Florida businesses increasingly operate in a digital accounting environment. Sales are processed electronically, purchases are recorded in accounting software, federal and state tax returns create multiple sources of financial information, and businesses routinely purchase equipment and supplies from vendors located outside Florida.
The Florida Department of Revenue (FDOR) operates in that same data-rich environment.
That does not mean an artificial-intelligence system automatically decides which Florida businesses will be audited. There is currently no authoritative FDOR guidance supporting that claim. What FDOR does publicly confirm, however, is important: the Department uses multiple information sources in selecting taxpayers for audit and uses computer-assisted electronic auditing to analyze business records once an audit begins.
For Florida businesses, that makes consistency among tax returns, accounting records, sales records and purchase records increasingly important.
How Does FDOR Select Businesses for Audit?
The Florida Department of Revenue publicly identifies several sources and methods that may be used in audit selection.
These include:
- Internal Revenue Service information
- Information-sharing programs with other states and state agencies
- Computer-based random selection
- Analysis of Florida tax return information
This is an important distinction from claims sometimes made online that FDOR uses an artificial-intelligence algorithm that automatically compares a company’s federal return with its Florida sales tax returns and generates an audit notice whenever it detects a discrepancy.
FDOR does not publicly describe its audit-selection process that way.
Nevertheless, businesses should understand the broader implication: information reported to one government agency or on one tax return should not automatically be viewed in isolation from information reported elsewhere.
A discrepancy does not necessarily mean that a business has done anything wrong. Gross receipts reported for federal income-tax purposes, for example, do not necessarily equal taxable Florida sales. Different taxes have different definitions, exemptions, reporting periods and reporting requirements.
But unexplained differences can create questions that require documentation.
Electronic Auditing Has Changed the Audit Environment
Once an audit begins, technology becomes even more important.
FDOR’s publication Auditing in an Electronic Environment describes electronic auditing as computer-assisted auditing using a taxpayer’s electronic records to complete all or part of an audit.
According to FDOR, the Department uses both purchased and custom software for electronic data conversion and analysis.
If a business maintains its accounting information electronically, it may be a candidate for an electronic audit.
Electronic auditing can allow an auditor to analyze large quantities of transactional data far more efficiently than reviewing boxes of paper invoices manually.
FDOR explains that an electronic audit may involve either detailed transaction testing or sampling. When practical, an electronic detail audit may allow every transaction in a file to be reviewed. In other circumstances, sampling may be used to draw conclusions about a larger population of transactions.
That has practical consequences for businesses.
A sales-tax issue that occurs repeatedly across hundreds or thousands of transactions can potentially produce a much larger audit adjustment than an isolated mistake.
What Records Can FDOR Examine?
FDOR’s audit guidance identifies numerous records that may be requested during an audit, including:
- General ledgers and journals
- Cash-receipt and cash-disbursement journals
- Purchase and sales journals
- Sales-tax exemption and resale certificates
- Florida tax returns
- Federal tax returns
- Depreciation schedules
- Property records
- Other documentation needed to verify amounts reported on tax returns
This is why sales and use tax compliance should not be viewed simply as preparing and filing Form DR-15.
The return is only the final reporting document.
The accounting records and supporting documents behind the return are what allow a business to explain how the reported amounts were calculated.
The DR-840 Starts the Audit Process
For a Florida sales and use tax audit, the formal process generally begins when the taxpayer receives Form DR-840, Notice of Intent to Audit Books and Records.
FDOR states that the DR-840 begins a 60-day notice period and identifies the taxes and timeframe to be audited.
During that period, the taxpayer can begin gathering the records identified by FDOR and may consult an accountant, tax preparer or other representative.
Businesses should use this period carefully.
The objective should not simply be to start sending records to the auditor. It is an opportunity to understand the requested audit period, identify potential exposure areas, reconcile important accounts and determine whether the accounting records support the returns previously filed.
