective, Burglar Protection, and other Protective Services

GT-800019; Discretionary Sales Surtax

GT-800067; Sales and Use Tax on Construction, Improvements, Installations and Repairs

As previously reported here, the Florida state sales tax rate on rentals, leases, or licenses to use real property is scheduled to decrease to 4.5% (from 5.5%) on December 1, 2023. The Florida Department of Revenue has issued Tax Information Publication No.: 23A01-20 to address the rate change. The Publication can be viewed here .

The tax on rentals, leases, or licenses to use real property generally applies to commercial office space, warehouses, and self-storage units. The rate reduction does not apply to storage of motor vehicles, boats, or aircraft.

The sales tax rate is based on when the occupant is entitled to occupy the property, not necessarily when the rent is paid.

If you have questions on Florida’s tax rate change or other SALT matters, please contact HBK’s SALT Advisory Group at hbksalt@hbkcpa.com.

On February 8th, Governor Ron DeSantis unveiled his budget for fiscal year 2023 – 2024 which includes significant tax relief for Florida residents. The governor, along with leaders from the Florida House and Senate, unveiled a tax plan to save Florida residents $2 billion in the coming year with an expected tax savings of $1,000 per family. The budget press release detailed the potential sales tax exemptions that Florida legislators intend to implement. Notably, in response to recent debate on impact of cooking indoors with natural gas, the budget includes a permanent exemption from sales tax on the purchase of gas stoves.

The governor’s proposal includes several sales tax exemptions related to childcare and purchases for children. The tax relief plan includes permanent exemptions on necessities for babies and toddlers such as clothing, cribs, diapers, and strollers. One-year exemptions will be enacted for children’s books, toys, and athletic equipment. The annual back-to-school sales tax exemption events will also be expanded to four weeks in total and occur in the spring and fall.

The tax relief proposal includes one-year and seasonal sales tax exemptions that apply to households without children as well. These sales tax exemptions include purchases of household items (detergents, toilet paper, etc.), medicinal cosmetics (soap, shampoo, deodorant, etc.), and oral hygiene products (toothbrushes, floss, mouthwash, etc.). Pet owners will also benefit under the tax relief as there is a one-year exemption on pet food and a permanent exemption on over-the-counter pet medications.

The largest sales tax exemption in the tax relief offering applies to outdoor recreation and entertainment purchases and is expected to run from Memorial Day to Labor Day. The “Freedom Summer” exemption will apply to purchases of items such as boating, camping, and fishing supplies as well as event tickets and admissions for concerts and sporting events.

Since Florida Republicans hold a trifecta in state government, residents can expect the proposed exemptions to be enacted this spring. Residents and businesses should monitor the Florida Department of Revenue website for details on each of the exemptions once the legislation is enacted. The governor’s press release can be viewed here.

If you have questions on State and Local Tax matters, please contact the HBK SALT Advisory Group at hbksalt@hbkcpa.com.

The Florida Department of Revenue recently issued property tax guidance to homeowners impacted by major hurricanes that affected the state in 2022. On January 17, 2023, the Department issued PTO 23-01, Refund of Taxes for Residential Improvement Rendered Uninhabitable by Hurricane Ian or Hurricane Nicole – Revised Form. The bulletin provides taxpayers with information on the property tax relief legislation enacted in December 2022.

The property tax law grants relief to taxpayers if their residential properties were rendered uninhabitable for 30 days or more due to Hurricane Ian or Hurricane Nicole. The property tax relief applies retroactively to January 1, 2022, and expires on January 1, 2024. If applicable, property owners may request a refund of property taxes paid for in 2022 relative to the time their residential property was uninhabitable due to a hurricane. The law defines “uninhabitable” as “the loss of use and occupancy of a residential improvement for the purpose for which it was constructed resulting from damage to or destruction of, or from a condition that compromises the structural integrity of, the residential improvement which was caused by Hurricane Ian or Hurricane Nicole during the 2022 calendar year.”

The Department has adopted Form DR-5001, N. 01/23, to facilitate the application for refund of property taxes due to the property being uninhabitable in 2022. The application must be filed by April 3, 2023. If the application is not filed by the deadline, then the property owner waives their claim for refund under the property tax law. Supporting documentation must accompany the application and may include insurance information, statements from contractors, building permit applications and similar documents detailing the damage to the property. The application must be signed by under penalties of perjury, with the property owner attesting that the facts and information provided on the application are true.

The county property appraiser must notify the applicant of their determination no later than June 1, 2023. If an application is approved, the tax collector will calculate and process the refund of property taxes. If an application is denied, the property owner has the option to file an appeal with the value adjustment board.

The full Bulletin, PTO 23-01, can be viewed on Department’s website here.

For more hurricane-related information, including property taxes, visit the Department’s dedicated Hurricane Ian website here.

