FL SALES TAX vs SHIPPING – TRANSPORTATION CHARGES
Tax laws dealing with whether shipping, handling, and transportation charges are included in the sales price for sales and use tax purposes are confusing and changes from state to state. "Are shipping charges subject to Florida sales tax" is a question our law firm gets asked regularly and the purpose of the article is to discuss when shipping and transportation charges can be exempted from Florida Sales Tax – and when you cannot avoid the sales tax. As both the vendor and the purchaser are jointly and severally liable for the tax, both parties will need to understand the answer.
Florida subjects all sales of tangible personal property to Florida sales and use tax unless state law provides some type of exemption. The state 6% tax rate (plus the local surtax) is multiplied times the sales price to determine the sales or use tax that must be charged by the seller to the customer and remitted to the state. The question is whether shipping and transportation charges paid by the customer are supposed to be included in the sales price.
Whenever I think of this question, I always think of those TV advertisements selling a new and improved product, say a mop for only $9.99, with very small print on the bottom of the screen reflecting a $19.99 shipping and handling charge. So the price you pay is really 3 times the amount that the TV commercial purports the sales price to be. Is there really any question that the shipping and handling charge is actually part of the sales price for the mop? Apparently, the Florida Department of Revenue considered the same type of shenanigans when drafting the rules for shipping charges because there is a strong presumption under Florida law that shipping and handling is included in the sales price for sales tax calculation purposes. If there was not such a presumption, then what would stop someone for selling the new and improved mop for $1 and have a $28.99 shipping and handling charge unconditionally imposed to lower the sales tax the customer would have to pay? From this example, you can see why the presumption of taxability exists.
There are effectively three ways that the shipping and transporting can be exempted from Florida sales tax. (1) The shipping is optional to customer, (2) the customer must take title to the property before the item is shipped, or (3) the customer arranges and pays for shipping directly to the shipper. Otherwise, the presumption that the shipping and transportation charge is included in the sales price controls. I will discuss each of this concepts in more detail below.
NOTE: shipping/transportation charges include carrying, delivery, freight, handling, pickup, shipping, and other similar charges and fees.
OPTIONAL SHIPPING CHARGES
If the purchaser cannot elect to avoid the shipping/transportation charge, then the charge for transportation is subject to sales tax, even if separately stated on the invoice. This presumption is created to stop someone from pushing part of the purchase price into the selling price, just to avoid tax. However, if the shipping charge meets both the following conditions, then it is not subject to sales tax:
- The charge is separately stated on a bill or invoice; and
- The charge can be avoided by a decision or action solely on the part of the purchaser.
These conditions are provided for in Rule 12A-1.045, Florida Administrative Code (FAC) (link to the rule provided for at the end of this article). What the rule does not tell you is that the auditors are trained to let the exemption apply if the seller allows the shipping to be optional to ANY customers when auditing the seller. Similarly, if the purchaser is being audited, then the purchaser should contact the seller to get proof that the seller has allowed some purchasers to avoid the shipping charging during the period under audit. These are both handy facts to keep in the back of your pocket if you are ever audited for sales tax purposes. If you are the seller, then it would be worth it to put something in your invoices that mentions the shipping charges are optional.
FBO ORIGIN
If the contract for the purchase of goods provides that the customer takes title to the goods immediately when the good leaves the vendor's business (aka "FBO Origin"), then neither sales tax nor use tax is due on the shipping charge - if the shipping charge is separately stated. The logic is that the customer owns the goods at the time of shipment, so the shipping cost is born by the customer separate from the cost of the good. Rule 12A-1.045 takes it one surprising step farther by providing that if the documents are unclear when the customer takes title to the goods, then it will be presumed that the contract is FBO Origin and that sales tax is not due on separately stated shipping charges – another handy rule to know in this area of Florida tax law.
CUSTOMER ARRANGES FOR SHIPPING
If the customer arranges for transportation and pays for transportation directly to the shipper, then the purchase price does not include sales tax. This is effectively as "optional" of a shipping charge as you can get. From the vendor's point of view, it is might surprise some businesses that the vendor should get a copy of the shipping documents in this situation. This is because any shipment going out of state may not require the vendor to collect sales tax on the whole purchase price (while the purchaser may still be required to pay use tax in the state of destination). If the vendor cannot prove that the shipment left the state, then the vendor will likely be liable for the sales tax on the whole purchase price because an auditor will presume it is an in-state sale.
I hope this answers your question on whether your shipping charges are subject to Florida sales tax. You'll note that there are likely planning opportunities to lower your sales tax burden on a transaction if one considers these rules before the transaction happens. If you have any questions, then please do not hesitate to contact me. I have a very liberal free initial consultation policy and would be glad to answer your questions. Our firm does almost nothing but fight the Florida Department of Revenue in Florida sales and use tax matters – and we love what we do.
About the author: Mr. Sutton is a Florida licensed CPA and Attorney and a shareholder in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Sutton's primary practice is Florida tax controversy, with an almost exclusive focus on Florida sales and use tax. Mr. Sutton worked for in the State and Local Tax department of one of the Big Five accounting firms for a number of years and has been an adjunct professor of law at Stetson University College of Law since 2002 teaching State and Local Tax and at Boston University College of Law since 2014 teaching Sales and Use Tax. Mr. Sutton is a frequent speaker on Florida sales and use taxes for the FICPA, Lorman Education, NBI, and the Florida Society of Accountants. Mr. Sutton is co-author of CCH's Sales and Use Tax Treatise and is the State and Local Tax Chairman for American Association of Attorney – Certified Public Accountants. You can read more about Mr. Sutton in his firm bio.
AUTHORITY
RULE 12A-1.045 TRANSPORTATION CHARGES
ADDITIONAL RESOURCES
FL SALES & USE TAX MACHINERY & EQUIPMENT EXEMPTION SIGNED INTO LAW - FINALLY!, published May 21, 2013, by James Sutton, CPA, Esq.
FLORIDA NEXUS QUESTIONNAIRE - WHAT IS NEXUS FOR FLORIDA TAX?, published July 7, 2012, by James Sutton, CPA, Esq., and Jerry Doninni, Esq.
WHAT SERVICES ARE SUBJECT TO SALES TAX IN FLORIDA?, published May 1, 2012, by James Sutton, CPA, Esq.
7,000 TAX WARRANTS ISSUED IN ERROR – GOV SCOTT TOO, posted May 23, 2014, by James Sutton, CPA, Esq.
FL DOR USES "CALLZILLA" TO HARRASS TAXPAYERS, published July 28, 2013, by James Sutton, CPA, Esq.