Were a warehouse operator's bundled receiving, storage, order-fulfillment, packing, and shipping charges to a cruise line taxable as rent for storage space?

Plain-English summary

Florida treated the warehouse operator's arrangement with a cruise line as a nontaxable bailment and warehouse service—not a taxable rental or license of storage space. The result did not change merely because the monthly invoice called the charge “storage.”

The cruise line's vendors delivered its inventory to the operator. The operator received and verified the goods, entered them into its inventory system, stored them in dedicated space, and later picked, palletized, containerized, loaded, and arranged delivery of requested items to ships at various ports.

Custody and control made the arrangement a bailment

Rule 12A-1.070(22) distinguished a bailment from a taxable space rental by asking who possessed and controlled the property. A bailment existed when the owner relinquished exclusive possession so the warehouse operator could exclude others within the agreement's limits.

The cruise line could inspect the premises and operations, but it obtained inventory by sending withdrawal instructions. The warehouse operator's employees conducted the withdrawals, containerizing, and shipping. That was materially different from a customer renting space and independently accessing its own goods.

The operator provided more than square footage

The operator supplied racking, forklifts, cleaning equipment, and full-time personnel. Its services included receiving, condition and quantity checks, inventory entry, storage and handling, order fulfillment, daily communications, investigations, and delivery coordination.

Rule 12A-1.036 described warehousemen who move, store, pack, and ship other people's property as performing exempt services. Florida found the agreement within both that warehouse-service rule and the bailment rule.

Contract substance controlled the invoice label

The monthly fee covered many services, plus the operator charged a flat loading fee for each container. Calling the regular fee “storage” did not accurately describe the transaction and did not turn it into taxable commercial rent.

What this means for you

Warehouse and fulfillment operators

Document responsibility for the goods, operational control, restricted customer access, and fulfillment duties. Those facts help distinguish a bailment and service business from a taxable grant of storage space.

Logistics customers

An inspection right does not necessarily mean you control the stored inventory. Here, the cruise line requested withdrawals, but the warehouse staff physically picked, packed, and shipped the goods.

Accountants and tax professionals

Review the whole agreement and actual operations rather than relying on an invoice label. A provider that merely grants customer-controlled space can be taxable even if a full-service warehouse arrangement is not.

Common questions

Q: Did the word “storage” on the invoice make the fee taxable rent?
A: No. Florida looked at the full agreement and services performed.

Q: Who owned the inventory?
A: The cruise line owned and paid for all supplies. The warehouse operator did not buy the goods for resale.

Q: Could the cruise line inspect the warehouse?
A: Yes, to check compliance with the service agreement. Inventory withdrawals still required instructions to the operator, whose personnel performed the work.

Q: When would storage look more like a taxable lease or license?
A: The cited rule described a taxable arrangement when a provider merely grants space without taking responsibility for the property's care and control, and the owner can access it independently.

Citations and references

• Fla. Stat. § 212.031(1)(a) — tax on renting, leasing, letting, or licensing real property
• Fla. Stat. § 212.02(10)(i) — definition of a license to use real property
• Fla. Stat. § 212.08(7)(v)1. — exemption supporting qualifying service transactions
• Fla. Admin. Code r. 12A-1.070(22) — bailment versus taxable lease or license of storage space
• Fla. Admin. Code r. 12A-1.036(1) — exempt moving, storing, packing, and shipping services of warehousemen

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04A-045

Original ruling text

SUMMARY
QUESTION: The taxpayer receives and warehouses a cruise ship line's inventory and performs other related
services. Does the agreement with the cruise ship line represent a bailment, not taxable pursuant to the exemption
provided by regulations regarding bailments and warehousemen's operations?
ANSWER - Based on Facts Below: The Department finds that, notwithstanding the fact that the monthly fee on the
taxpayer's invoice may be identified as "storage," the described transactions and agreement represent a "bailment."

August 3, 2004

Re: Technical Assistance Advisement 04A-045
Sales and Use Tax - Warehousing Services
Section 212.031(1)(a), F.S.
Rules 12A-1.036 and 12A-1.070(22), F.A.C.
XXX [Taxpayer]
XXX [Cruise Ship Company]
Dear :
This is a response to your letter dated June 18, 2004, requesting the issuance of a Technical Assistance Advisement
(TAA) concerning the above referenced party and matter. Your letter and supporting documents have been carefully
examined, and the Department finds your request to be in compliance with the requisite criteria set forth in Chapter
12-11, F.A.C. This response to your request constitutes a TAA, and is issued to you under the authority of section
213.22, Florida Statutes.
Facts
Your letter states in part:
[Taxpayer] operates warehouses in Miami-Dade County [County]. A cruise ship company directs its vendors to deliver
the cruise line's purchases to [Taxpayer]. [Taxpayer] receives and warehouses the cruise line's inventory, and
performs other services for the cruise ship company pursuant to its Service Agreement. (See a copy of the Service
Agreement enclosed.) This represents substantially all of [Taxpayer's] business activities.
[Taxpayer] keeps the supplies in its warehouses until such time as the cruise line requests [Taxpayer] to withdraw
items from the cruise line's inventory. [Taxpayer] consolidates the various items withdrawn from the cruise line's
inventory into containers. [Taxpayer] arranges for shipping the containers to various ports to restock the cruise line’s
ships.