Form DR-5001, N. 01/23, can be found at the Florida Department of Revenue website,

Questions on Florida’s real property taxes can be directed to the Department at dorpto@floridarevenue.com.

If you have questions on State and Local Tax matters, please contact the HBK SALT Advisory Group at hbksalt@hbkcpa.com.

The Florida Department of Revenue has a dedicated webpage addressing each of the nine sales tax holidays and temporary exemptions scheduled to begin in 2022. The list of tax holidays and exemptions, along with the applicable periods includes:

• Children’s Books – May 14, 2022 through August 14, 2022
• Disaster Preparedness – May 28, 2022 through June 10, 2022
• Freedom Week – July 1, 2022 through July 7, 2022
• Energy STAR Appliances – July 1, 2022 through June 30, 2023
• Children’s Diapers – July 1, 2022 through June 30, 2023
• Baby and Toddler Clothing – July 1, 2022 through June 30, 2023
• Home Hardening – July 1, 2022 through June 30, 2024
• Back to School – July 25 through August 7, 2022
• Tool Time – September 3, 2022 through September 9, 2022
• Motor Fuel – October 1, 2022 through October 31, 2022

These sales tax holidays and exemption events are a great opportunity for consumers to save money. They allow purchases of defined items exempt from tax so consumers will want to plan their purchases in conjunction with the tax holidays and temporary exemptions.

The tax holidays and exemptions should drive additional sales for retailers, but retailers need to ensure that their point-of-sale systems are properly setup to administer the exemptions. Many of the exemptions are limited by the cost of the item, for example, during Freedom Week there is an exemption on the first $5 of bait or fishing tackle. The exemptions apply to in-store and online sales so it is imperative that even remote sellers apply the exemptions properly to avoid customer service issues.

The Department’s website contains details on each of the tax holidays and temporary exemptions, including lists of qualifying items and information specific to consumers and retailers. The Department’s webpage can be accessed here.

If you have questions any of Florida’s sales tax holidays or temporary exemptions, please contact HBK’s SALT Advisory Group at hbksalt@hbkcpa.com.

HBK would like to remind employers that Florida expanded its new hire and independent contractor reporting requirements. This legislation took effect on October 1, 2021.

What does it mean for Florida employers?
First, the legislation removed the prior 250-employee threshold for new hire reporting. Now all businesses are subject to new hire reporting. Second, the statute imposes a requirement to report independent contractors paid more than $600 in the calendar year. The reporting of independent contractors should occur within 20 days of the contract start date or date of first payment.

Currently, there are no penalties for non-compliance with the reporting requirements. If employers have not yet reported independent contractors, they should report all contractors who have exceeded the $600 threshold in 2022.

More information on reporting new hires or independent contractors in Florida.

The Florida Department of Revenue maintains FAQ reporting requirements on its website.

Nonprofit organizations should be aware that many states have registration requirements if they choose to solicit donations within a given state. Since the registration requirements vary from state to state, including where to register and what documents are needed, we have organized the following summary for states that many of our clients solicit donations in.

Florida

Nonprofit charities seeking to solicit contributions in the state of Florida should head to the Florida Department of Agriculture and Consumer Services (FDACS). Rules relating to solicitation are regulated by the Solicitation of Contributions Act. When filing with the state of Florida, an organization needs to either fill out the Small Charitable Organizations/Sponsors Application or register with the FDACS. If an organization meets the following requirements, they can file a small charitable organization/sponsor application and avoid a registration fee:

1. Revenue less than $25,000 during the previous year


2. Did not compensate individuals for fundraising activities nor individuals who serve on the board


3. Does not use third-party professional to help with fundraising

During the year, if the organization meets any one of the requirements listed above then they must register with the FDACS within 30 days of failing to meet one of the requirements above. When registering with the FDACS, the initial filing must have all answers responded to. Registration fees are based on the organization’s financial data in the previous year that is submitted with the registration. If the organization is new and has no preceding financial information, a budget must be submitted with the registration. The registration must be renewed annually on the initial date of compliance. The FDACS mails out renewal statements to recipients.

New Jersey

Registration for charitable solicitation in New Jersey occurs on the Attorney General’s website under consumer affairs. It is mandatory to file online. Rules relating to solicitation are regulated by the Charitable Registration and Investigation Act. There is a $10,000 annual gross contribution threshold for filing with New Jersey and if the organization does not meet the threshold nor utilize a professional fundraiser, then they do not need to file with the state to be compliant. Organizations under the $10,000 threshold do not have to file but may choose to do so, pay a registration fee, and renew their registration annually. These organizations are not entitled to a renewal extension of time to file. Charities who do not file with the state when they are under the gross contribution threshold must file within 30 days of meeting the $10,000 gross contribution within a given year. Charities who meet the annual gross contribution threshold will:

1. File either the short or long registration form, depending on the gross contributions received


2. Include the required supporting information requested


3. Pay a registration fee that is dependent on the gross contributions received

Charities must renew their registration annually and within 6 months of the charities’ year-end. Additionally, extensions can be requested for the registration renewal if an organization receives contributions exceeding $10,000.

