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STARTING AND OPERATING A BUSINESS IN FLORIDA Copyright © 2009, Michael D. Jenkins CHAPTER 18
CONTENTS OF THIS CHAPTER:
I. INTRODUCTION I. INTRODUCTION Florida, the fastest-growing large state in the U.S., now ranks fourth in population and in the number of businesses and is one of the best places in the U.S. to start or relocate a business, with its low tax rates and very business-friendly regulatory environment. Florida has a right-to-work law, and until recently had no state minimum wage law. Like most states, Florida imposes a franchise tax (based on income) on corporations, a sales and use tax, various excise taxes, with property taxes mostly imposed at the local level. However, it is the only large population state besides Texas and Washington that does not have a personal income tax. Until 2007, it was one of only a few states that still imposed a tax on intangible property (stocks, bonds, bank accounts and similar assets), but that tax was repealed, beginning January 1, 2007. In addition, a Florida voter initiative amended the state constitution in 2007 so that, beginning in 2008, businesses with tangible personal property are given an exemption from property tax on the first $25,000 of such property. Florida has adopted a limited liability company (LLC) law, and more recently a limited liability partnership (LLP) law, so that businesses operating in Florida in LLC or LLP form may obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. Until recently, the state's economy was very robust, in terms of the level of unemployment and most other economic measures, but has weakened in the last year, largely due to the bursting of the "subprime bubble" and subsequent sharp decline in construction and real estate-related activity. For example, in December, 2007, the Florida unemployment rate was 4.8%, up significantly from 3.5% a year earlier, but was still somewhat lower than the national rate. However, by December of 2008, the Florida unemployment rate had soared to 7.6%, well above the national rate of 7.2%. To view the latest federal Bureau of Labor Statistics unemployment rate data for Florida or any other state, visit the BLS website. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Florida can operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income tax law also recognizes S corporations, for income (franchise) tax purposes, so that the business income of an S corporation is generally not taxed by the state at all, since there is no individual state income tax on the owners. Florida also provides for limited liability partnerships, in which no partner is liable for debts of the partnership, in general, as in the case of a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. In general, sole proprietorships in Florida can be established with no formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. In addition, if you sell any kind of tangible personal property at retail or provide certain types of services, you may be required to obtain a sales tax license and collect sales tax, as discussed in Section IV(d). No state income tax is imposed on the income of a sole proprietorship, since Florida does not have any personal income tax. Thus, your sole proprietorship income is only taxable and reportable on Schedule C of your federal Form 1040 if your business is carried on in Florida. Doing business as a sole proprietor in Florida is generally much simpler than operating as any other kind of business legal entity. As a sole proprietor, if you have no employees, you are not required to pay any unemployment taxes, withhold any income tax from wages, or obtain workers' compensation coverage for yourself. However, if your sole proprietorship operates under an assumed or fictitious business name (trade name), it will be required to publish a fictitious name statement in a newspaper in the principal county where you do business and file a proof of publication with the Florida Department of State, as discussed in Section IV(g). (c) Partnerships. Florida's partnership laws allow creation of either a general partnership, in which all partners are liable for the debts of the business, or a limited partnership, in which only the general partners are liable for debts, while the liability of limited partners is limited to the amount they have invested, in general. State law also allows for the creation of a limited liability partnership, in which no partner has personal liability (subject to certain exceptions) and for a limited liability limited partnership (LLLP), which is a limited partnership that also elects limited liability partnership status. Partnerships, as entities, are not subject to state income tax in Florida. There is no state personal income tax in Florida, so the income of a partnership is also not taxed to the individual partners for state tax purposes. However, if there are any corporate partners, a partnership tax return must be filed, and the corporation must pay Florida franchise (income) tax on its share of the partnership taxable income. For more on partnership tax return filing requirements, see Section IV(c). While partnerships are not subject to income taxes, limited partnerships formed in Florida or foreign limited partnerships doing business in the state are required to file annual reports with the Florida Department of state and pay substantial annual fees with such reports. A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
As a rule, general partnerships in Florida can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. In addition, general partnerships should register with the Florida Department of State, Division of Corporations, paying a $50 registration fee. At least two partners must sign the partnership registration form, which provides notice to the public with respect to various items of information regarding the partnership, including its name, address, and the name and address of each of its partners, or of a registered agent who will provide such information upon request. General partnerships may also file a Statement of Authority ($25 fee) with the Department of State. This document serves as notice to the public that certain members of the partnership are authorized (or are not authorized) to enter in to specified types of transactions, such as real estate transactions, on behalf of the partnership. A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Florida law. However, Florida allows a limited partnership to register as an LLP, thus becoming a limited liability limited partnership (LLLP) and providing liability protection for its general partners, if the limited partnership certificate states that the limited partnership is also an LLP. