Sales Tax Articles

Florida Exemptions Requiring Exemption Certificates

Author: Celesia Laymon and Kim M.Wilmoth, CPA of Wilmoth & Associates, P.A.  (Firm Details)

Synopsis: Florida Exemptions Requiring Exemption Certificates Exemptions, unlike exclusions, must meet the burden of proof through the provision of exemption certificates. This article discusses the required documentation and some pitfalls to avoid related to resale of products and services in Florida and across state lines, direct pay permits, new or expanding business, exempt entities and exempt use of property. Sample formats for forms are supplied.


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Florida Exemptions Requiring Exemption Certificates


Exemptions, unlike exclusions, must meet the burden of proof through the provision of exemption certificates. Exemptions may be available based on the nature of the sale or the nature of the business making the purchase. Exemption certificates must be taken in good faith. This means that an exemption certificate cannot be given or accepted for any use outside the parameters of the exemption, i.e. a resale certificate cannot be issued to purchase furniture for use in an office without paying sales tax (note 1).

Resale:

A sale for resale is defined as "sales, leases, or rentals when made to a person who is an active registered dealer... when such property will be resold to the dealer's customers ... or held exclusively for leasing or rental purposes." This includes taxable services that will be resold and "material(s), ingredient(s), or component part(s) of tangible personal property that is being produced for sale..." or for use to repair, modify, or fine-tune tangible personal property (note 2.)

Under Rule 12A-1.039(7)(a), "the effective date of the Annual Resale Certificate (form DR-13) will be the postmark or hand delivered date of the Sales and Use Tax Application for Certificate of Registration." This can prove to be a burden on new Florida vendors who make purchases that would normally be considered for resale before registering and making the first taxable sale. In at least one case, the Florida Department of Revenue has allowed a registration date to be amended to an earlier date. However, no-tax-due returns had to be filed for previous years and the minimum penalty, at the time $10.00 (now $50), was applied to each return (note 3). The amended registration date allowed the company to get a considerable refund for sales tax paid on purchases for materials used in the initial production of the company's product.

Florida Businesses:

The management of resale certificates (Annual Resale Certificates and Consumer's Certificates of Exemption) has changed with the addition of a verification portal at the Florida Department of Revenue's website. There are now several ways the exemption can be claimed; by the issuance/acceptance of either a signed copy of the Annual Resale Certificate or a properly executed Uniform Sales and Use Tax Certificate (one of the verification options must be used in conjunction with this certificate), by written or phoned-in request, or through the state-provided verification portal (collectively, "the verification options"). The online verification portal is accessible at https://suntax.state.fl.us/irj/portal/anonymous. On the first screen select the tax type, enter your sales tax registration or business partner number, and enter your name. On the next screen enter the registration number on the certificate that you are validating. A phoned-in request can be made toll-free by calling (877) 357-3725. "Written requests should be addressed to Central Registration, Florida Department of Revenue, 5050 West Tennessee Street, Building E, Tallahassee, Florida 32399-0100."

The duration of an exemption certificate varies by the type of exemption certificate and by the customer/vendor relationship. A point-of-sale authorization number obtained from the verification portal or a phoned-in request is valid for only one purchase. For repeat sales that require immediate payment, if it is not advantageous to obtain a point-of-sale authorization time and again, an initial copy of the Annual Resale Certificate can be issued and must be maintained in the vendor's records. Thereafter, an annual "vendor resale authorization number" can be obtained from the verification portal each calendar year to renew the resale certificate. For a customer/vendor relationship that is continuous with at least one sale occurring annually AND operated so that immediate payment at the exact time and point-of-sale is not required, there is no effective expiration date for the Annual Resale Certificate that is initially presented (note 4). Note, this is an often misinterpreted statute. Many companies undergo the unnecessary burden of obtaining a resale certificates on an annual basis from clients that meet these criteria. It is much less time and resource consuming to simply verify that the certificate is still valid.