[Taxpayer] charges the cruise line a flat monthly fee for receiving, verifying supplies received, warehousing, breakpacking and repacking, and arranging for re-shipments. In addition, [Taxpayer] charges a flat loading fee per
container loaded. (See copies of [Taxpayer] invoices, enclosed.)
Although the regular monthly fee on [Taxpayer's] invoice to its Taxpayer is identified as "Storage," it is clear from its
contract that "Storage" does not accurately describe the many services for which [Taxpayer] is being paid.
Different vendors of the cruise line's supplies use different formats for their bills of lading. (See example copies
enclosed.) Some bills of lading clearly identify the cruise line as the consignee, in care of [Taxpayer]. Others only
identify [Taxpayer] as the consignee. However, all of the supplies are owned and paid for by the cruise line.
[Taxpayer] does not buy anything for resale.
The cruise line client has a right to inspect the warehouse premises and operations to ensure that requirements of its
Service Agreement are met. However, the cruise line obtains inventory withdrawals from the warehouse by sending
instructions to [Taxpayer], identifying the items and quantities to withdraw, and destinations where the items are
required. [Taxpayer] personnel conduct the withdrawals, containerizing and shipping.
Issue
Do the described transactions represent a bailment, and are they not taxable pursuant to the exemption from sales
and use tax provided by regulations governing bailments and warehousemen’s operations?
Applicable Law and Discussion
Section 212.031, F.S., provides in part:
(1)(a) It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the
business of renting, leasing, letting, or granting a license for the use of any real property....
Section 212.02(10)(i), F.S., provides:
(i) "License," as used in this chapter with reference to the use of real property, means the granting of a privilege to use
or occupy a building or a parcel of real property for any purpose.
Rule 12A-1.070, F.A.C., provides in part:
(22)(a) When tangible personal property is left upon another's premises under a contract of bailment, the bailee is not
exercising a privilege taxable under the provisions of s. 212.031, F.S., relating to leases, licenses, or rentals of real
property.
(b) A bailment is a contractual agreement, oral or written, whereby a person (the bailor) delivers tangible personal
property to another (the bailee) and the bailor for the duration of the relationship relinquishes his exclusive

possession, control, and dominion over the property, so that the bailee can exclude, within the limits of the agreement,
the possession of the property to all others. If there is no such delivery and relinquishment of exclusive possession,
and the owner's control and dominion over the property is not dependent upon the cooperation of the person on
whose premises the property is left, and his access thereto is in no wise subject to the latter's control, it will generally
be held that such person is a tenant, lessee, or licensee of the space upon the premises where the property is left.

1. Example: A safety-deposit box in a bank or vault is a bailment, not a lease or license, because the bank has one
   key and the customer another and both are necessary to gain access to the box.
2. Example: An airport locker is not a bailment, but a lease or license, because the renter has the key and sole access
   to the stored property.
3. Example: The charge made for use of a frozen food locker in cold storage or locker plants is exempt under
   conditions which require the facility owner's presence and assent for the food owner to access his property.
   (c) A person who merely grants storage space without assuming, expressly or implied, any duty or responsibility with
   respect to the care and control of the property stored is a landlord of a person granted a right to occupy or use such
   real property and is not a bailee. Thus, the person granting the right to use such storage space is exercising a
   privilege taxable under the provisions of s. 212.031, F.S., as a lease or license.
   (d) A lease, license, or bailment is indicative of a contractual relationship, and the terms are not mutually exclusive.
   Whatever label is attached to a contract, in determining whether a transaction is a bailment or a lease or a license,
   consideration will be given to the manifested intention of the parties as to which relationship has been created.
   (e) In the absence of an express contract, the creation of a bailment requires that possession and control pass from
   the bailor to the bailee; there must be full transfer, actual or constructive, so as to exclude the property from the
   possession of the owner and all other persons and give the bailee sole custody and control for the time being.
   As stated in Rule 12A-1.070(22)(a), F.A.C., cited above, when tangible personal property is left upon another's
   premises under a contract of bailment, the bailee is not exercising a privilege taxable under the provisions of s.
   212.031, F.S. The defining feature of a bailment is that the bailee, the person to whom the property is entrusted, has
   control and dominion of the property, and the owner, the bailor, cannot gain access to the property without the
   consent and cooperation of the bailee. Conversely, as described in paragraph (c) of the rule, a person who merely
   grants storage space without assuming, expressly or implied, any duty or responsibility with respect to the care and
   control of the property stored is exercising a taxable privilege.
   Rule 12A-1.036(1), F.A.C., provides that "Warehousemen customarily engaged in the business of moving, storing,
   packing and shipping tangible personal property belonging to other persons are performing services and the gross
   proceeds derived therefrom are exempt...." The basis for the exemption is found in s. 212.08(7)(v)1. , F.S., which
   exempts "... professional, insurance, or personal service transactions that involve sales as inconsequential elements
   for which no separate charges are made."

Determination
The service agreement between Taxpayer and Cruise Ship Line, a copy of which you provided with your letter,
provides that "Specific Services" performed by Taxpayer include the following:
Receiving: Verify items, quantities and conditions of materials received and enter into inventory system; locate in
warehouse, and notify [Cruise Ship Line].
Storage and handling: Warehousing of [Cruise Ship Line's] materials in dedicated space....
Order fulfillment: Picking, palletizing and delivery to the [Port] ships of inventory items.
[Taxpayer] shall provide all storage and handling equipment including but not limited to racking, forklifts, cleaning
equipment, etc...
Customer Service: Administrative responsibilities will be handled by [Taxpayer's] full time personnel to include daily
contact with [Cruise Ship Line's] purchasing and receiving departments. Services include, but are not limited to daily
ongoing communications for receipts, deliveries, phone call and e-mail answering, investigations, responses, etc....
The Department concludes that, notwithstanding the fact that the monthly fee on the Taxpayer's invoice may be
identified as "storage," the described transactions presented in your letter and the service agreement fall within the
provisions of Rule 12A-1.070(22)(a), and Rule 12A-1.036(1), F.A.C, and are not subject to the tax imposed under
Chapter 212, F.S.
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 from that which is 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,
Dee Overcash

Technical Assistance and Dispute Resolution
Control No. 60643