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a certificate of limited partnership with the Florida Department of State and pay a filing fee that, until the end of 2005, was based on the amount of capital that was contributed and expected to be contributed to the partnership, with a maximum fee of up to $1,750. A foreign limited partnership must register for a certificate of authority to do business in Florida and until recently had to pay fees on the same basis as a domestic partnership, based on the portion of its capital that was allocated for the purpose of transacting business in Florida. However, beginning January 1, 2006, the filing fee for both domestic and foreign limited partnerships is a flat amount, $965, plus a $35 registered agent designation fee. A foreign limited partnership (including a foreign limited liability limited partnership) must provide with its application for authority to do business in Florida a certificate of existence from the state or country where it was formed. A Uniform Business Report must also be filed by domestic and foreign limited partnerships, with the Department of State, together with an annual fee. Failure to file the annual Uniform Business Report can result in revocation of the limited partnership's authority to conduct business in Florida. Since January 1, 2006, the annual report fee has been a flat fee of $411.25 plus a supplemental fee of $88.75, or a total annual fee of $500. Florida law was simplified several years ago, to replace all the various annual reports formerly required of limited partnerships, LLP's, LLC's, and corporations with the new Uniform Business Report form, used by all such entities that are required to file annual reports (but with differing fees). An annual supplemental fee of $88.75 is imposed on each limited partnership, LLC, or corporation that is required to file an annual report, in addition to the annual report fee for each such entity. The annual report for each calendar year is due no later than the following May 1st. A $400 penalty is imposed for late filing of an annual report. For information on limited partnership filing requirements, see the contact information for the offices of the Department of State, listed in Section VI(a). LIMITED LIABILITY PARTNERSHIPS Limited liability partnerships (LLP's) are a relatively new form of partnership permitted under the laws of Florida. Like an LLC, an LLP provides limited liability for its owners, while retaining most of the tax advantages of a partnership for federal and Florida state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. A general partnership or the general partners of a limited partnership can achieve limited liability by simply filing a Statement of Qualification to register the partnership with the state as an LLP or as a limited liability limited partnership (LLLP). To form an LLP in Florida, you must file the Statement of Qualification with the Department of State and pay the filing fee of $25. The registration must renewed annually and the same $25 fee applies each year. An LLP is not subject to the Florida corporate franchise tax on income. LLC's in Florida, unlike LLP's, were formerly subject to the corporate franchise tax, but now are no longer taxable, unless the LLC is treated as a corporation for federal tax purposes. Thus, an LLP no longer has a state tax advantage over an LLC. Foreign LLP's, those created under the laws of another state, must also register with the Florida Department of State and and pay the same fees as a domestic LLP. Florida law allows both general and limited partnerships to register as LLP's (limited liability limited partnerships, or LLLP's). An LLLP must file a certificate of limited partnership in which it is stated that the partnership is also a limited liability partnership, and must pay the much higher fees that apply to regular limited partnerships. For more information on LLP registration and other requirements, see the contact information for the offices of the Department of State, listed in Section VI(a). Note that one potential drawback of LLP's, if you will do business in other states besides Florida, is that some states, like California and New York, only recognize certain types of professional partnerships as LLP's. If yours is not a professional partnership, such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. If a foreign LLP fails to register to do business in Florida, the state will not take away its limited liability, but will not allow it to maintain a lawsuit until it has in effect a statement of foreign qualification. (d) Corporations. To form a corporation in Florida, you must file articles of incorporation with the Florida Department of State, Division of Corporations and pay a filing fee of $70 ($35 plus a $35 registered agent fee). Certain supplemental fees may also apply. A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Florida, by filing an application for a certificate of authority and paying the filing fees of $70 described above. Certain supplemental fees may also apply. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Florida, see the contact information for the offices of the Department of State, listed in Section VI(a). In addition, once your corporation is formed, it will be required to file annual Uniform Business Reports and pay a filing fee of $150 ($61.25 plus a supplemental fee of $88.75) with the Florida Department of State each year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter, or in a $400 penalty if it is filed after May 1. In addition to paying federal income taxes on its income, a corporation that does business in Florida must also file corporate franchise (income) tax returns with the state. See Section IV(c) for a discussion of state corporate income tax rates and tax return filing requirements. For tax forms and more information on corporate income taxation in Florida, see the contact information for the offices of the Florida Department of Revenue, listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. Florida recognizes S corporations for income tax purposes, and treats them in a manner similar to the federal tax treatment. That is, an S corporation is not subject to Florida taxes on corporate income, except in the unusual case where an S corporation is required to pay federal income tax on some or all of its income, in which case such income may also be taxable by Florida. Furthermore, since there is no individual state income tax in Florida, the income of an S corporation is generally not subject to any kind of state income tax in Florida, at either the corporate or the shareholder level. (f) Limited Liability Companies. Florida, like every other state, has adopted a limited liability company (LLC) law, and was one of the first states to do so. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Florida may also choose to operate in the form of an LLC. In most states, LLC's are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes. Federal tax laws also allow a single-member LLC to be disregarded for tax purposes, so that an individual who creates a single-member LLC to conduct his or her business will continue to report income or losses as a sole proprietorship, since the LLC will be treated as a "disregarded entity." Note that it is not always entirely clear whether an LLC is a "single-member LLC" or not, where the "single owner" is a married couple who hold the entire ownership of the LLC in some form of co-tenancy, such as joint tenants with right of survivorship, tenants by the entirety, or as tenants in common. The federal Internal Revenue Service (IRS) has taken a very lenient position in Rev. Proc. 2002-69, where a couple hold the LLC interest as community property, ruling that the IRS will accept whatever choice the couple make, either to disregard the LLC as an entity (treating it as a "single-member LLC") or to treat it as a partnership between the husband and wife. However, Florida is not a community property state, so where the LLC is owned by a husband and wife in some form of co-tenancy, it is unclear whether the IRS treatment would be as lenient as for community property owners, since the IRS has not issued any published rulings on whether an LLC can be a disregarded entity if held in one of the various forms of co-tenancy by a married couple, rather than being held as community property. PLANNING POINT: See Section IV(c) for a discussion of the income tax treatment of LLC's under Florida's franchise tax law. To form an LLC under the laws of Florida, articles of organization must be filed with the Florida Department of State, which must be accompanied by filing fee of $125 ($100 filing fee plus required $25 registered agent fee). Foreign LLC's, those formed under the laws of another state, must obtain a certificate of authority to do business in Florida, by filing an application for a certificate of authority with the Department of State and paying the applicable filing fees, the same as for domestic LLC, $125. In addition to initial filing fees, an LLC formed in Florida must subsequently file annual Uniform Business Reports and pay an annual report filing fee of $50. A foreign LLC is also required to file a Uniform Business Report and pay the applicable filing fee of $50. A supplemental filing fee of $88.75 must also be paid by both domestic and foreign LLC's. For more information on filing articles of organization for an LLC, see the contact information for the offices of the Florida Department of State, listed in Section VI(a). III. BUSINESS ACQUISITIONS (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Florida is one of the business-friendly states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business in Florida. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you can be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires. In Florida, you will not have to be concerned with state income tax (wage) withholding, since there is no state individual income tax. However, you should take great care to ascertain whether the seller has paid all required state unemployment taxes, and check with county tax collectors to see if any property of the seller is subject to a lien for real property taxes or taxes on tangible or intangible personal property. You can also be held liable, as a buyer of a business, for any unpaid sales and use taxes owed by the seller, unless an audit of the seller is done by the Department of Revenue, which can be done at your request. However, such a sales tax audit may be contracted out to a private accounting firm by the Department of Revenue, in which case the Department will bill you for the cost of the CPA firm's audit. There is no other way to ensure that you will not be liable for any unpaid sales or use tax owed by the seller, other than to withhold a portion of the sales price for a period of time after the business purchase to protect yourself from potential liability, until you are satisfied that there are no such unpaid taxes for which you will be held liable. Note that the seller is required to file a final sales tax return within 15 days after the sale of the business. (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. To obtain the seller's favorable experience rating as a successor employer, you will need to apply within 30 days to the Division of Unemployment Compensation, which is now part of the Agency for Workforce Innovation, on Form UCS-1S, requesting that you be treated as a successor employer. You may also generally elect to be taxed at the new employer rate, if that is preferable (see Section V(b)). Filing of Form UCS-1S is now mandatory, when you purchase or lease an existing business, or change the nature of your business legal entity (such as from a partnership to a corporation). Treatment as a successor employer is also mandatory where the buyer and seller are controlled by the same people or entities, in order to prevent what is referred to as "SUTA dumping." PLANNING POINT: EXAMPLE: IV. FLORIDA TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
Florida has a generally very favorable tax climate for
businesses. As we have noted elsewhere in this publication,
there is no Florida individual income tax. Thus, if you
operate your business as a sole proprietorship, partnership,
LLC, or an S corporation, your business profits will not be
taxed by the state. Even if you operate as a C corporation,
the corporate income tax your business will have to pay to
the state of Florida is at the relatively low rate of only
5.5% of income. Florida law also exempts business inventories
from personal property taxes and, effective January 1, 2007,
the Florida tax on intangibles was repealed. The Florida
constitution has also been amended, effective in 2008, to
exempt the first $25,000 of tangible personal property of
a business from property taxation.
These low or non-existent taxes make Florida a very
attractive state in which to conduct a business.
For state tax forms and tax information, see the contact
information for the Florida Department of Revenue
in Section VI(a).
(b) State and Local Licensing.
Nearly any business, operated anywhere in the United States,
will have to have at least one government license of some
kind. In most cases, this will be a local license, issued
by your city or county. Before you open your business,
contact your local city or county hall and find out if your
particular business needs one or more local licenses. Most
kinds of local business licenses are granted upon payment
of a fee, with no further requirements, except possibly for
annual or other periodic renewal fees.
However, if you are engaging in any kind of food business,
you will usually need to also obtain a health department
permit and show that you are in compliance with health
department food-handling requirements. In addition, be
sure to check with an attorney or local government zoning
or planning department officials to determine if your
business will be in compliance with all local zoning
and planning restrictions. If you own or rent any type
of facility, you will generally need fire department
permits, showing that you meet fire safety codes and any
construction or improvements to an existing structure
will usually require a building permit. If you intend to
simply operate your business from your home, you may be
in violation of local zoning requirements, but this is
less likely to be a concern if you don't have clients,
customers, suppliers, or employees coming to your home
on business, on a regular basis.
State governments have traditionally required special
licenses for many kinds of professionals, such as physicians,
dentists, lawyers, and accountants. To further protect
consumers, Florida has expanded the list of occupations
that must be licensed by the state to include many other
occupations. Most state licenses not only require payment
of fees, but are only issued for a given profession or
occupation upon showing that you have completed certain
educational or experience requirements, or passed certain
tests, or some combination of the foregoing.