Businesses Located in Other States:

"Nonresident dealers" that are not located in the state of Florida are allowed to make purchases for resale from Florida businesses. The documentation that is required to substantiate the purchase for resale is listed in Rule 12A-1.0015(3). In addition to verifying the dealer is registered "to do business in the dealer's home state..." a document must be signed that contains the following information:

1) The name of the dealer and an address for the dealer
2) "... A statement from the nonresident dealer declaring that the tangible personal property will be transported outside Florida by the nonresident dealer for resale and for no other purpose."
3) The exact statement that "Under penalties of perjury, I declare that I have read the foregoing, and the facts alleged are true to the best of my knowledge and belief."
4) The document must be signed by the purchasing dealer.

Rule 12A-1.0015(3)(d) offers a form that may be used, as follows (note 5):


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TANGIBLE PERSONAL PROPERTY FOR RESALE BY A NONRESIDENT DEALER

This is to certify that the tangible personal property described below will be transported outside Florida for resale and for no other purpose.
NAME OF SELLING DEALER: ___________________________________________________________________

DEALER'S ADDRESS: _________________________________________________________________________

DEALER'S SALES TAX NO.: _____________________________________________________________________

NAME OF NONRESIDENT DEALER: _______________________________________________________________

ADDRESS OF NONRESIDENT DEALER: ____________________________________________________________

HOME STATE'S SALES TAX NO.: __________________________________________________________________

PASSPORT OR VISA NO.: _______________________________________________________________________

ARRIVAL-DEPARTURE CARD NO.: ________________________________________________________________

PURCHASER'S EVIDENCE OF AUTHORITY TO DO BUSINESS IN HOME STATE: ______________________________

The tangible personal property purchased in Florida on INVOICE NUMBER (S) ______________________________

or described as follows, is solely for resale outside Florida.
DESCRIPTION OF PROPERTY: ____________________________________________________________________

Under penalties of perjury, I declare that I have read the foregoing and the facts alleged are true to the best of my knowledge and belief.

_____________________________________________________
SIGNATURE OF PURCHASING NONRESIDENT DEALER

_________________________
DATE

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Resale of Services:

Not all states allow services to be purchased for resale. Florida is one that does. There are some pitfalls that need to be avoided when taking advantage of this exemption. For taxable services to be resold when the taxable location is in Florida, the seller of the service must receive a Florida resale certificate. It does not matter if the purchaser is located out of the state. An out-of-state purchaser must register in Florida to collect sales tax in order to make purchases of taxable services for resale. If the out-of-state dealer is not registered in Florida, the Florida dealer performing the service must collect tax on the sale of the service. Then, the Florida purchaser of the services must also assess use tax on the service. This double-taxation can be avoided by having the out-of-state dealer register to remit Florida tax. A second option may be impractical to implement, but has proven successful under audit. It requires coordination with the end-purchaser of the service and the dealer performing the service. If the Florida dealer performing the service can get documentary evidence from the Florida purchaser that use tax is being properly assessed on the services being purchased from the out-of-state dealer, the Florida dealer performing the service does not have to collect tax from the out-of-state dealer.

Out-of-State Service Resale Example:

In FL Kleenerz' first year as a Florida business it engaged in performing taxable, non-residential cleaning services in the state of Florida. FL Kleenerz is hired by US Kleenererz, a Delaware corporation with no nexus in the state of Florida, to provide services to Dirty Boyz, a national, mud-wrestling federation that rents an auditorium located in Mucky, Florida every year to hold the Annual Mucky Mud and Chicken Feathers Festival.

Year 1:
FL Kleenerz does an excellent job of mopping up the auditorium and sends a bill to US Kleenererz... no tax included! US Kleenererz happily marks up the fee charged by FL Kleenerz by their standard operating 20% talent-finders fee and sends a bill... no tax included!... to Dirty Boyz, agreeing to use the services of FL Kleenerz for many years to come.