Commercial Rent Tax Is Gone — But Historical Exposure Is Not
One major Florida sales-tax change occurred on October 1, 2025.
Effective on that date, Florida repealed the state sales tax and discretionary sales surtax imposed on rent or license fees for the use of commercial real property.
For rental or occupancy periods beginning on or after October 1, 2025, qualifying commercial rentals are no longer subject to that tax.
But the repeal did not erase liabilities associated with earlier periods.
FDOR specifically states that rent or license payments received after October 1, 2025 for rental or occupancy periods before October 1 remain subject to the applicable tax.
This distinction matters during a 2026 audit.
Florida’s normal limitation period generally permits FDOR to determine and assess covered taxes within three years after the tax or return is due or the return is filed, whichever occurs later. Important exceptions can extend the assessment period, including situations involving failure to file required returns or fraudulent returns.
Consequently, commercial-rental transactions from periods before the October 2025 repeal can still fall within the scope of an audit.
Landlords and businesses that historically dealt with commercial-rent sales tax should therefore retain their pre-repeal records rather than assuming the repeal made those records irrelevant.
Use Tax Remains an Easy Area to Overlook
Use tax is another area businesses should review before an audit begins.
Florida use tax generally applies when taxable goods or services are used or consumed in Florida and the appropriate Florida sales tax was not paid at the time of purchase.
Common situations can include taxable purchases made from out-of-state vendors or over the Internet when sufficient sales tax was not collected.
Businesses may also create use-tax liability when an item originally purchased tax-exempt for resale is subsequently used by the business instead.
Many businesses focus heavily on the sales side of sales and use tax compliance while paying less attention to purchases.
An audit can examine both.
Purchase journals, expense accounts, fixed-asset purchases and supporting invoices can reveal transactions for which sales tax was not charged by the vendor.
Consider equipment purchased online from an out-of-state seller. The absence of sales tax on the invoice does not automatically mean the purchase is tax-free. Depending upon the nature of the purchase and tax already paid, Florida use tax may be due.
A recurring failure to accrue use tax can become significant when transactions are examined across a multi-year audit period.
Three Questions Businesses Should Ask Before an Audit
A useful audit-readiness review should answer three basic questions.
Do the returns reconcile to the books?
Businesses should be able to explain how amounts reported on Florida sales and use tax returns relate to their accounting records.
Can exempt sales be documented?
If transactions were treated as exempt or for resale, appropriate supporting documentation should be maintained.
Has use tax been considered on purchases?
Review significant purchases, expense accounts and fixed assets for transactions where Florida sales tax may not have been paid.
These reviews are valuable before an audit notice ever arrives.
Technology Does Not Change the Fundamentals
There is considerable discussion today about artificial intelligence, big data and automated tax enforcement.
Some of that discussion gets ahead of the evidence.
What Florida businesses need to know is simpler.
FDOR confirms that it uses information from multiple sources when selecting audits. It also confirms that it conducts computer-assisted audits using electronic business records and data-analysis software.
That alone makes accurate and reconcilable records increasingly important.
Technology may change how efficiently transactions can be examined, but it does not change the fundamental objective of audit preparation: understand what was reported, know how the numbers were produced, maintain supporting documentation, and identify potential exposure before records are provided for examination.
For a business that has just received a DR-840, those steps become especially important during the 60-day pre-audit period.
About the Author
Orlando Monteagudo is the founder of Monte Tax Advisory. He has more than 30 years of accounting, auditing and tax-compliance experience, including approximately eight years auditing Florida businesses for the Florida Department of Revenue. His prior experience also includes serving as an Internal Revenue Agent with the IRS and working with Deloitte & Touche.
Monte Tax Advisory assists Florida businesses and their accounting and legal professionals with Florida Department of Revenue sales and use tax and reemployment tax audit matters, including pre-audit preparation, audit support and post-audit matters.
Disclaimer: This article is provided for general informational purposes only, is based on publicly available information, and does not constitute legal, tax, or accounting advice.
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