For help with state licensing and business registration
requirements in Florida, see the contact information for
the offices of Enterprise Florida, Inc., the Florida
Department of State, and the Florida Department of Revenue,
all of which are listed in Section VI(a).
For information on professional and occupational licensing
requirements, contact the Florida Department of Business
and Professional Regulation, at the address listed for that
agency in Section VI(a).
(c) Income and Franchise Taxes.
Florida is one of the few states that does not have an
individual income tax, but it does have a corporation income
(franchise) tax, which applies to corporations or to any limited
liability company that is treated as a corporation for federal
income tax purposes. Unlike many states, it does not impose a
franchise tax on the capital of corporations or other business
legal entities; its "franchise tax" is strictly an income tax.
TAXATION OF SOLE PROPRIETORS AND PARTNERSHIPS
Income of a sole proprietorship is not subject to state income
tax in Florida, since Florida does not impose an individual
income tax.
Partnerships are pass-through entities for Florida income
tax purposes, and are not subject to tax themselves, as
separate taxable entities. Since there is no general
individual state income tax in Florida, the income earned
by a partnership is taxable to individual partners only on
their federal income tax returns. However, if a partnership
has any partners that are corporations, it must file a state
partnership information return, Form F-1065,
and the corporate partners will be taxable on their respective
shares of the partnership's Florida-source income for state
corporate franchise (income) tax purposes.
Partnership returns are due before the first day of the fifth
month after the close of the taxable year, or before May 1, in
the case of a calendar year partnership that is required to
file a state return. (Formerly, the return was due BY May 1,
rather than BEFORE.)
The Florida corporate income tax on corporations other than S
corporations is imposed at a flat rate of 5.5%, with an alternative
minimum tax rate of 3.3%.
A Florida exemption of up to $5,000 of income may be allowed. The
state corporation income tax return is Form F-1120,
which must be filed with the Department of Revenue by the 1st day
of the fourth month following the end of the taxable year, or 15
days after the due date (without considering extensions) of the
related federal tax return, if later. The corporate income tax
"piggybacks" on the federal tax law, by adopting the federal
definitions of taxable income. Thus, Florida is one of the few
states that has allowed the Domestic Production Activities deduction
that was enacted for federal tax purposes in 2004, as well as
the various bonus depreciation deductions enacted by Congress
in 2003 and earlier. (However, for 2008, the new 50% federal
bonus depreciation was not allowed, and only limited federal
Section 179 expensing is allowed, notwithstanding the increased
amount deductible under Section 179 for federal tax purposes.)
Taxpayers who claimed such bonus depreciation or excess Section
179 deductions must file amended returns. The Department of Revenue
will compromise any penalties and interest for taxpayers that filed
based on the old law and subsequently file amended returns based on
the new law.
Corporations are required to make estimated tax payments
of their state corporate income tax in advance, if their
tax liability for the year exceeds $2,500.
Estimated tax payments are due in advance, in four equal
installments, before the 1st day of the 5th, 7th, and 10th
months of the taxable year, and before the 1st day of the 1st
month of the following taxable year. (Prior to a 2008 law change,
the above due dates were all "on or before" rather than "before"
the 1st for each payment.) Thus, payments are due now on the
last day of the 4th, 6th, 9th, and 12th months of
the taxable year.
Penalties will be imposed for failure to make the required
estimated tax payments on a timely basis.
S corporations are not subject to Florida corporate income
(franchise) tax on their income, except in the rare case where
some income of the S corporation is subject to federal income tax.
Since there is no state individual income tax in Florida,
the income of an S corporation is thus generally not taxed
at all by the state.
TAXATION OF LIMITED LIABILITY COMPANIES
Florida law formerly treated all LLC's like corporations
for purposes of the state income tax, and did not allow
one-member LLC's. However, both such laws have been changed,
so that Florida law only imposes the corporate income tax on
LLC's that are treated as corporations for federal income tax
purposes, and Florida now permits formation of one-member LLC's.
Thus, LLC's are not subject to Florida state income tax and
are not required to file Florida income tax returns unless
they elect to be taxed as corporations. However, like a
partnership, an LLC must file a partnership information
return, Form F-1065, if it is treated as a
partnership for tax purposes and has any corporate partners
that are subject to Florida's corporate income tax. A
single-member LLC that is owned by a corporation will be
disregarded and simply treated as a part of the corporation.
A single-member LLC that is owned by an individual and
which has not elected corporate tax treatment is simply
disregarded for Florida income tax purposes, as neither it
nor its owner is subject to state income tax.
(d) Sales and Use Tax.
Florida imposes a general sales tax on retail sales of tangible
personal property, receipts from transient lodgings (of up to
six months), admissions to events, and most rentals, except
for dwellings or agricultural use. The sales tax also applies
to certain types of services, such as alarm and security
services and non-residential cleaning and pest control services.
As of July 1, 2005, Internet access charges have been exempt
from sales tax if separately stated or billed, or when they
are not separately stated or billed but can be reasonably
identified as such on the books and records of the Internet
service provider.
The sales tax is imposed at the statewide rate of 6%. In
addition, local governments are allowed to adopt local sales
taxes, at varying tax rates. The local sales tax cannot apply
to the part of any sale of any item (or bulk sale of items)
of tangible personal property that exceeds $5,000.