Year 2:
FL Kleenerz gets audited by the Florida Department of Revenue before the next Annual Mucky Mud and Chicken Feathers Festival. FL Kleenerz learned they needed a resale certificate from US Kleenererz or they have to charge US Kleenererz sales tax on the service. FL Kleenerz goes to US Kleenererz to ask for the resale certificate and learns that US Kleenererz in not registered to remit sales tax in Florida. FL Kleenerz makes a business decision not to request US Kleenererz to pay them back for the tax, interest or 1/2 of the penalties that are normally charged on a first Florida Department of Revenue audit charges (note 6) on the service. Unbeknownst to FL Kleenerz, the accounting department of Dirty Boyz is on top of their game and properly self-assessed use tax on the services performed during the year.

The end of the year comes and the next Annual Mucky Mud and Chicken Feathers Festival is held. While mopping up the muck, the proprietor of FL Kleenerz meets the head of Dirty Boyz accounting department, who is in town to play the role of Chicken Lickin, the festival mascot. The proprietor tells the accountant the sad story of the FLDOR audit. The accountant, knowing that FL Kleenerz is going to have to bump up the invoice to US Kleenererz to include sales tax and US Kleenererz, in turn, is going to have to bump up the invoice to Dirty Boyz, wisely explains that Dirty Boyz remitted use tax on the service to the FLDOR. Then the accountant offers to send the proprietor documentary proof that Dirty Boyz is paying the tax so that FL Kleenerz does not have to charge tax to US Kleenererz.

Year 3:
US Kleenererz picks up several more customers in Florida. Although US Kleenererz does not technically meet the nexus requirements, several of these companies don't want the hassle of tracking the use tax liability. Therefore, US Kleenererz registers to collect Florida sales tax to improve customer relations. US Kleenerers offers the Florida Annual Resale Certificate to FL Kleenerz. FL Kleenerz happily accepts the resale certificate and agrees to provide cleaning services for all of US Kleenererz customers (note 7)

Tax Results - Years 1-3:

Year 1:
FL Kleenerz - Taxed Under Audit
US Kleenererz - Not Taxed
Dirty Boyz - Use Tax Paid
Remitted By - FL Kleenerz and Dirt Boyz
Result - Tax is paid twice

Year 2:
FL Kleenerz - Not Taxed
US Kleenererz -Not Taxed
Dirty Boyz - Use Tax Paid
Remitted By - Dirt Boyz
Result - With some effort, the tax is only paid once

Year 3:
FL Kleenerz - Not Taxed
US Kleenererz - Not Taxed
Dirty Boyz - Sales Tax Paid
Remitted By - US Kleenerz
Result - Tax is paid once, in arguably the most efficient manner

Businesses Located in Other Countries:

Businesses located in other countries that are not registered to do business in Florida or another state can make purchases for resale under the rules of "Sales to Nonresident Dealers". The only documentation difference is that a passport or visa and arrival-departure number must be submitted in lieu of the proof of authority to do business in one of the United States (note 8).

Direct Pay Permit Holders:

A direct pay permit allows a company to self-accrue use tax instead of paying sales tax to the company's vendors. The conditions of direct pay permits vary and will be listed on the permit (note 9). If the conditions are met, the direct pay permit holder may issue the direct pay permit to make exempt purchases. Direct pay permits are usually issued to companies with a large volume of purchases. Less frequently, the permits are issued to companies who make purchases that may or may not be exempt depending on the use of the purchases. This occurs when the company cannot know at the time of purchase if the purchase will be used in a taxable manner. In general, for the privilege of holding a direct pay permit, a dealer may be held to a higher standard of compliance than a company that does not hold direct pay permit. For this reason, accepting a valid, direct pay permit for the purpose listed on the permit should hold no risk to the vendor.

New or Expanding Business:

Another exemption that must be mentioned because it can affect so many taxpayers and businesses in Florida is the exemption for Industrial Machinery and Equipment for Use in a New or Expanding Business. A purchased business is considered a new business for this situation. An expanding business receives a tax break for certain fixed-location machinery and equipment purchases that total over $50,000.00 in a year and are used to increase productivity by at least 10 percent. The exemption requires a special application to be filled out, form DR-1214 Application for Temporary Tax Exemption Permit. For more specific information related to claiming this exemption as well as exemptions for mining and spaceport activities, see Fla. Reg. 12A-1.096.