Ohio

Registration for charitable solicitation in Ohio occurs on the state’s Attorney General website. Organizations must use the online system on the website for their initial filling and subsequent annual filings with the state. The state of Ohio requires organizations to register with the state prior to soliciting contributions. Rules relating to solicitation are regulated by the Ohio Charitable Trust Act or the Charitable Organizations Act. New organizations have up to 6 months to register with Ohio, but they still must register before soliciting contributions. After the initial registration, annual filings follow the IRS due dates for form 990. For example, an organization with a 12/31 year-end must file its form 990 and annual charity filing by May 15th. If an extension has been granted for the form 990, the state will honor the extension for the annual filing as well. Registration fees are dependent upon either the organization’s assets or the contributions received.

The state of Ohio does have some exceptions to these rules available for qualifying religious organizations, exemptions from the above rules are looked at on a case-by-case basis. If a charitable solicitation believes they are exempt they must create an online account and request the exemption, which will be reviewed by the Attorney Generals office.

Pennsylvania

Registration for charitable solicitation in Pennsylvania occurs on the Department of State website for Pennsylvania. Rules relating to solicitation are regulated by the Solicitation of Funds for Charitable Purposes Act. The state of Pennsylvania requires that organizations who would like to solicit from Pennsylvania residents file BCO-10, Charitable Organization Registration Statement. Organizations may file their initial filings and subsequent renewals online or by mail. Renewal registrations are automatically extended and are due no later than the 15th day of the eleventh month following the organization’s year-end. Initial registration is required if the following occurs:

1. A person compensated by an organization wants to solicit contributions for said organization. Registration must occur before this happens.


2. If an organization receives more than $25,000 in gross contributions. Initial registration must occur within 30 days of meeting this threshold. No person may be compensated for soliciting in this scenario.

In addition to filling out form BCO-10, supplementary information requested on the form must be submitted along with a registration fee. The registration fee is determined by the organization’s gross annual contributions.

Please reach out to the Nonprofit Solutions Group for information on additional state registration requirements, or if you would like more information on how HBK can help them comply with these requirements.

On September 18, 2020, Florida Governor Ron DeSantis signed a series of tax bills.

HB 7095: The law applies to income tax for corporations doing business in Florida. Florida uses federal taxable income from federal tax returns as a beginning point to calculate corporate income tax owed to Florida. Florida updated its application of the Federal Internal Revenue Code (IRC) by adopting the code as it exists on January 1 in any given year. Adopting the code on an annual basis ensures the Florida tax code reflects any relevant changes to the IRC that were made during the prior year. The bill adopts the IRC as of January 1, 2020, applicable retroactively to January 1, 2020 which would now apply the CARES Act to Florida’s tax provisions.

HB 371: Local governments impose and collect ad valorem taxes on real and tangible personal property within Florida. All property in Florida is subject to taxation and must be assessed at just value unless an exemption or exception is authorized by the Florida Constitution. Under the homestead exemption, persons with legal and equitable title in real property on which they or their dependent permanently reside may have a portion of the just value of their property exempted from taxation. The law includes measures: 1) extending to three years from two years the time for which the accrued benefit from specified limitations on homestead property tax assessments are transferable from a prior homestead to a new homestead; 2) extending to three years from two years the time for an owner of homestead property significantly damaged or destroyed by a named tropical storm or hurricane must establish a new homestead to make a certain election; 3) removing obsolete provisions; 4) providing that the law applies beginning with the 2021 tax roll; and 5) providing a contingent effective date. The law generally takes effect Jan. 1, 2021.

HB 879: The Florida Constitution provides a discount from the amount of ad valorem tax otherwise owed on the homestead property of an honorably discharged veteran who is age 65 or older and is partially or totally and permanently disabled because of combat. The discount is equal to the percentage of the veteran’s disability as determined by the United States Department of Veterans Affairs. If the voters approve, it allows the same ad valorem tax discount on homestead property for combat-disabled veterans age 65 or older to carry over to the surviving spouse of a veteran receiving the discount if the surviving spouse holds legal or beneficial title to the homestead and permanently resides thereon. The discount would apply to the property until the surviving spouse remarries, sells, or otherwise disposes of the property. If the surviving spouse sells the property, the discount may be transferred to the surviving spouse’s new residence, not to exceed the amount granted from the most recent ad valorem tax roll, as long as the residence is used as the surviving spouse’s permanent residence and he or she does not remarry. A spouse who is qualified to receive the discount and who fails to file an application by March 1 may file the application for the discount and may file a petition with the value adjustment board requesting that the discount be granted. The law takes effect subject to a ballot referendum at the next general election or an earlier special election specifically authorized for that purpose.

If you have questions about the Florida legislation, please contact your HBK advisor.