However, this limitation does not apply to commercial rentals,
transient rentals, or sales of taxable services.
Sellers are required to obtain a seller's permit for each
place of business and to collect and pay over the state and
local sales and use taxes to the Department of Revenue.
A rental car surcharge of $2.00 per day applies to car rentals
of motor vehicles designed to carry less than nine passengers,
for up to the first 30 days of any such lease or rental. The
surcharge is in addition to the 6% sales tax upon such rentals.
There are numerous exemptions from the sales tax, the most
important of which is the resale exemption. If you are a
wholesaler or retailer who purchases goods that you will
resell, your purchase of such goods may qualify as an exempt
sale for resale. Similarly, if you sell goods to wholesalers
or retailers for resale by them, your sale may also qualify
as an exempt sale for resale. In any such transaction, the
exemption is ordinarily available only if the purchaser gives
the seller a valid resale certificate, certifying that the
items are being purchased for resale, and not for use or
consumption by the buyer.
Previously, anyone could make up their own resale certificate
and present it to the seller when making a tax-exempt sale.
Starting a few years ago, the Department of
Revenue began mailing out one-year resale certificates each year
to every business that is registered as a vendor for Florida
sales and use tax purposes. The certificates expire on December
31 of the year of issuance. Sellers may now only rely on such
state-issued certificates, when allowing a purchaser to buy
goods or services free of sales tax as a sale for resale. For
information on how to obtain or use the annual resale certificate,
request the Department of Revenue's informational brochure,
Annual Resale Certificate for Sales Tax, Form GT-800060.
For a detailed explanation of the resale exemption, see
Tax Information Publication 99A01-34, 12/1/1999,
available from the Department of Revenue and on their web site.
All sales of tangible personal property to your customers
are taxable except sales of specifically exempt items, goods
shipped out of state by you, or where your customer provides
you a Consumer's Certificate of Exemption,
valid Annual Resale Certificate, or other
documents or certificates that support the exempt sale.
Items that are specifically exempt from sales and use taxes
include, but are not limited to:
Under 2007 Florida sales tax legislation, separately stated
charges that can be avoided at the option of the purchaser for
the delivery, inspection, placement, or removal from packaging
or shipping materials of furniture or appliances by the selling
dealer at the premises of the purchaser are exempt from sales
and use tax. However, if any charge for delivery, inspection,
placement, or removal of furniture or appliances includes the
modification, assembly, or construction of such furniture or
appliances, then all of the charges are taxable.
A shadow tax, the use tax, is also imposed at the same
rate as the sales tax. It is primarily intended to tax
property that is acquired from sources outside of the state,
in transactions not subject to sales tax, when such property
is used or consumed within Florida. Use tax may also apply
to items purchased on an exempt basis, such as for resale,
if such items end up being used or consumed, instead of
being resold.
Before making any taxable sales, you will need to register
with the Department of Revenue on Form DR-1, Application
to Collect and/or Report Tax in Florida. There is a small
($5) application fee, which does not apply to companies doing
mail order sales only or to businesses that register on-line.
Businesses can also use that form to register for state
unemployment tax and the solid waste fee and pollutants tax
(which applies if you sell tires or batteries or if you rent
or lease motor vehicles to others).
Beginning on January, 2006, taxpayers whose sales and use
tax payments for the period from July 1, 2004 through June 30,
2005 were $30,000 or more were required to file returns and remit
sales and use tax payments by electronic means. In 2007 and
subsequent years, a taxpayer whose sales and use tax payments
were $30,000 or more for the first time during the "lookback
period" (the 12 months ended June 30th of the preceding calendar
year) must begin filing and paying electronically.
The electronic filing and payment requirements now apply to
any vendor who paid $20,000 or more of tax during the most
recent "lookback period."
Taxpayers with over $1,000 of sales and use tax or solid waste
fees for the state's fiscal year ended June 30, 2005 were first
required to become monthly filers, beginning in 2006. Smaller
firms are generally allowed to file on a quarterly basis.
Dealers whose total sales and use tax payments for all their
sales and use tax accounts that have the same Federal Employer
Identification Number or Social Security number reached $200,000
for the period of July 1, 2004, through June 30, 2005, have been
required to make estimated sales tax payments for each of these
accounts, beginning with their December, 2005 return.
For more information on sales and use tax registration
and compliance, see contact information for the offices of
the Florida Department of Revenue, listed in
Section VI(a).
(e) Real and Personal Property Taxes.
In Florida, as in every other state, any business real estate you
own will be subject to real property taxes. In general, there
is little that you must do, unless you wish to challenge your
assessed valuation, since the assessor will bill you for each
year's property taxes as they come due.
Florida also imposes personal property taxes on tangible
personal property. ("Personal property" is any kind of property
that is not real estate.) However, certain business personal
property, such as business inventories, are exempt from
personal property tax in Florida.
Businesses that own, lease, lend, or rent tangible personal
property (other than motor vehicles) on January 1 must file
a tangible personal property tax report by April 1 each year
with the county property appraiser.
Under the Florida Constitution, as amended by voters in the
November, 2007 election, the first $25,000 of taxable tangible
personal property at a site where the owner transacts business
is now exempted from property tax, beginning in 2008.
