When are a Florida equipment seller's delivery and setup charges subject to sales tax?

Plain-English summary

A company sold and rented equipment and separately listed delivery and setup services. It said customers could arrange their own delivery or setup, but the agreements and invoices submitted to the Department did not actually state that delivery was optional. The sales terms also said the equipment price was F.O.B. at the company's location.

Florida divided the charges into three categories:

• Setup charges: Taxable when connected with equipment the company sold or rented. Installation of tangible personal property that does not become realty is included in the taxable price even if separately stated or optional.
• Combined delivery and setup: Fully taxable. Including taxable setup in one lump-sum charge with delivery made the entire combined amount taxable.
• Delivery alone: Taxable for the reviewed rentals because the written agreements and invoices did not establish that the customer could avoid delivery. But separately stated delivery on equipment sales was not taxable because the F.O.B.-origin term meant title passed at the company's location and transportation occurred after the sale.

The ruling applies the principle that a delivery charge generally falls outside the taxable sales price only when it is separately stated and the buyer can avoid it, or when an F.O.B.-origin sale establishes that title passed before transportation.

What this means for you

Setup and delivery need separate tax analysis

An optional setup service was still taxable when performed on equipment the company sold or rented. A delivery service may be exempt under the transportation rule, but combining it with setup can make the whole charge taxable.

Put the customer's delivery option in the documents

The taxpayer said customers had a choice, yet its agreements and invoices were silent. The Department relied on the written documents and taxed delivery on rented equipment. Contracts and invoices should clearly show any right to pick up the item or use a third-party carrier.

F.O.B. origin can support nontaxable delivery

For equipment sales, the contract stated that the price was F.O.B. at the company's location. Because title passed at origin and delivery was separately stated, the Department excluded the delivery charge from the taxable sales price.

Do not bury taxable setup in a transportation line

The ruling says a lump-sum delivery-and-setup charge is taxable regardless of whether the customer can avoid the fee. Separate invoicing does not make the setup portion exempt, but it prevents that taxable service from contaminating an otherwise qualifying delivery charge.

Common questions

Q: Is an optional equipment setup charge taxable in Florida?
A: Yes, under this ruling, when the setup is performed on equipment the company sells or rents and the equipment remains tangible personal property.

Q: What if delivery and setup are billed together?
A: The whole lump-sum charge is taxable because it includes taxable setup.

Q: Why was delivery on rented equipment taxable?
A: The agreements and invoices did not say that customers could avoid delivery, so the Department treated the transportation charge as part of the taxable transaction.

Q: Why was delivery on sold equipment not taxable?
A: The sales terms were F.O.B. at the company's location, which placed passage of title at origin, and the delivery charge was separately stated.

Citations and references

• Fla. Stat. § 212.02(16) (sales price includes services that are part of the sale)
• Fla. Stat. § 212.05 (tax on sales of tangible personal property)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)
• Fla. Admin. Code r. 12A-1.045(1)-(6) (transportation charges, optionality, and F.O.B.-origin sales)
• Fla. Admin. Code r. 12A-1.016(3)(a) (taxability of installation charges)
• Department of Revenue v. B & L Concepts, Inc., 612 So. 2d 720 (Fla. 5th DCA 1993) (optional separately stated delivery charges)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-018

Original ruling text

SUMMARY
QUESTION: Are the delivery and setup fees charged by the Taxpayer subject to sales tax?
ANSWER: The setup fee charged on equipment that the Taxpayer sells or rents to customers is subject
to Tax. When the setup fee is included as a part of the charge for delivery, then the lump sum amount
charged for delivery and setup is subject to tax. Since the Taxpayer’s sales agreements and invoices are
both silent regarding whether the customer has an option regarding the delivery of the equipment that is
rented, charges for delivery of rented equipment are subject to tax. Since terms on the Taxpayer’s sales
agreements, for equipment that is sold to customers, provides that the stated price is F.O.B. at the
Taxpayer’s company location stated on the contract, the separately stated delivery charges made by the
Taxpayer for the sale of equipment are not subject to tax.
April 3, 2009
XXX
Re:

Technical Assistance Advisement 09A-018
Sales & Use Tax – Delivery Charges
Sections: 212.02(16) and 212.05, Florida Statutes (F.S.)
Rule: 12A-1.045, Florida Administrative Code (F.A.C.)
Petitioner: XXX (herein Taxpayer)
Taxpayer ID Number: XXX

Dear XXX:
This letter is a response to your petition dated July 18, 2008, for the Department's issuance of a
Technical Assistance Advisement ("TAA") concerning the above referenced party and 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.A.C. This response to your request
constitutes a TAA and is issued to you under the authority of s. 213.22, F.S.
FACTS
The Taxpayer sells and rents XXX equipment. Orders can be placed by customer walk-in, through the
mail, over the counter, or as the result of a company salesman’s contact. The company operates from
various locations within the State and from out-of-state locations having activity in Florida. In our
telephone conversation on August 13, 2008, the Taxpayer indicated that it was not currently under
audit by the Department.
The Taxpayer offers delivery and/or setup of the equipment that it sells and/or rents. These services
(delivery and/or setup) can be contracted for in addition to a current sale or rental transaction, or just as
a service on setting up XXX that the customer already has. The Taxpayer states that its customers
have the choice of having the Taxpayer provide these services, contracting with a third party to
provide these services, or the customer may provide their own delivery and/or setup of the XXX. The
Taxpayer’s charges, for both of these services, are listed as separate line items on its invoices.

