Did about two employee-days in Florida create sales-tax nexus for the software seller?

Subject

Nexus

Plain-English summary

Under the facts and law applied in 2000, about two employee-days in Florida per year did not create substantial sales-tax nexus. The seller developed and sold mainframe software from another state, solicited Florida sales through advertising, mail, telephone, and the Internet, and delivered tangible-form software through common carriers.

It had no Florida property, inventory, office, resident employees, or agents. The Department compared the limited travel with Department of Revenue v. Share International and concluded Florida could not compel registration and collection on those facts.

What this means for you

This is a historical physical-presence ruling, not a current remote-seller threshold. The ruling also warned that more days or a different kind of Florida activity could require a new nexus determination.

Common questions

Q: Did two employee-days per year create nexus? No, on the stated facts.

Q: Did Florida customers still owe tax? Yes. Purchasers without an exemption remained responsible for use tax.

Q: Could the company collect voluntarily? Yes. The Department offered a voluntary collection agreement without an admission of nexus.

Citations and references

• Fla. Stat. § 212.05 — sales tax
• Fla. Stat. § 212.06 — dealers and use tax
• Fla. Admin. Code r. 12A-1.091 — purchaser use tax
• Department of Revenue v. Share International, Inc., 676 So. 2d 1362 (Fla. 1996) — limited in-state employee presence
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-021

Original ruling text

SUMMARY

QUESTION 1: Does Taxpayer have "substantial nexus" with the
State of Florida, thereby requiring it to register, collect
and remit sales tax on its Florida sales?

ANSWER - Based on Facts Below: The answer depends upon the
type and amount of physical presence in the taxing state by
the out-of-state seller. There are many actions that
provide sufficient "physical presence" in Florida to
constitute substantial nexus with this State. In this
case, Taxpayer's sales to Florida customers are solicited
by advertising, United States mail, telephone, and Internet
access. All of Taxpayer's products are delivered to its
Florida customers through UPS, the United States Postal
Service, or other commercial carriers. In addition,
Taxpayer has various employees who spend, on average, a
total of two (2) man-days per year within the State of
Florida. These activities alone, however, are not of the
character to create substantial nexus with the State of
Florida. Thus, Taxpayer cannot be compelled to register,
collect and remit sales tax on its Florida sales.

Apr 25, 2000

Re: Technical Assistance Advisement 00A-021
Sales and Use Tax Nexus
Sections: 212.05, 212.06, F.S.
Petitioner: XXX (Taxpayer)

Dear :

This is a response to your request dated March 26, 1998, for the
issuance of a Technical Assistance Advisement ("TAA") concerning
the above-referenced matter. Your petition has been carefully
examined and the Department finds it to be in compliance with
the requisite criteria set forth in Chapter 12-11, F AC. This
response to your request constitutes a Technical Assistance

Advisement and is issued to you under the authority of s.
213.22, F.S.

FACTS

You provide, in part:

III. Detailed description of the transaction involved.

[Taxpayer] develops and sells software for mainframe
computer systems. A true and correct copy of a specimen
agreement of sale is attached hereto and marked Exhibit
"A".

[Taxpayer's] only physical location is in [another state].
[Taxpayer] sells its software to customers all over the
world (forty states and fifteen countries). Of its total
revenues, approximately 3% represent sales to customers
located in the State of Florida.

All of [Taxpayer's] sales to Florida customers are
solicited by advertising, United States mail, telephone,
and internet access. All of [Taxpayer's] products are
delivered to its Florida customers through UPS, the United
States Postal Service, or other commercial carriers.

[Taxpayer] has absolutely no presence in Florida. It
maintains no property, inventory, materials or goods in the
State of Florida, has no offices, employees, or agents
residing in Florida. Taxpayer has no physical contact with
the State of Florida, other than some de minimis trips to
Florida by its [home state] employees.

You also have provided additional information as follows:

1. Employees of Taxpayer spend, on average, a total of two
   (2) man-days per year within the state of Florida.

2. The software is sold in a tangible form.

IV. Procedural History.

On or about March 10, 1997, [Taxpayer] was contacted by the
State of Florida, Department of Revenue (Atlanta Taxpayer
Service Center, Nexus Investigation and Compliance
Education), at which time [Taxpayer] was provided with a
questionnaire "to assist in determining whether nexus
exists between" [Taxpayer] and Florida. A true and correct
copy of said correspondence is attached and marked Exhibit
"B".

On or about March 14, 1997, [Taxpayer] voluntarily
responded by completing the "Florida Department of Revenue
Nexus Investigation Questionnaire". A true and correct
copy of said questionnaire is attached and marked Exhibit
"C".

On April 11, 1997, the State of Florida Department of
Revenue, Atlanta Taxpayer Service Center (Nexus
Investigation and Compliance Education) responded to
[Taxpayer's] questionnaire with a letter requesting
additional information. A true and correct copy of said
correspondence with completed information is attached and
marked Exhibit "D."

