Who owed Florida tax when an out-of-state drop shipper delivered goods to a Florida buyer?

Subject

Drop Shipments

Plain-English summary

When goods outside Florida were sold to an unregistered out-of-state customer and delivered to its Florida buyer by common carrier, the drop shipper did not collect Florida sales tax on its sale. The Florida buyer generally owed use tax if it did not buy the goods for resale as a registered dealer.

The result changed if the drop shipper delivered through its own or leased vehicles, made a Florida COD collection, or shipped from a Florida facility. In those cases it had to collect tax from the Florida buyer, based on the buyer's price if known or otherwise the drop shipper's price to its customer.

What this means for you

Drop-shipment tax treatment depended on where the goods and contracting customer were at sale, how delivery occurred, dealer registration, and who consumed the property in Florida.

Common questions

Q: Did common-carrier delivery make the shipper's out-of-state sale taxable? No, on the stated facts.

Q: Who owed use tax? The Florida buyer, unless a valid resale situation applied.

Q: What if the drop shipper used its own truck? It had to collect sales tax from the Florida buyer.

Citations and references

• Fla. Stat. § 212.05 — sales and use tax
• Fla. Stat. § 212.06 — dealer registration and use tax
• Fla. Admin. Code r. 12A-1.038(4), (5)(a) — resale certificates
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-044

Original ruling text

SUMMARY

QUESTION 1: Is a drop shipper, located outside of Florida
but registered as a Florida dealer, obligated to collect
sales tax on a sale to a customer, that is an unregistered
dealer located outside of Florida with no tax nexus with
this state, in the instance when the drop shipper ships the
goods by common carrier, or by its own vehicles, to the
customer's buyer in Florida?

ANSWER 1 - Based on Facts Below: Since the goods were
outside Florida at the time of sale to the unregistered
customer, no tax is collected by the drop shipper when the
goods are shipped into Florida by common carriers.
However, the drop shipper is obligated to collect sales tax
from the buyer when the goods are delivered into Florida by
the drop shipper's own vehicles.

QUESTION 2: Is the taxability of the sale conditioned on
the tax nexus with Florida of the drop shipper or the
customer?

ANSWERS 2 - Based on Facts Below: The physical presence of
the drop shipper in Florida requires its registration as a
Florida dealer. Such status, in turn, obligates the drop
shipper to collect the tax whenever appropriate. The
physical presence of the customer in Florida, sufficient to
require its registration as a Florida dealer, would permit
the customer to tender a resale certificate to the drop
shipper, thus removing from the drop shipper the duty to
collect the tax.

QUESTION 3: Would the taxability of the sale be affected if
the buyer claimed no presence in Florida, but employed
personnel in Florida in the performance of a construction
contract?

ANSWER 3 - Based on Facts Below: If the goods were
delivered by common carrier into Florida by drop shipper,
the buyer would have an obligation to pay use tax on the
cost of the materials.

***********

Aug 03, 2000

Re: Technical Assistance Advisement Number 00A-44
Drop Shipments
Section 212.05, F.S.
Section 212.06, F.S.

Dear :

This is a response, styled a Technical Assistance Advisement, to
your letter dated April 25, 2000, in which you ask whether
certain shipments, commonly known as "drop shipments," are
subject to Florida sales or use tax. Note is especially made
that during a telephone conversation on May 17, 2000, the
Department learned that Drop Shipper has begun completing the
Registration Application for Sales and Use Tax, further
identified as form DR-1. The discussion within this
communication assumes that the registration process will be
completed and a sales tax registration number will be obtained
by Drop Shipper.

During the conversation the Department also learned that Drop
Shipper is the entity created by a merger with the Predecessor
Firms. The Federal Employer Identification Number noted above is
assigned to one of the Predecessor Firms. A new Federal number
will be assigned to Drop Shipper. Further, Drop Shipper has
been collecting and remitting Florida sales tax on sales made in
this state at retail and has attempted to collect tax on certain
drop shipments, which are the focus of this communication.

The facts you provided the Department describe Drop Shipper as
"... a national manufacturer of polyethylene pipe with physical
locations in [several states]." You state that Drop Shipper is
"... both a wholesaler and retailer of the products it
manufactures." Drop Shipper has no manufacturing facility in
Florida, nor does it store or warehouse its goods in Florida.

The contacts Drop Shipper has with Florida are represented by
the frequent trips into the state by its salespeople who accept
orders from customers in this state. These sales are made
during Drop Shipper's retail sales activities in this state.

The facts of the drop shipment transaction about which you ask 5
questions involve Drop Shipper's wholesale activities. In the
factual pattern presented by you, the Drop Shipper sells its
goods to a customer (herein Customer) located outside of Florida
who has no tax nexus with this state. Customer directs Drop
Shipper to ship the goods to Customer's Florida buyer (herein
Florida Buyer) at a location in this state. You state that Drop
Shipper charged Florida sales tax to Customer, but that the
Customer refused the payment of the tax. Customer contends that
it has no tax nexus with Florida and that it is not required to
be a registered Florida dealer. The goods of the Drop Shipper
entered Florida by common carrier.