Technical Assistance Advisement
Page 2
REQUESTED ADVISEMENT
Advice is requested on the taxability of the delivery and setup fees charged by the Taxpayer.
LAW AND DISCUSSION
Section 212.05, Florida Statutes, imposes tax on the sale of tangible personal property. The tax is
based on the sales price of the tangible personal property sold. The term “sales price” is defined in
Section 212.02(16), Florida Statutes, to mean in pertinent part “the total amount paid for tangible
personal property, including any services that are a part of the sale.”
Rule 12A-1.045, Florida Administrative Code, discusses the sales tax as it relates to transportation
charges, and it states in pertinent part as follows:
(1) "Transportation charges" include carrying, delivery, freight, handling, pickup, shipping, and
other similar charges or fees.
(2) Transportation charges which are not separately stated on an invoice or bill of sale, but are
included in the sales price of taxable tangible personal property, are subject to tax.
(3)(a) Where the seller agrees to deliver tangible personal property to some designated place
and the purchaser cannot elect to avoid the charge for transportation services, the charge for the
transportation service is subject to tax, even if separately stated on an invoice or bill of sale.

(4)(a) The charge for transportation services is not subject to tax when both of the following
conditions have been met:

1. The charge is separately stated on an invoice or bill of sale; and
2. The charge can be avoided by a decision or action solely on the part of the
   purchaser. (See subsection (5) for shipping of tangible personal property F.O.B. origin.)

(5) If the seller contracts to sell tangible personal property F.O.B. origin, the title to the
property passes at the point of origin. Since the title to the property passes at the point of origin,
transportation services arranged by the seller and rendered to the buyer are not a part of the
taxable selling price, provided the transportation charges are separately stated. Where the
transportation charges are billed by the seller to the buyer, but documentation is inadequate to
establish the point at which title passes to the buyer, it is presumed that the tangible personal
property was sold F.O.B. origin and the title to the property passes at the point of origin. In
such instances, the transportation charges are not considered a part of the selling price of the
property, if separately stated.

Technical Assistance Advisement
Page 3

(6) When the purchaser of taxable tangible personal property contracts with a third party carrier
at the purchaser's option and pays transportation charges thereon directly to the third party
carrier, such transportation charges are not subject to tax.
The rule is consistent with the position taken by the court in Department of Revenue v. B&L Concepts,
Inc., 612 So.2d 720 (Fla. 5th DCA 1993), where the court held that separately stated delivery charges
that are imposed only at the option of the purchaser, and that are incidental to the sale of tangible
personal property, are not includable in the taxable sales price of tangible personal property sold.
B & L Concepts, supra., did not address the taxability of installation charges. Rule 12A-1.016(3)(a),
Florida Administrative Code, discusses the taxable status of installation charges, and it states as
follows:
The total consideration received for labor or services used in installing tangible personal
property which is sold and does not become a part of realty, is taxable even though such charge
may be separately stated.
Therefore, installation (set up) charges are taxable when sold with taxable tangible personal property
regardless whether the installation charges are separately stated or optional to the purchaser.
The documents provided by the Taxpayer for review were silent regarding whether the Taxpayer’s
customer has the option of picking up the equipment either under a rental or sales contract. The option
of delivery and/or set up charges is not mentioned in the terms of the contract or on the Taxpayer’s
invoices provided for review. In addition, none of the invoices provided contained a charge for set up.
Under the “Additional Sales Terms and Conditions” of the Taxpayer’s Rental and Sales Agreements,
“Sales Price” is stated as follows:
The EQUIPMENT is sold at published branch prices in effect at the time of shipment plus all
applicable local, State and Federal taxes, unless otherwise specified in writing. Unless
otherwise stated the stated price is F.O.B. at the COMPANY location stated on the reverse side
hereof.
CONCLUSION
The fee charged by the Taxpayer for set up of equipment that it sells or rents to its customer is subject
to tax. When the set up fee is included as a part of the charge for delivery, then the lump sum amount
charged for delivery and set up is also subject to tax, regardless of whether the customer is given an
option to avoid the fee. Since the sales agreement and invoices are both silent regarding whether the
customer has an option regarding the delivery of equipment that is rented, charges for the delivery of
rented equipment are subject to tax.
Regarding equipment sold by the Taxpayer, the term “F.O.B.” is an abbreviation for “free-on-board”
and means that the seller will deliver the subject matter contracted for, on certain conveyance, without

Technical Assistance Advisement
Page 4
expense to the buyer. In sales price quotations, it generally means that the seller assumes all
responsibilities and costs up to the point of delivery, including insurance and transportation. As
indicated under the terms of the Taxpayer’s Sales and Rental Agreements, “the stated price is F.O.B. at
the Company location stated on the contract.” Accordingly, for equipment that is sold by the Taxpayer
to its customer, the separately stated delivery charges are not considered a part of the sales price and
are not taxable.
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
Section 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 10 days of the date of this letter.
If you have any further questions with regard to this matter and wish to discuss them, you may contact
me directly at (850) 922-4727.
Sincerely,

Horace Royals
Senior Tax Specialist
Technical Assistance & Dispute Resolution
Record ID:
48436