On May 6, 1997, the State of Florida Department of Revenue,
Atlanta Taxpayer Service Center (Nexus Investigation and
Compliance Education) wrote to [Taxpayer], concluding that
[Taxpayer] "has nexus with the State of Florida and is
required to register to collect and remit Florida sales/use
tax directly to the Florida Department of Revenue." The
stated basis for said determination is the 1995 Florida
Statutes, Chapter 212.06(2). As a direct result of that
letter, [Taxpayer] completed and filed an "Application to
Collect Tax in Florida" (Form DR-1). A true and correct
copy is attached and marked Exhibit "E".

On June 10, 1997, the State of Florida Department of
Revenue, Atlanta Taxpayer Service Center (Nexus
Investigation and Compliance Education) wrote to [Taxpayer]
and directed [Taxpayer] to complete a "self-disclosure"
form, so as to identify the amount of back sales taxes

allegedly due and owing. A true and correct copy of said
correspondence is attached and marked Exhibit "F".
[Taxpayer] received a second request on or about December
1, 1997.

On or about January 27, 1998, [Taxpayer] requested the
undersigned to correspond directly with the State of
Florida Department of Revenue, Atlanta Taxpayer Service
Center (Nexus Investigation and Compliance Education) with
respect to its determination that [Taxpayer] was required
to collect and remit Florida Sales Tax. A true and correct
copy of said correspondence is attached hereto and marked
Exhibit "G". The State of Florida Department of Revenue,
Atlanta Taxpayer Service Center (Nexus Investigation and
Compliance Education) responded to the undersigned's letter
on or about February 13, 1998. A true and correct copy of
said response is attached and marked Exhibit "H".

REQUESTED ADVISEMENT

You ask whether the Taxpayer has the requisite "substantial
nexus" with the State of Florida, thereby requiring it to
register, collect and remit sales tax on its Florida sales.

LAW AND ANALYSIS

Sales Tax Nexus

The question becomes what type and amount of physical presence
in the taxing state by the out-of-state seller will be required
to satisfy the Supreme Court's nexus requirements under the
Commerce Clause.

There are many actions that provide sufficient "physical
presence" in Florida to constitute substantial nexus with this
state. The following are examples of actions by a Seller that
the Department has determined to create substantial nexus with
Florida: 1) having representatives in Florida who solicit or
transact business on behalf of seller; 2) delivering merchandise
into Florida in vehicles owned or leased by seller; 3) storing
merchandise in Florida; or 4) in relation to hardware or

software, having employees or agents present in Florida for the
purpose of installing hardware or software or for training of
the end user.

In this case, Taxpayer has various employees who spend, on
average, a total of two (2) man-days per year within the state
of Florida. It must be determined whether this creates "physical
presence" and thus substantial nexus with the state of Florida.

In Department of Revenue v. Share Int'l, 676 So.2d 1362 (Fla.
1996), the court addressed the issue of nexus in Florida.
Share, for three days a year, over a five-year period, had two
representatives physically present in Florida selling tangible
personal property and collecting tax on behalf of the state of
Florida. The court found that this activity by an out-of-state
mail order business did not create a substantial nexus with the
state that would allow the state to impose registration and
collection requirements. The Florida Supreme Court stated that
"[w]e conclude that the presence in the state for approximately
three days each year of Share employees and products, under the
circumstances in this case, does not create a substantial
nexus..." (Emphasis Supplied)

It appears that Taxpayer's activities in Florida do not
currently exceed those of Share. Thus, Taxpayer has not created
nexus with Florida by sending employees to Florida for a total
of two (2) man-days per year. Should Taxpayer, however,
increase the number of days or change the nature of its
activities with Florida, a new determination regarding nexus
must be made.

Although Taxpayer does not currently (based on the activities
described by Taxpayer) have nexus with Florida, it should be
noted that Florida residents purchasing tangible personal
property from Taxpayer, without having an available exemption,
are required to report and pay use tax on such purchases. See
Rule 12A-1.091., F.A.C. Thus, even though Taxpayer cannot be
compelled to collect and remit this tax, Taxpayer's Florida
customers enjoy no such protection and are required to pay use
tax on their purchases of tangible personal property from
Taxpayer. For this reason, the state will enter into voluntary

collection and remittance agreements with out-of-state sellers
in order to remove some of the burden and inconvenience of tax
collection from Florida customers. As compensation for voluntary
participation, the state will grant such companies a collection
allowance, or a percentage of the taxes collected and remitted,
to be kept by the company, that is larger than the allowance
given to other registered dealers. For your convenience, we
have enclosed a draft agreement of the sort that we normally
enter into with out-of-state sellers who do not have substantial
nexus with Florida.

CONCLUSION

Based on the facts presented, there is not currently substantial
nexus between Taxpayer and Florida; thus, Taxpayer cannot be
required to register, collect, and remit tax on its sales to
Florida residents. For your convenience, we have enclosed a
draft agreement of the sort that we normally enter into with
out-of-state sellers who do not have substantial nexus with
Florida. Please review the agreement and call Leigh Ceci at
(850) 922-4784, to discuss the details and any questions that
you might have.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request
advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the situation summarized above.
You are advised that subsequent statutory or administrative rule
changes or judicial interpretations of the statutes or rules
upon which this advice is based may subject similar future
transactions to a different treatment than expressed in this
response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,

the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Lisa Gardler
Technical Assistance and Dispute Resolution
(850) 922-4710

Enclosures
Control No. 33589