A daunting reality sets in for many Florida taxpayers when the audit report is issued. To say the majority of Florida taxpayers under a Florida sales tax audit have a meltdown is an understatement. Many taxpayers and other Florida tax professionals believe that this is the end of the road for their journey to a sizeable tax bill. However, this is when our job as Florida tax attorneys really begins.
Upon the completion of a Florida tax audit, the Department of Revenue issues a notice of proposed assessment (“NOPA”). The NOPA is an important document for two reasons. First, it signals that the Florida sales tax auditor is done with the file at the local office and has sent it to Tallahassee. More importantly, if the Taxpayer or the Florida state tax professional does not know what to do, the NOPA means the company better act fast!
Pursuant to Florida law and the NOPA itself, the assessment becomes final in 60 days if it is not contested. This means that the Taxpayer or its CPA or attorney has two months to file a protest with Tallahassee. For those of you more familiar with IRS controversy work, this is the equivalent to filing an appeal with the IRS. For the first time, the Taxpayer and its power of attorney is dealing with a different group of theoretically unbiased conferees that evaluate the case with judgment, rather than in black and white, like the auditors are trained to see the world. A well drafted protest can be an impressive presentation by the Taxpayer if done correctly, and it should contain factual and legal assertions to refute the audit assessment. We generally also elect to have a conference with the Department, at which point we very simply lay out the posture of the case and point them to what we believe to be important.
The NOPA itself also brings up an interesting legal issue. At the heart of the issue is whether a Notice of PROPOSED assessment is an assessment. Under Florida law, the Department has three years from the date of a tax return filing to make an “assessment.” Often times the Department issues the PROPOSED assessment a few days before the statute of limitations expiration date. By its terms, the NOPA does not become final for 60 days. If the PROPOSED assessment is an assessment then the FL DOR does not have an issue. However, if the NOPA does not become an assessment for 60 days, then the FL DOR is missing the deadline in many cases. It is our position that, by its terms, a PROPOSED assessment is merely a proposal and does not become an assessment until the 60 day period expires. Therefore, the FL DOR is dropping the ball on several cases. While there is no binding case on the record, this very issue is being litigated by Verizon. If you would like more details on the issue please contact me.
Turning back to our Florida sales tax audit path, many times the Taxpayer and the Florida Department of Revenue reach an agreement at the protest level, and the case is put to bed. Other times, the FL DOR states that it disagrees with the Taxpayer’s position, but compromises the case for some amount less than the assessment. You can imagine the push back we often get from our clients after a sales tax audit in which the FL DOR says we are 100% wrong on our position but offers a compromise for 100% of the tax liability. Still, other times, the FL DOR disagrees with the Taxpayer and compromises nothing.
Irrespective of the Department’s conclusion, a Notice of Decision (the “NOD”) is issued by the FL DOR. The NOD constitutes the FL DOR’s final position. The Taxpayer has three choices at this point. Option 1 for the Florida taxpayer is to agree with the NOD and pay the amount or the amount in the compromise (technically in the form of a closing agreement). A second option is to file a second appeal (called a Petition for Reconsideration). This option is available for 30 days for Taxpayers who come across new laws or new facts that are favorable for their case with new laws or facts being a requirement to file a second appeal. The NOD is considered the final agency action in Florida. Therefore, under the Administrative Procedure Act and Chapter 72, Florida Statutes, the Taxpayer now has the right to file in court for 60 days. It is worth pointing out that if the second appeal option is elected, then the result of that is similar to a protest. Now, at this point, the Taxpayer can either agree or file in court within 30 days.
The Taxpayer has two options as to where to file in court. Similar to the federal system in challenging an IRS assessment, the Taxpayer can file in Circuit Court of Florida Administrative Court, called the Division of Administrative Hearings (DOAH). In DOAH, there is no “pay to play” requirement. In other words, the Taxpayer only has to pay amounts it believes to be due, and, as long as there is a reasonable basis to contest an issue, the Taxpayer does not have pay. Conversely, in Circuit Court the Taxpayer has to pay or post bond for the entire assessment. There are pros and cons to each venue, and each case must be evaluated on its own. The outcome of either proceeding is appealable in a District Court of Appeal.
It is readily apparent that the issuance of an audit report is nowhere near the end of the road for a Florida taxpayer. Rather, the NOPA can signal the beginning of a long road ahead. A typical case that does not go to court, from the issuance of the NOPA to resolution, can be 9 months to a year. The road can get complicated and bumpy along the way. Whether you hire a CPA, a Florida sales tax attorney, or a Florida Tax professional, it is critical to have some guidance from someone that is well versed in tax law. At our firm, it is not uncommon for us to file ten protests in a week and we regularly deal with the staff in Tallahassee to get cases resolved. If you have a NOPA, an NOD or are under audit please contact our firm for a free consultation. I hope this article is useful for other professionals and taxpayers out there.