Under Florida's 2006 physical-presence analysis, did hiring Florida printers for drop shipments create sales-tax nexus?

Plain-English summary

An out-of-state seller hired Florida printing companies job by job to print booklets or pens and ship them by common carrier to Florida customers. Its sales staff worked outside Florida, and it had no Florida office, property other than merchandise at the printers, sales representatives, or independent contractors.

Under the physical-presence framework applied in 2006, Florida concluded those facts did not create nexus requiring continued sales-tax registration. State law expressly provided that a printer mailing or delivering material it printed for an out-of-state purchaser was not the purchaser's agent, and it excluded qualifying printed property at the printer from the ownership test.

If the seller ended its registration, Florida customers would owe use tax on purchases unless an exemption applied. A qualifying nonresident print purchaser could give the printer an exemption certificate for printed goods intended solely for resale.

What this means for you

This is a historical 2006 nexus determination tied to the physical-presence cases and statutes quoted in the ruling. The TAA itself warns that later statutory changes or judicial interpretations can produce different treatment, so its result should not be read as a current-law rule without checking today's law.

Common questions

What Florida activity did the seller have? It hired local printers to make and ship customer orders; its sales personnel and operations remained outside Florida.

Were the printers treated as the seller's agents? No. The quoted statute specifically excluded a printer delivering its own printed material from that agency rule.

Did the merchandise at the printer count as Florida property? Not for the quoted nexus paragraph when it was the final printed product or property used to produce it at the contracted printer's premises.

Who owed tax if the seller deregistered? Florida customers owed use tax unless their purchase was otherwise exempt.

Could the printer make a tax-exempt sale for resale? Yes, when a qualifying nonresident print purchaser supplied the required certificate for printed goods intended solely for resale.

Citations and references

• Fla. Stat. § 212.0596(1), (2) (mail-order sales and the 2006 nexus provisions)
• Fla. Stat. § 212.06(5)(c) (nonresident print purchasers)
• Fla. Admin. Code rr. 12A-1.027(5), 12A-1.091(10) (printed goods and Florida delivery)
• Quill Corp. v. North Dakota, 504 U.S. 298 (1992), and Department of Revenue v. Share International, 676 So. 2d 1362 (Fla. 1996) (cases applied in the ruling)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06A-31

Original ruling text

SUMMARY
QUESTION: Does the taxpayer's activities in Florida create nexus?
ANSWER - Based on Facts Below: If Taxpayer's only activities in Florida are in fact, mail order sales and Taxpayer
does not have a physical presence as described herein, it could be said that Taxpayer does not have nexus and
cannot be required to remain registered to collect and remit Florida sales tax.

October 24, 2006

Re: Technical Assistance Advisement 06A-31
XX ("Taxpayer")
FEI#: XX
Sales Tax - Nexus
Sections 212.05, 212.0596, and 212.06, Florida Statutes
Rules 12A-1.027 and 12A-1.091, Florida Administrative Code
Dear:
This response is in reply to your letters dated July 13, 2006, and August 21, 2006, requesting the Department’s
issuance of a Technical Assistance Advisement ("TAA") pursuant to Section 213.22, F.S., and Rule Chapter 12-11,
F.A.C., regarding the Department's position concerning nexus. An examination of your letter has established that you
have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is
hereby granting your request for issuance of a TAA.
Facts and Taxpayer Position
Your letter of July 13, 2006, provides the following in pertinent part:
We are sending you this letter to respectfully request a technical assistance advisement on behalf of our client,
[Taxpayer], on whether their activities create nexus in Florida:
SUMMARY OF FACTS

1. [Taxpayer] is located in XX
2. [Taxpayer] hires printing companies in Florida on a job by job basis to print booklets or pens and then ship these
   products via third party common carrier to customers in Florida.
3. Sales staff works from XX via phone and e-mails to arrange transactions. [Taxpayer] does not have sales

representatives including independent contractors in Florida.

