Florida Tax First to Hit Services Beyong State Borders / Difficult to Administer, Comprehend

Article excerpt

A new chapter in American tax policy opened Wednesday when Florida activated a controversial sales tax on services. The tax's reach will extend far beyond Florida's state lines.

Florida is not the first state to tax professional services. But Florida will be the first to attempt to tax certain services performed elsewhere, a move that has drawn a flurry of legal challenges and boycotts by national advertisers and other out-of-state businesses affected by the tax.

The unusual geographic reach of the 5 percent tax is detailed in regulations issued last week by the Florida Department of Revenue. The 180 pages of single-spaced guidelines clear up much of the confusion that has existed since the Legislature passed the tax in April over precisely which transactions are subject to the tax, how the tax is computed and who is responsible for remitting it.

But the guidelines also underscore how difficult the tax will be to administer and how hard it will be for many individuals and smaller businesses to comprehend the complex and far-reaching provisions on interstate transactions.

``Anybody, regardless of where they are based, that has any connection to Florida - no matter how minimal - may be subject to the long arm of taxation of Florida,'' said Kenneth T. Zemsky, a state tax specialist at the accounting firm of Ernst & Whinney.

Florida goes beyond just taxing services performed within the state for in-state use. The tax will also apply to services in other states when the benefit of the service is deemed to be ``enjoyed'' or ``used'' in Florida. (In these circumstances, the tax is technically called a ``use'' tax - rather than a ``sales'' tax - but the impact is the same.)

By employing the ``use'' concept to justify jurisdiction, Florida ropes in national advertisers whose commercials re run on network broadcasts aired in Florida or whose ads appear in national magazines or newspapers circulated in Florida.

The tax also applies to certain services provided individuals by out-of-state lawyers, architects and accountants.

Determining when the tax applies is tricky. Under the rules, the tax applies when the service ``relates to and benefits specific real property'' in Florida. An example would be a New York architect's plans for an individual who is constructing an apartment building in Miami.

The tax would also apply if, say, a New York lawyer filled out a federal tax return for a Florida resident and mailed the return to the individual in Florida for his signature. …

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