Thursday, March 27, 2008

Illustrations and Parables: There are penalties for evading sales tax

I had a seminar participant relate this story to me recently, and I just have to pass it on. I’ve edited this a little, particularly the geography.

A lawyer walks into a furrier in Miami and purchases a $70,000 fur coat. He tells the clerk to ship it to Atlanta…it is, after all, a gift. The clerk doesn’t charge sales tax because the coat was shipped out of the state. And we all know that there’s no sales tax on an interstate sale, right?

The store gets audited by the Florida Department of Revenue. They assess the retailer roughly $6,000 sales tax on this sale, as well as many others.

You see, it really wasn’t non-taxable because it was shipped out of the state. The coat was in the store when the customer purchased it. Only AFTER the customer had control over the coat was it then shipped out of Florida. The customer could, after the sale was rung up, have changed his mind and taken the coat with him. Therefore, the store should have charged him sales tax. This is the logic. Enforcement is spotty on this. But a few states, like Florida, codify this in the statutes.

Of course, the store then billed the customer for the $6,000 in taxes they failed to charge him. They sent an invoice, with a very apologetic letter to his home.

The customer came home from work that night, and his wife asked him about the $70,000 fur coat that she never received. He’s now divorced.

So the penalties for evading sales tax can be more than just the taxes.