4. [Taxpayer] does not maintain an office in Florida or have property (except for merchandise being printed) in Florida.
   DISCUSSION
   We contend that [Taxpayer] has not created nexus in Florida. It was decided in Quill v. North Dakota that an out-ofstate [Taxpayer] with no in-state physical presence could not be required to collect use tax on its in-state mail order
   sales. [Taxpayer] has no property or representation in Florida, therefore it has not created nexus and does not have
   the responsibility to collect sales or use tax from customers.

You also provided copies of purchase orders and invoices for review. In addition, Taxpayer is currently registered to
collect Florida sales tax.
Requested Advisement
You ask if Taxpayer's activities create nexus in the State of Florida.
Applicable Authority
Section 212.05, F.S., provides in part:
It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the
business of selling tangible personal property at retail in this state, including the business of making mail order sales
, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or
consumption in this state any item or article of tangible personal property as defined herein and who leases or rents
such property within the state.... (Emphasis Supplied)
Section 212.0596, F.S., provides in part:
(1) For purposes of this chapter, a "mail order sale" is a sale of tangible personal property, ordered by mail or other
means of communication, from a dealer who receives the order in another state of the United States, or in a
commonwealth, territory, or other area under the jurisdiction of the United States, and transports the property or
causes the property to be transported, whether or not by mail, from any jurisdiction of the United States, including this
state, to a person in this state, including the person who ordered the property.
(2) Every dealer as defined in s. 212.06(2)(c) who makes a mail order sale is subject to the power of this state to levy
and collect the tax imposed by this chapter when:
(a) The dealer is a corporation doing business under the laws of this state or a person domiciled in, a resident of, or a
citizen of, this state;

(b) The dealer maintains retail establishments or offices in this state, whether the mail order sales thus subject to
taxation by this state result from or are related in any other way to the activities of such establishments or offices;
(c) The dealer has agents in this state who solicit business or transact business on behalf of the dealer, whether the
mail order sales thus subject to taxation by this state result from or are related in any other way to such solicitation or
transaction of business, except that a printer who mails or delivers for an out-of-state print purchaser material
the printer printed for it shall not be deemed to be the print purchaser's agent for purposes of this paragraph;
(Emphasis Supplied)
(d) The property was delivered in this state in fulfillment of a sales contract that was entered into in this state, in
accordance with applicable conflict of laws rules, when a person in this state accepted an offer by ordering the
property;
(e) The dealer, by purposefully or systematically exploiting the market provided by this state by any media-assisted,
media-facilitated, or media-solicited means, including, but not limited to, direct mail advertising, unsolicited distribution
of catalogs, computer-assisted shopping, television, radio, or other electronic media, or magazine or newspaper
advertisements or other media, creates nexus with this state;
(f) Through compact or reciprocity with another jurisdiction of the United States, that jurisdiction uses its taxing power
and its jurisdiction over the retailer in support of this state's taxing power;
(g) The dealer consents, expressly or by implication, to the imposition of the tax imposed by this chapter;
(h) The dealer is subject to service of process under s. 48.181;
(i) The dealer's mail order sales are subject to the power of this state to tax sales or to require the dealer to collect use
taxes under a statute or statutes of the United States;
(j) The dealer owns real property or tangible personal property that is physically in this state, except that a dealer
whose only property (including property owned by an affiliate) in this state is located at the premises of a
printer with which the vendor has contracted for printing, and is either a final printed product, or property
which becomes a part of the final printed product, or property from which the printed product is produced, is
not deemed to own such property for purposes of this paragraph; (Emphasis Supplied)
(k) The dealer, while not having nexus with this state on any of the bases described in paragraphs (a)-(j) or paragraph
(l), is a corporation that is a member of an affiliated group of corporations, as defined in s. 1504(a) of the Internal
Revenue Code, whose members are includable under s. 1504(b) of the Internal Revenue Code and whose members
are eligible to file a consolidated tax return for federal corporate income tax purposes and any parent or subsidiary
corporation in the affiliated group has nexus with this state on one or more of the bases described in paragraphs (a)-(j)
or paragraph (l); or
(l)The dealer or the dealer's activities have sufficient connection with or relationship to this state or its residents of