Other Exemptions

In addition to the exemptions mentioned above, there are many others. These exemptions relate to either the nature of the purchaser or the use of the product. There are different exemption certificates that must be furnished for the various exempt purchases. (There are special rules for construction agreements for exempt entities. It is not recommended that a construction project be undertaken for an exempt entity without consulting a specialist in this area.)

If the exemption relates to the nature of the purchaser, the purchaser usually applies for a Consumer's Certificate of Exemption by submitting form DR-5 along with required documentation that varies by entity type. Consumer's Certificates of Exemption are valid for 5 years unless revoked. Before a certificate expires, renewal form DR-5 must be submitted with the required documentation. The exemption application lists the following types of businesses that may qualify for exemption:

* 501(c)(3) Organizations
* Community Cemeteries
* Credit Unions
* Fair Associations
* Florida Fire and Emergency Services Foundation
* Florida Retired Educators Association
* Library Cooperatives
* Nonprofit Cooperative Hospital Laundries
* Nonprofit Water Systems
* Organizations Benefiting Minors
* Parent-Teacher Organizations and Associations
* Political Subdivisions
* Religious Entities (For Specific Uses)
* Schools, Colleges and Universities
* Veterans' Organizations
* Volunteer Fire Departments (note 10)

These organizations cannot make exempt purchases until the day the Consumer's Certificate of Exemption is approved by the Florida Department of Revenue. Purchases made before the approval date are taxable regardless of the nature of the exempt entity. Exempt purchases by entities holding a Consumer's Certificate of Exemption must be made for use in carrying out the purpose of the exemption. It is not the seller's duty to determine if the purchase is made in accordance with the exemption. In addition, the purchases must be made from the funds of the exempt organization. Reimbursed purchases are not allowed to be made using the certificate. In most other matters, the validity verification process for use of a Consumer's Certificate of Exemption mimics the use of a resale certificate (note11).

There are special rules for sales made to "governmental units". The purchaser must still have a Florida issued Consumer's Certificate of Exemption, as well as make the purchase using either a government issued purchasing or procurement card, or issue an "Employer's Authorization to Make Purchases on Behalf of an Exempt Government Unit". Again, the purchase must be made directly from the funds of the entity and cannot be made as an employee reimbursement. Federal employees can make reimbursed, exempt purchases on behalf of the federal government. Rule 12A-1.038(4)(b)2 and Rule 12A-1.038(4)(c) offer forms that may be used for both purposes, as follows (note 12):


*************************

EMPLOYER'S AUTHORIZATION TO MAKE PURCHASES ON BEHALF OF AN EXEMPT GOVERNMENTAL UNIT

DATE: ___________________________

TO: ______________________________

SELLING DEALER'S NAME: ______________________________________________

SELLING DEALER'S ADDRESS: ___________________________________________

I, the undersigned, am a representative of the exempt governmental unit identified below. The purchase or lease of tangible personal property or services or the rental of living quarters or sleeping accommodations made on or after _____________(DATE[S]) from the business identified above is for use by the exempt governmental unit identified below.

The charges for the purchase or lease of tangible personal property or services or the rental of living quarters or sleeping accommodations from the dealer identified above will be billed to and paid directly by the exempt governmental unit.

Under penalties of perjury, I declare that I have read the foregoing and that the facts stated in it are true.

AUTHORIZED SIGNATURE ON BEHALF OF EXEMPT GOVERNMENTAL UNIT: _______________________________________

NAME OF EXEMPT GOVERNMENTAL UNIT: _________________________________________________________________

ADDRESS OF EXEMPT GOVERNMENTAL UNIT: ______________________________________________________________

CONSUMER'S CERTIFICATE OF EXEMPTION NUMBER: ________________________________________________________

THIS CERTIFICATE MAY NOT BE USED TO MAKE PURCHASES OR LEASES OF TANGIBLE PERSONAL PROPERTY OR SERVICES OR RENTAL OF LIVING ACCOMMODATIONS FOR THE PERSONAL USE OF ANY INDIVIDUAL REPRESENTING THE EXEMPT ENTITY IDENTIFIED ABOVE.