The questions you ask will be replicated, after each of which
the Department's response appears.

Question 1. "Is [Drop Shipper] required to collect and remit
sales tax on the transaction wherein [Drop Shipper] sells to
Customer, an out-of-state business with no nexus in Florida, and
delivers merchandise to Florida from its [out-of-state] facility
by common carrier to [Florida Buyer], a Florida customer of
Customer?"

Department Response

Section 212.05, F.S., levies Florida sales tax on the sale at
retail of tangible personal property in this state. Given the
facts you have provided the Department, the sale by Drop Shipper
to Customer is not subject to Florida sales tax because it is
not a Florida sale. The goods are not in Florida at the time of
the sale, nor is the Customer located in Florida.

The Drop Shipper is provided with the following guidance as to
the preservation of records that reveal the sale to Customer is
not subject to tax:

In accordance with Rule 12A-1.038(4) and (5)(a), F.A.C., Drop
Shipper, a registered Florida dealer, may not accept a resale
certificate issued by another state. However, solely for
purposes of documentation that the transaction was not a Florida
sale, the Drop Shipper may retain in its records a foreign
resale certificate, if tendered to it by Customer. It would also
be helpful, again for purpose of documentation, that a notation
be made on the invoice that the drop shipment was not taxable
because the transaction was not a Florida sale.

You are alerted that Drop Shipper would neither be liable to
collect the sales tax from the Florida Buyer unless Drop Shipper
ships the goods into Florida in its own or leased trucks; ships
the goods and collects the sales price as a COD delivery in
Florida; or, ships the goods from its Florida facility to the
Florida Buyer. In any of these instances Drop Shipper would be
obligated to collect the applicable sales tax, not from the
Customer, but from the Florida Buyer computed on either the
sales price of the goods paid by the Florida Buyer to Customer;
or, if such price is unknown, Drop Shipper then is obligated to
collect the tax from the Florida Buyer computed on the sales
price of the goods sold by Drop Shipper to Customer.

However, since Drop Shipper did not ship the goods to the
Florida Buyer under any of the three conditions described above,
Drop Shipper is not obligated to collect sales tax from the
Customer.

Thus, under these facts, the only tax applicable to the
transaction may be that owed by the Florida Buyer. Florida
Buyer, if not a registered Florida dealer who bought the goods
for resale, would be obligated to remit the Florida use tax on
the goods it had purchased from the Customer.

Question 2. "Does the answer to question 1 change if the
merchandise is delivered by the [Drop Shipper's] own vehicles?"

Department Response

As indicated above in the response to Question 1., the entry
into Florida of Drop Shipper's own vehicles or vehicles leased

by Drop Shipper would create the obligation of Drop Shipper to
collect the Florida sales tax from the Florida Buyer computed on
the sales price Customer charged Florida Buyer. If that price is
unknown, the Florida sales tax should be collected by Drop
Shipper from the Florida Buyer on the price for the goods
charged to Customer by Drop Shipper.

Question 3. "Does the fact that [Drop Shipper] has nexus through
its salespeople have any bearing on the determination of the
taxability of this issue?"

Department Response

The physical presence in Florida of the Drop Shipper's
personnel, which you have described as "frequent" and during
which time the personnel can accept orders, presumably from
retail sales to its own customers in Florida, is sufficient to
require the registration of Drop Shipper as a Florida dealer, as
that term is defined in s. 212.06, F.S., and to collect and
remit any applicable Florida sales tax.

Question 4. "Does the answer to question 1 change if Customer
has nexus in Florida?"

Department Response

The fact that the Customer may have contacts with Florida
sufficient enough to require it, as provided in s. 212.06, F.S.,
to register with this state as a Florida dealer is a factual
finding that can not be imposed on the Drop Shipper. However,
if the Customer has sufficient physical presence in this state
that it must register as a Florida dealer, Drop Shipper would
accept a Florida resale certificate from the Customer. The
acceptance, in good faith, of a resale certificate from Customer
would remove all liability of Drop Shipper for the collection of
sales tax from Customer.

Question 5. "Does the answer to question 1 change if [Florida
Buyer] claims to have no nexus in Florida but is in fact
performing a construction contract with its own employees in the
State of Florida?"

Department Response

The Department response to Question 1. is framed as to the
taxability of the sale of goods by Drop Shipper to Customer.
This response remains the same if the facts are that the Florida
Buyer has a physical presence in Florida. The fact that the
goods are delivered in Florida to Florida Buyer creates, as was
stated in the response to Question 1, the liability of the
Florida Buyer for payment of the Florida use tax. If, as in the
answer to Question 1., Florida sales tax is not applicable to
the sale of the goods to Customer and if Customer is not
registered as a Florida dealer, then the payment of the use tax
is an obligation of the Florida Buyer. If Florida Buyer is
indeed engaged in constructing or improving real property in
Florida, the Florida use tax is clearly applicable to such
consumption of the goods delivered by common carrier through
Drop Shipper.

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 for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific 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 and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Robert G. Parsons
Tax Law Specialist
Technical Assistance and Dispute Resolution

Ctrl. No. 41214