some type other than those described in paragraphs (a)-(k) to create nexus empowering this state to tax its mail order
sales or to require the dealer to collect sales tax or accrue use tax.
Section 212.06(2)(c), F.S., provides:
(c) The term "dealer" is further defined to mean every person, as used in this chapter, who sells at retail or who offers
for sale at retail, or who has in his or her possession for sale at retail; or for use, consumption, or distribution; or for
storage to be used or consumed in this state, tangible personal property as defined herein, including a retailer who
transacts a mail order sale.
Rule 12A-1.091(10), F.A.C, provides:
(10) If a Florida manufacturer sells taxable merchandise to an unregistered out-of-state dealer, but delivers it to the
out-of-state dealer's customer in Florida, he shall collect tax from the out-of-state dealer, who, being unregistered, is
unable to furnish a resale certificate.
Section 212.06(5)(c), provides:
(c) Notwithstanding the provisions of paragraph (a), it is not the intention of this chapter to levy a tax on the sale by a
printer to a nonresident print purchaser of material printed by that printer for that nonresident print purchaser when the
print purchaser does not furnish the printer a resale certificate containing a sales tax registration number but does
furnish to the printer a statement declaring that such material will be resold by the nonresident print purchaser.
Rule 12A-1.027(5)(a), F.A.C., provides:
(5)(a) Sales to a nonresident print purchaser for printing of tangible personal property are not subject to tax. A
"nonresident print purchaser" is an out-of-state purchaser who is not required to be registered with the Department as
a dealer under the provisions of s. 212.0596(2), F.S., and is purchasing printing of tangible personal property in this
state. Thenonresident print purchaser is required to furnish to the selling printer (dealer), at the time of sale, a
certificate stating that the printed material purchased will be resold by the nonresident print purchaser and that the
nonresident print purchaser is not required to register as a dealer with the Department under the provisions of s.
212.0596(2), F.S.
(b) The following is a suggested format of an exemption certificate to be completed by the nonresident print purchaser
and presented to the selling printer (dealer) at the time of sale:
EXEMPTION CERTIFICATE
PRINTED MATERIAL PURCHASED BY A NONRESIDENT PURCHASER
Name of Printer:_______
Address of Printer:____(Street) ___(City) ___
(State)

This is to certify that all tangible personal property purchased after _ (date) by the undersigned purchaser
of printed material, who is not a dealer required to obtain a certificate of registration with the Florida Department of
Revenue under the provisions of s. 212.0596(2), F.S., from the above named Florida printer, is printed material
purchased for resale by the undersigned print purchaser and for no other purpose.
Under the penalties of perjury, I declare that I have read the foregoing Printed Material Exemption Certificate, and the
facts stated in it are true. Name of Nonresident Print Purchaser: ___ Address of
Purchaser:__ (Street)
____ (City) ___ (State)
Federal Identification Number: _______