*************************

EXEMPTION CERTIFICATE TO BE USED BY FEDERAL EMPLOYEES

DATE: _________________________ SELLING DEALER'S NAME: ______________________________________________

SELLING DEALER'S ADDRESS: ___________________________________________

I, the undersigned am an employee of the federal agency identified below. The purchase or lease of tangible personal property or services or the rental of living quarters or sleeping accommodations on or after _______________(DATE[S]) from the business identified above is in pursuit of my employer's affairs. The Government of the United States either will pay the seller directly or will provide reimbursement to the employee for the actual cost of the purchase or lease of tangible personal property, services, or living quarters or sleeping accommodations made on this date(s).

Under penalties of perjury, I declare that I have read the foregoing and the facts stated in it are true.

SIGNATURE OF EMPLOYEE: _____________________________________________

NAME OF FEDERAL AGENCY: ___________________________________________

ADDRESS OF FEDERAL AGENCY: ________________________________________

THIS CERTIFICATE MAY NOT BE USED TO MAKE EXEMPT PURCHASES OR LEASES OF TANGIBLE PERSONAL PROPERTY OR SERVICES OR RENTAL OF LIVING ACCOMMODATIONS FOR THE PERSONAL USE OF ANY INDIVIDUAL EMPLOYED BY A UNITED STATES GOVERNMENTAL AGENCY. PROPER IDENTIFICATION IS REQUIRED BEFORE THIS CERTIFICATE MAY BE ACCEPTED BY THE SELLER.


*************************

Exemptions made on a property's use do not require the issuance of an annual resale certificate or a consumer's exemption certificate if the company making the purchase is not required to have one. "The selling dealer is only required to obtain one certificate for sales made for the purposes indicated on the certificate (note 13) and is not required to obtain an exemption certificate for subsequent sales made for the exempt purpose indicated on the exemption certificate". There are several formats suggested for various exempt use certificates outlined in Fla. Reg. 12A-1.027, including:

* Printed materials mailed partly outside Florida
* Printed materials purchased by a nonresident dealer
* Purchases of film and other printing supplies
* Exportation of tangible personal property irrevocably committed to export
* Items sold to advertising agencies, etc.

However, the following form, as outlined in Rule 12A-1.038(5)(d)1, covers many conventional use exemptions (note 14):


*************************

EXEMPTION CERTIFICATE FOR EXEMPTIONS BASED ON THE PROPERTY'S USE

This is to certify that the tangible personal property purchased, leased, licensed, or rented, or services purchased, on or after ________________________(date) from ______________________(Selling Dealer's Business Name) is purchased, leased, licensed, or rented for the following purpose as checked in the space provided. This is not intended to be an exhaustive list:

( ) Materials, containers, labels, sacks, bags, or similar items intended to accompany a product for sale at other than retail, as provided in Section 212.02(14)(c), F.S., by persons who are not required to be registered under Section 212.18(3), F.S.
( ) Incorporation into items of tangible personal property manufactured, produced, compounded, processed, or fabricated for one's own use, as provided in Rule 12A-1.043, F.A.C.
( ) Printing of a publication exempt under the provisions of Section 212.08(7)(w), F.S.
( ) Items, such as paper and ink, that will be incorporated into and become a component part of a publication exempt under the provisions of Section 212.08(7)(w), F.S.
( ) Educational materials, such as glue, paper, paints, crayons, unique craft items, scissors, books, and educational toys, purchased by child care facilities outlined in Section 402.305, F.S., that hold a current license under Section 402.308, F.S., hold a current Gold Seal Quality Care designation as provided in Section 402.281, F.S., and provide all employees with basic health insurance as defined in s. 627.6699(12), F.S., as provided in Section 212.08(5)(m), F.S.
( ) Motor vehicle rented or leased by a dealer who will provide the motor vehicle at no charge to a person whose motor vehicle is being repaired, adjusted, or serviced by the dealer, as provided in Section 212.0601(4), F.S.
( ) Other (include description and statutory citation):

I understand that if I use the property or service for any nonexempt purpose, I must pay tax on the purchase or lease price of the taxable property or service directly to the Department of Revenue. I understand that if I fraudulently issue this certificate to evade the payment of sales tax I will be liable for payment of the sales tax plus a penalty of 200% of the tax and may be subject to conviction of a third degree felony.

