United States

Are you paying sales tax on items which could be exempt?


When I first started working within the club industry, someone asked me if I knew anything about sales tax. I replied "Sure. It's the 6 percent tax that you pay when you purchase goods in the state of Florida.”  Over the years as I began to actually understand sales tax, I found it was far more complex than I ever could have imagined. For instance, if you purchase a small bag of potato chips at the grocery store, you pay sales tax on this item because it’s for immediate consumption, but if you were to purchase a large bag of potato chips, it is deemed exempt from sales tax as "food."

Nuisances like this are not just limited to grocery stores; they extend throughout the world of country clubs as well. Because of the many complexities in the sales tax law, it has created chances for vendors to mistakenly overcharge sales tax and take money out of your club’s pocket. As some of you may know, the state of Florida has increased sales tax audit activity for clubs over the past few years. While working with the clubs who have been selected for field audits, we have assisted a number of them with identifying areas of overpayments, which have been used to offset deficiencies identified by the state. However, you do not have to wait until a field audit to analyze your sales tax situation and identify areas where you might be overpaying sales tax. The rules on sales which are taxable vs. exempt can vary from state to state; however, the “sale for resale exemption” is the general rule that can be used in most states. The sale for resale exemption is applied to golf carts purchased or leased when the sales tax is collected on the subsequent rental to members or guests. We have noticed that some clubs have mistakenly been charged tax by their vendors on repair items such as batteries and tires. Since these items are being used on the cart which is subsequently rented, the purchase of these and other repair parts should be exempt from sales tax. 

It should be noted that carts purchased exclusively for the club’s use, such as use by the maintenance department, would be subject to tax. The same would apply to repair and maintenance parts purchased and used on these carts. If the club purchases all repair and maintenance parts exempt under the resale provision, the club would be required to accrue and remit use tax on the parts used for nonrented carts.

If a vendor is improperly charging sales tax, this can be cured by issuing a resale certificate to the vendor. Any overpaid tax could be obtained via a credit from the vendor.

Sales tax charged on repairs of rented golf carts is just one example where we have found overpayment of sales tax. We have identified many other situations where overpayments have occurred. Any potential overpayment of sales tax will vary depending on the unique and particular set up of your club. If you have a situation or fact pattern that you would like guidance on related to the applicability of sales tax, please contact either Dave Elder at dave.elder@mcgladrey.com or myself, Frank Lucas, at frank.lucas@mcgladrey.com.