Is Your Business Facing a Sales Tax Audit? Here’s What You Need to Know About the Florida Department of Revenue’s Process

Photo by SumUp on Unsplash

You are a small business. You sell widgets. You go to your mailbox on a beautiful sunny Florida afternoon, and BAM – a letter from the Florida Department of Revenue.

Your heart starts racing a little faster. You push past your fear to open the letter, and you see it. A DR-840, Notice of Intent to Audit Books and Records. Now you’re worried and upset. You know about widgets. Many call you an expert on widgets. So, how did you get picked up for an audit?

More likely than not you underreported on your Sales and Use Tax Return, your monthly DR-15.  But, how does the Florida Department of Revenue know that? The dreaded 1099-K Form. What is a 1099-K? You own your own business! Who sent that form? What’s going on?

You accept payment through other platforms, like Square or PayPal – or maybe you have your Merchant account. These payment card companies, payment apps, and online marketplaces are required to fill out Form 1099-K and send it to the IRS each year.

For tax year 2023, payment apps and online marketplaces are required to file a 1099-K for personal or business accounts that receive over $20,000 in payments from over 200 transactions for goods or services. And guess what!?! Florida Department of Revenue knows about this 1099-K.

Just as an FYI – The reporting threshold for third-party settlement organizations, which include payment apps and online marketplaces, was changed to $600 by the American Rescue Plan Act of 2021. The IRS announced a delay in implementing this change for tax year 2023, which covered tax returns generally filed in early 2024. Although the Form 1099-K reporting threshold for 2023 is $20,000, companies could still send the form for totals over $600.

To further break it down, when you add up your DR-15s, it is less than the 1099-K. This is underreporting, and this is what leads the FDOR to audit you.

What’s next? Per Florida Statute, the Florida Department of Revenue must give you 60 days to get ready for the audit. You can waive the 60 days and start your audit right away, but it is best to maximize these 60 days to prepare the following:

  1. Call a tax attorney to make sure you are well-represented during the entire audit process. Make sure this attorney knows about Protests in case the matter can not be settled at the audit level and needs an appeal/protest. Once you establish this relationship with your tax attorney, they will get a DR-835, Florida Department of Revenue Power of Attorney, over to your Auditor.
  2. Gather your financials. This includes:
    • Federal Income Tax Returns
    • Financial Statements
    • Chart of Accounts
    • General Ledgers
    • Sales Journals
    • Sales Tax Exemption Certificated (Resale Certificates)
    • Purchase Journals
    • Lease Agreements for Real Property
    • Lease Agreements for Tangible Personal Property
  3. Make sure you understand the audit period. This is the date range that the auditor will focus on in determining whether Sales and Use Tax was reported properly to the Department.
  4. Make sure you are readily available to the attorney during those 60 days. As the attorney gets your file ready for audit, they will likely have questions relating to business operations and procedures in addition to accounting-related questions.

Why Hire an Attorney?

Dealing with a sales tax audit can be overwhelming but hiring an experienced tax attorney will save you money in the long run. Not only will an attorney ensure that your rights are protected and help navigate complex tax laws, but they will also give you peace of mind, allowing you to focus on what matters most, running your business. Don’t go through this process alone. Visit our website and fill out our contact form to get started today.



Leave a Reply

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!