This means that if separate property tax returns are filed for
separate places where business is transacted, the exemption
can be claimed for up to $25,000 of tangible personal property
at each such place of business. Places where freestanding items
of personal property (such as vending machines or propane tanks)
are located are not considered separate places of business,
if not located on a site where the owner does business, under
FLA. STAT. Sec. 196.183, as amended in 2008. A separate return
must be filed covering all the sites where tangible personal
property is located but where no business is conducted. One
$25,000 exemption is allowed for each return that is filed.
Florida, until recently, was one of only a few states that
also imposed an annual personal property tax on certain types
of intangible personal property. The intangible property tax
applied to most stocks, bonds, bills, notes, accounts receivable
and other types of credits owned by a business or individual,
although the tax on accounts receivable had been phased out
between 1999 and January 1, 2001. However, beginning in 2006,
the intangibles tax rate was cut in half to 1/2 mill (50
cents per thousand dollars) on taxable intangibles.
Governor Jeb Bush then signed into law a repeal of nearly
all Florida intangibles property taxes, effective as of January
1, 2007. However, not all intangibles taxes were repealed.
The only exceptions to the repeal are the tax on leases of
government-owned real estate and the one-time intangibles
tax on notes that are secured by a mortgage on Florida real
estate.
The remaining, nonrecurring intangibles tax of 2 mills
($2.00 per thousand dollars of value) on notes or liens
secured by Florida real estate applies when the instrument
is presented for recording to the clerk of circuit court.
This tax is actually more like a conveyance or recordation tax
than a property tax, since it only applies when a real estate
mortgage or lien is created. However, a documentary stamp tax
(excise tax) also applies to any document that is recorded,
such as deeds to real estate, where property is transferred for
consideration. It generally applies at a tax rate of 70 cents
for each $100 of value of the real property transferred or at
35 cents per $100 of value for bills, notes, bonds, or stocks.
(f) Other Business Taxes.
Florida imposes a number of excise and other taxes on businesses, including:
(g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. In Florida, law firms, businesses licensed by the Department of Business and Professional Regulation or Department of Health, and business entities organized with or registered with the Florida Department of State are not required to file or publish fictitious business name statements, unless they operate under a name that differs from the name as licensed or registered. Thus, in most cases, filing or publishing a fictitious name statement will only be required of non-professional partnerships and sole proprietorships. If your business operates under a fictitious business name and is not exempted from filing (see preceding paragraph), you must publish a fictitious name statement in a newspaper in the county of your principal place of business in Florida. After it has been published, you need to obtain a proof of publication from the newspaper and file it with the Fictitious Name Registration Office of the Florida Department of State, at the address listed in Section VI(a). There is a $50 filing fee. The registration must be renewed every five years, with the same $50 fee. (h) Florida RICO Law. You need to be aware that if your business is a foreign or Florida corporation, or an alien business organization -- one that is either formed under non-U.S. law or formed under U.S. law but 10% (or more) owned directly or indirectly by a foreign entity or individual, you will have to name a Florida registered agent, in order to comply with the Florida Racketeer Influenced and Corrupt Organization (RICO) law. This RICO law requirement will apply if your corporation or alien business organization either:
V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. Since Florida has no personal income tax, no state withholding of wages is required in Florida. However, you will still need to register with the state as an employer for unemployment tax purposes, as discussed in Section V(b). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during any calendar year or if your payroll amounts to $1,500 in any calendar quarter, you, as an employer will be required to pay state unemployment tax based on the amount of such wages paid. Employers subject to the Florida unemployment tax must register with the Florida Department of Revenue on Form DR-1, which is also used to register for sales tax and other business taxes. New employers are required to pay tax at a rate of 2.7% in 2009 on the first $7,000 of wages paid to each employee. After you have had employees for 10 or 11 quarters, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, and is determined under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. PLANNING POINT: All state unemployment taxes are imposed upon you as the employer, and, under Florida law, cannot be charged to your employees or withheld from their wages. A liable employer is required by law to display the poster To Employees, Form UCT-83, in a place where all employees can see it. For more information on your Florida unemployment tax obligations as an employer, see the contact information for the offices of the Department of Revenue, listed in Section VI(a). (c) Workers' Compensation. In Florida, virtually all businesses with four or more employees (one or more in the construction industry) are required by law to have workers' compensation insurance, except those able to self-insure. Those employers with three or fewer employees who do not obtain such insurance must post a notice in the workplace that informs employees of their non-entitlement to workers' compensation insurance benefits. Note, however, that a sole proprietor or a partner in a partnership is generally not considered an employee. Officers of a corporation who receive pay for services are automatically considered employees, but they may exempt themselves from the definition of an employee by filing a certificate of exemption with the Division of Workers' Compensation, which is now part of the Florida Department of Financial Services. File a request for exemption on Form DWC-250. Note that only a maximum of three officers of a construction company may elect to be exempt from workers' compensation coverage. Officers of a construction company who file for exemption must also provide proof that they own at least 10% of the stock of the corporation and must pay a $50 fee with the application for exemption. Similarly, members of an LLC that is engaged in the construction industry are treated like corporate officers and must provide proof that they own at least a 10% interest in the LLC in order to be exempted. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. CAUTION: As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of their workers' compensation coverage. Your insurance carrier is required by law to provide you with the poster. For more detailed information regarding your obligations as an employer under the Florida workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the Florida Department of Financial Services, Division of Workers' Compensation, listed in Section VI(a). (d) State Wage and Hour Laws. Unlike most states, until recently Florida did not have a minimum wage law governing the hourly wage that you must pay to your employees. However, in most cases, a business was still subject to the federal minimum wage and overtime laws, and thus required to pay at least the federal minimum wage and time-and-a-half for overtime hours, for any non-exempt employee who works more than 40 hours in a week. However, the Florida constitution has been amended, and effective as of May 2, 2005, Florida enacted a minimum wage of $6.15 an hour. This minimum wage was indexed to the consumer price index, pursuant to a calculation done on September 30th of each year, and the adjustment goes into effect on the following January 1. Thus, the $6.15 rate, as adjusted for inflation, was $6.79 an hour for 2008 and is $7.21 for 2009. It will increase to $7.25 on July 24, 2009, when the federal minimum wage increases to that amount. Under the Florida minimum wage law, the definitions of "employer," "employee," and "wage" are those established under the federal Fair Labor Standards Act (FLSA). For "tipped employees" meeting eligibility requirements for the tip credit under the FLSA, employers may count tips actually received as wages under the FLSA, but the employer must pay not less than $4.19 per hour in direct wages. (As mandated by Florida’s Constitution, this direct wage represents the 2003 tip credit existing under the FLSA ($3.02) subtracted from Florida’s minimum wage; therefore, as the minimum wage increases each year, the direct wage paid to tipped employees will also increase to the new state minimum wage amount, less $3.02.) Employers are required by law to post a state minimum wage poster conspicuously in each workplace where employees are employed. In addition to federal wage-hour laws, most businesses are also subject to state child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must be cognizant of state child labor laws in Florida, which are similar to, but sometimes different from, the federal laws. Employers in Florida are required to post a child labor law poster in the workplace, which can be obtained from the Department of Business and Professional Regulation. In general, the Florida child labor laws prohibit hiring children under the age of 14, except for children working in the entertainment industries as performers or (if 11 or older) delivering newspapers. All minors under age 18 are prohibited from working:
In addition, the hours that minors may work are limited as follows:
Minors age 16 or 17 are not subject to the above working hours limitations if they have graduated from high school or have received a high school equivalency diploma. Employers are required to maintain proof of age when hiring minors, and must poster (which may be obtained from the state) notifying minors of the Child Labor Law. For more information on Florida's child labor laws, contact the Florida Department of Business and Professional Regulation. See the contact information listed in Section VI(a). (e) State Occupational Safety and Health Laws. Approximately half of the states have their own OSHA-like agency, charged with administering the state's own occupational safety and health laws. The remaining states have no such enforcement agency, and thus rely instead on the federal Occupational Safety and Health Administration (OSHA) to administer the federal job safety rules within such states. Florida is one of the states that does not have its own local equivalent of OSHA. Note that while you may obtain a free safety consultation from federal OSHA experts, they must and will cite you for any violations they discover at your workplace. This is not the case in states with their own OSHA programs, where, if you request a safety consultation from the state agency and they detect violations, they will not cite you if you promptly correct the unsafe conditions. However, while Florida does not have a full-fledged OSHA-type enforcement program, the Division of Safety of the Department of Labor and Employment Security did, until June 30, 2000, provide safety guidelines and safety consultation programs for employers, and had adopted some specific safety rules of its own, but the Division of Safety was abolished, as of June 30, 2000, and the Department of Labor and Employment Security was abolished also on June 30, 2002, with various functions transferred to other agencies. For state safety consultations, contact the University of South Florida, Safety Florida Consultation Program, at the address listed in Section VI(a). For information on your job safety and health obligations as an employer, required posters, and workplace safety program requirements under the workers' compensation laws, see the contact information for the Florida Department of Financial Services, Division of Workers' Compensation Compliance, listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Florida labor laws you need to be aware of as an employer include the following: (1) Wage payments to terminated employees. Florida has no specific statutory laws that govern when and how wages are to be paid to a discharged employee. However, state law defines a "day's labor" as 10 hours a day, so that if a worker is paid based on days of work, he or she must receive additional compensation if working longer than 10 hours on any day. State law also requires employers to furnish seats for employees who work in stores. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Florida's state constitution has a right-to-work law, adopted in 1968, which states that an employer shall not deny a person the right to work based on membership or non-membership in a labor union. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in Florida, which go beyond the federal civil rights laws in some respects, such as adding persons with AIDS, HIV, or sickle cell trait to the list of protected classes against whom an employers or disability insurers may not discriminate, and prohibiting genetic testing or testing for sickle cell trait. Florida law also prohibits discrimination based on marital status. Florida also has a state law that prohibits wage rate discrimination based on sex. Employers must display a poster informing employees of their equal employment opportunity rights. You can obtain this poster from the Florida Commission on Human Relations. See Section VI(a) for contact information for the Florida Commission on Human Relations. (4) Reporting new hires. Under federal welfare reform laws, employers in all states are now required to report any newly-hired (or rehired employees) to a designated state agency (the Florida New Hire Reporting Center for Florida employers) within 20 days after the date of hire. Employers who report new hires electronically