Florida exempts both occasional sales and isolated sales from sales and use tax. While, most people are familiar with the principle that sales of tangible personal property at retail are subject to sales tax, they may not be familiar with the common exception to this rule for occasional or isolated sales. Like many states, Florida has this so-called “garage sale” exception which allows the sale of property to be tax exempt where the sale is not made in the normal course of business. This exception is most commonly utilized by individuals who are selling items they no longer use, such as a garage sale. However, there are other provisions to the occasional or isolated sale rule that affect businesses as well.
What Qualifies as an Occasional or Isolated Sale
Occasional or isolated sales or transactions can involve sales of tangible personal property or taxable services. These transactions are exempt, provided the sales or series of sales meet certain requirements. Specifically, the rule considers: 1) the intent of the parties; 2) the frequency and duration of the sales; 3) the type of tangible personal property or services offered for sale; 4) the location where the sales take place; and 5) the status of the parties, as it relates to the tangible personal property or taxable services being sold.
If the intent of the parties is the transfer of property in exchange for shares of stock, or as part of a merger or a liquidation, the transaction is not taxable under the occasional or isolated sales rule. However, the property sold cannot be an aircraft, boat, mobile home, or motor vehicle, and cannot include the distribution of assets held in inventory. Moreover, the sale cannot be made through a broker, agent, or auctioneer.
The seller must have paid sales tax when the tangible personal property was purchased, however, this provision is waived if the property has been held for longer than the statute of limitations to assess the tax under 95.091, Florida Statutes. The statute of limitations for the department to determine and assess tax is generally three years. In other words, if you are selling a 1960’s record player at your garage sale, you don’t have to find evidence that sales tax was paid in 1960 before you sell it tax exempt.
How Many Occasional Sales Can Be Made?
The frequency of occasional or isolated sales is limited to two times during any 12-month period. A third sale in a twelve month period result in the Department considering that taxpayer as “engaged in business” and therefore required to collect and remit sales and use tax. However, two times does not necessarily mean two individual transactions. In fact, one “time” can mean a series of sales occurring during a period of up to 30 days.
For example, an office undergoing renovation sells its furniture. The furniture sales occur between January 1 and February 15. This counts as two sales. January 1 to 30 is one sale, while January 31 through February 15 is a second. Even though one period has 30 days and the other has 16 days, these are two separate 30 day periods. The business has met the limit for sales for the year. Any sales that occur after March 2, which is 30 days from January 31, will then be subject to tax. Also, it is worth nothing that the sales of property must be completed within 60 days of the date of the first distribution.
Types of Property That Do Not Qualify for the Exemption
The type of property, or service, that qualifies for this exemption is defined in the negative. This means all types of property qualify except those specifically enumerated in the rule. The largest restriction on the isolated or occasional sales exemption from sales tax is any type of property required to be registered. This means aircraft, boats, mobile homes, and motor vehicles required to be registered, licensed, titled, or documented in this state or by the US Government, are not exempt under the occasional or isolated sale rule.
As one may expect, there are exceptions to this exception. Gifts, transfers from partnerships to the partners, or inter-family transfers all fall outside the scope of the requirement that businesses collect and remit tax on transfers of titled tangible personal property. This is where the status of the parties comes into consideration. Specifically, for transfers in exchange for stock, the stock value must equate to 80% of the fair market value of the asset transferred.
In addition, the rules also provides that inventory does not qualify for the exemption and neither does the sale of salvage or scrap. However, there is an exception to the latter exception. Salvage or scrap disposed of through the merger or liquidation of a business, or in exchange for stock, would be exempt. The rule also states that sales at auction, or through a broker, agent or dealer are taxable. Finally, items that were purchased for resale do not qualify for the exemption.
Location of the Sale and Why it Matters
The location of the sale is important when a seller does not hold themselves out as engaged in business of selling goods or services, but is selling from a location that puts the sale in competition with other persons required to collect and remit tax. Tax is due when the sale is from a location that would put the seller in competition with other sellers who must collect and remit tax. By way of example, the rule offers the following example:
A non-profit civic organization selling T-shirts purchased for resale on the premises of any commercial establishment where the vendors are required to be registered as dealers, to charge, collect, and remit sales tax, must also register as a dealer even if that is the organization’s first sale during that 12-month period because: (a) the location where that organization is selling the T-shirts is considered to be in competition with other dealers required to collect tax; or (b) the T-shirts were purchased for resale.
In this example, the non-profit would have a competitive advantage by not charging tax. Therefore, the rule tries to remove this advantage in these competitive environments. Regardless, the t-shirts would be taxable anyway because the non-profit purchased them tax exempt for resale.
While the occasional or isolated sales rules are lengthy and complicated, the rule can really can be boiled down to a few basics. The sale of non-inventory, in two or less 30-day periods, is not subject to tax in Florida, as long as the sale is not of an item that must be registered by the State of Florida or federal government, and the sale is not made in a location that would compete with another vendor who does have the requirement to collect and remit tax. For a business looking to acquire or dispose of assets, the requirements get more technical, and the dollar values are likely larger, so the exposure can be much greater. It is important to check that a transaction fits into the parameters of the rule. Failure to do so can result not only in tax, interest, and penalties, but it can also be the red flag that makes the Department of Revenue decide to open a full-blown sales and use tax audit of your business.
Amanda Levine is an associate attorney who joined The Law Offices of Moffa, Sutton, & Donnini, P.A. in 2013. Ms. Levine joined the firm as a clerk during law school. Ms. Levine received a bachelor's degree in Accounting from University of Central Florida. She spent several years working in public accounting before attending Nova Southeastern University Law School. She received her J.D. in 2014. During her time at Nova Law, Ms. Levine was the Executive Justice of Academics for the Moot Court Honor Society, as well as the Finance Chair. She was awarded by the National Order of the Barrister, a national honor society which acknowledges excellence in oral advocacy and brief writing skills.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
AUTHORITY
Rule 12A-1.037, F.A.C. Occasional or Isolated Sales or Transactions Involving Tangible Personal Property or Services
ADDITIONAL RESOURCES
FL SALES TAX ON EQUIPMENT SHARING AGREEMENTS, published August 16, 2014, by James Sutton, C.P.A., Esq.