(Signature of Authorized

Date

Representative)
This certificate shall be considered a part of each order the Print Purchaser gives to the printer named above.
Response
It is a settled principle that visible territorial boundaries will not always establish the limits of a state's taxing power or
jurisdiction. The courts have turned to the activities of out-of-state dealers to establish the necessary ties between the
out-of-state dealer and the taxing state. To this extent, "nexus" is any activity, relationship, connection, link, or
business activity that must be present before a state has the right to impose a tax.
Due to the complexity and intricacies of the nexus issue, courts have dealt with nexus on a case-by-case basis,
relying heavily on the specific facts of each case.
Quill v. North Dakota, 504 U.S. 298 (1992), is the most recent statement by the United States Supreme Court
concerning the constitutionality of state imposition of sales and use tax collection obligations on mail order vendors.
The Quill decision removes the due process clause of the Constitution as a bar to such imposition so long as the
vendor's contacts with the state, no matter how minimal, are such that it has a fair warning its activity may subject it to
jurisdiction. The Court specifically stated that where there is widespread and continuous solicitation of business in a
state there is no requirement of any physical presence by the due process clause.
The major impediment to state imposition of sales and use tax obligations on mail order vendors, according to Quill, is
the commerce clause. While subject to congressional power to change the requirement, controlling judicial precedents
currently mandate that there be a substantial nexus between an interstate business and a state in order to support tax
jurisdiction. In Quill, the Court reaffirmed the requirement of National Bellas Hess, Inc. v. Department of Revenue
of Illinois, 386 U.S. 753 (1967), that there be some physical presence of the vendor before a state can maintain that
there is substantial nexus that will justify requiring the vendor to collect taxes from its mail order customers.

In Dept. of Revenue v. Share Int'l, 676 So.2d 1362 (Fla. 1996), a Texas manufacturer and supplier of chiropractic
supplies primarily sold its products through direct mail solicitation. However, for three days a year, employees of the
company were present in seminars and conventions held in the State. During the conventions, Share's products were
on display and available for sale. The Department audited Share and argued that the company "purposely availed
itself to Florida's economic market, that Share's contacts were not casual or random, and that Share came to Florida
for sales and showed a continuing pattern of physical presence in Florida at each of the seminars." Id.
The First District Court of Appeal concluded that "the presence in the state for approximately three days each year of
Share employees and products, under the circumstances presented in this case, does not establish a substantial
nexus which will permit the state to impose on Share the duty to collect and remit taxes on mail order sales to Florida
residents." Id.
The Florida Supreme Court agreed with the District Court "that the bright line test adopted in National Bellas Hess ...
only serves to clearly insulate from state taxation out-of-state vendors whose sole activities in the taxing state are
mail order sales." However, "[i]f such a company has additional connections to the taxing state, then those
connections must be analyzed under the ‘substantial nexus’ test discussed above." Dept. of Revenue v. Share Int'l,
676 So.2d 1362 (Fla. 1996) (Emphasis supplied).
Based on the preceding case law, substantial nexus can be established by having a physical presence in the state. A
physical presence is considered as the following: having employees, agents or representatives that sell or take orders,
solicit orders, deliver merchandise, accept payments, service merchandise, or represent Taxpayer in Florida through
some other activity; owning or leasing any tangible personal property or real property in Florida; or maintaining any
office or retail establishment that is physically located in Florida.
To conclude, if Taxpayer's only activities in Florida are in fact, mail order sales and Taxpayer does not have a physical
presence as described herein, it could be said that Taxpayer does not have nexus and cannot be required to remain
registered to collect and remit Florida sales tax.
When an out-of-state non-registered dealer purchases goods from a Florida manufacturer and directs the Florida
manufacturer to deliver the goods to its customer in Florida, Rule 12A-1.091, F.A.C., requires the Florida manufacturer
to collect tax from the out-of-state non-registered dealer, who being unregistered is unable to furnish a Florida resale
certificate. However, s. 212.06(5)(c), F.S., and Rule 12A-1.027, F.A.C., permit an out-of-state print purchaser, who
is not required to be registered, to extend an exemption certificate for the purchase of printed goods intended only
for resale.
Ultimately, if Taxpayer terminates its registration in the State of Florida, Taxpayer's Florida customers will be liable for
use tax on their purchases of printed goods from Taxpayer, unless otherwise exempt.
This response constitutes a Technical Assistance Advisement under Section 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 Section
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, 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,
Heather S. Miller
Senior Tax Specialist
Technical Assistance and Dispute Resolution
(850) 922-4835
HSM/lp
Ctrl# 23880