The exemption specified by the purchaser may be verified by calling (800) 352-3671.

PURCHASER's NAME: __________________________________________________

PURCHASER'S ADDRESS: _______________________________________________

NAME AND TITLE OF PURCHASER'S AUTHORIZED REPRESENTATIVE: _____________________________________________________

SALES AND USE TAX CERTIFICATE OF REGISTRATION NO. (IF APPLICABLE): ______________________________________________

BY: _____________________________________________________ (SIGNATURE OF PURCHASER OR AUTHORIZED REPRESENTATIVE)

TITLE: ___________________________________________________ (TITLE ONLY IF PURCHASED BY AN AUTHORIZED REPRESENTATIVE OF A BUSINESS ENTITY)

DATE: __________________________________________________________


*************************

Exemption Certificate Management:

Exemption certificates should be obtained before every exempt sale is made and maintained for the longer of the duration of the statute for audit or the period the certificate is in use. If an exemption certificate is not obtained prior to a sale, but a valid certificate is obtained that was in effect at the time of sale, that certificate will generally be acceptable. If an exemption certificate was not effective on the date of sale, the exemption will more than likely be denied.

The Standard Sales and Use Tax Disclaimer:

Those of use who spend the majority of our working lives navigating through the sales and use tax environment have a favorite catch phrase that we use before almost every sentence, "It depends!" These rules as presented are the general rules in Florida, but please be aware that certain situations and businesses have special rules. If you think there is a possibility that you may be in a special situation, ask a sales tax professional or the state for guidance. The following contacts may help you make the proper determination. Generally, a phone call should be only your first step towards determination of a tax position. It is not always reliable, but can be very useful for flushing out the issues. Written advice is generally more reliable. General questions are much less time consuming and will be answered much more quickly than binding statements. Answers to general questions are very reliable for most information. Complicated tax scenarios may require a binding statement. The binding statement is the only answer that will hold the state accountable, but small discrepancies and misrepresentation, whether intentional or not, can render a binding statement null and void.

Taxpayer advisement:

http://sun6.dms.state.fl.us/dor/taxes/general_tax_info.html
800-352-3671
850-488-6800

General Questions:

Taxpayer Services
FL Department of Revenue
1379 Blountstown Hwy.
Tallahassee, FL 32304-2716

Binding Statements:

Technical Assistance and Dispute Resolution
P.O. Box 7443
Tallahassee, FL 32314-7443

Footnotes:

1) Fla. Reg. 12A-1.039
2) Fla. Reg. 12A-1.039
3) The minimum penalty may vary by filing frequency and return date
4) Fla. Reg. 12A-1.039
5) This form contains all of the information as taken from the statute, but formatted to fit on one page so that it can be printed for use. All other rights reserved.
6) If the Florida auditor does not mention that half of the penalties will be abated on a first audit, ask about it. This is standard procedure where there is not willful incompliance.
7) As a side note, FL Kleenerz bills US Kleenererz after the performance of the service and since the service is performed at least once a year, FL Kleenerz utilizes the verification portal so that it is not necessary to get a new, paper resale certificate from US Kleenererz every year. 8) Fla. Rule 12A-1.0015(3)(a)
9) Fla. Reg. 12A-1.0911(2)(d)
10) http://dor.myflorida.com/dor/taxes/disclosure.html
11) Fla. Reg. 12A-1.38
12) The forms on the following pages contain all of the information as taken from the statute, but formatted to fit on one page so that it can be printed for use. All other rights reserved.
13) Fla. Reg. 12A-1.038
14) The form on the following page contains all of the information as taken from the statute, but formatted to fit on one page so that it can be printed for use. All other rights reserved.

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