must file reports twice a month (if needed), on dates not more than 16 days nor less than 12 days apart. See the contact information in Section VI(a) for the Florida New Hire Reporting Center. (5) Employment of illegal aliens. Florida law makes it illegal to employ aliens who are not legally authorized to work in the United States by the federal immigration laws or by the Attorney General. A first violation is punishable by a civil fine of up to $500, and a second offense is a criminal violation, a second-degree misdemeanor. VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Florida, as many states have done in recent years, had set up a "one-stop" center to help your new or existing businesses to obtain all necessary state licenses and permits from a single office, without your having to go from agency to agency to meet all the state legal and regulatory licensing requirements. However, this office, the Bureau of Business Assistance, no longer exists, as its parent agency, the Florida Department of Commerce, has been phased out of existence, for budgetary reasons. The Department of Commerce has been replaced by an entity called Enterprise Florida, Inc., which offers some assistance to small businesses, but is primarily engaged in providing information on Florida business conditions and the recruitment of new business to the state. To obtain information on starting or relocating your business in Florida, contact: Enterprise Florida, Inc. You are more likely to obtain additional useful information on starting or locating a business in Florida by contacting the offices of the Department of State and the Department of Revenue, which are listed below. Addresses and other contact information for other key state and federal government agencies in Florida, mentioned in preceding sections of this book, are listed below for your convenience. DEPARTMENT OF STATE. Contact the Division of Corporations of this office for information on a number of corporate and non-corporate requirements:
Division of Corporations TAXES. Obtain state income, sales and use tax, and other miscellaneous business tax forms, instructions and information from the following agency, which is the main tax collection agency in Florida. Also register with this agency on Form DR-1, for sales and use tax and state unemployment tax purposes. Florida Department of Revenue LABOR LAWS. Most Florida labor laws were formerly administered by the Florida Department of Labor and Employment Security. However, that agency was abolished as of June 30, 2002 and most of its functions were transferred to other agencies, such as the Department of Revenue (unemployment tax), the Department of Financial Services (workers' compensation), and the Department of Business and Professional Regulation (child labor regulation and labor organizations). LICENSING. To find out if a state license is required for your particular business, contact the Department of Revenue at the address listed above for that agency. Or, for specific state licenses for various occupations and professions or information on state child labor laws, contact: Florida Department of Business and Professional Regulation FICTITIOUS NAME REGISTRATION. After publishing your fictitious name statement in the Florida county where your principal place of business is located, file the proof of publication with: Fictitious Name Registration Office STATE SALES TAX. Obtain your sales and use tax license or permit and information on the Florida sales and use tax law from the Florida Department of Revenue. See address information above for that agency. STATE UNEMPLOYMENT TAX. Contact the Florida Department of Revenue at the address above to determine whether you are an employer subject to payment of state unemployment taxes, and for registration as an employer if you are subject. Administration of the state unemployment tax has been moved from the Department of Labor and Employment Security (abolished) to the Department of Revenue. NEW HIRE REPORTING. You can report newly hired employees over the Internet (see the New Hire Reporting Center's URL on the Web in Section VI(c)), or mail the reports to the following address: Florida New Hire Reporting Center STATE ANTI-DISCRIMINATION LAWS. For information on your obligations as an employer or as a provider of public accommodations under Florida's civil rights laws, or to obtain required anti-discrimination posters, contact the following state agency: Florida Commission on Human Relations WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must supply workers' compensation coverage, contact the Division of Workers' Compensation, which is now part of the Department of Financial Services, for further information. Also contact the Division for required federal OSHA posters and forms. Florida Department of Financial Services STATE OSHA PROGRAM. There is no state OSHA program in Florida. The federal government provides federal OSHA enforcement instead. For posters and information on federal and state occupational safety and health laws that affect you as an employer in Florida, contact the nearest federal OSHA office, or the Occupational Safety and Health (OSH) Stat Unit of the Division of Workers' Compensation, at the address listed above for that agency, immediately preceding this paragraph. For workplace safety consultations and information, contact the following: University of South Florida (b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Florida to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you. SBDC: State Director's Office (c) Internet Sites. For anyone with access to the Internet, there is a wealth of state and even local business information provided by state and local governments.All states now have a state government Web page, and most major Florida state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Florida. Since new sites are appearing frequently, you might also want to search for other Florida government Web sites by using one of the popular Internet search engines, such as Google, Excite! or Yahoo. To start your Internet search for Florida government information, you may want to begin with the following Internet sites: Access to Florida Government site (My Florida): Department of State, Division of Corporations: Florida Department of Revenue tax forms and information: Florida New Hire Reporting Center (information and downloadable forms for reporting new hires): Division of Workers' Compensation (part of the Department of Financial Services): Agency for Workforce Innovation (information on the state minimum wage): Florida Small Business Development Centers network: Enterprise Florida: (d) Financing Sources. For information and help on locating financing for your small business, contact the nearest U.S. Small Business Administration office in Florida (in Miami or Jacksonville), or contact the private organization, Enterprise Florida, at the address listed for it in Section VI(a). The address of the SBA District Office in Jacksonville is: U.S. Small Business Administration |
Copyright © 2009 Michael D. Jenkins
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