FL Sales Tax on Third Party Drop Shipments
Florida sales tax is, in general, a tax on the selling merchant that is required to be passed along to the purchaser of taxable items. This seems simple enough as a basic premise. However, the shift in the way people shop has created some kinks in a seemingly well settled rule. Law is not an area that is known for being quick to change, and sales tax law is no exception. As online shopping has prevailed and brick and mortar stores become less the norm, the rules must be interpreted to keep up with the change. In a recent TAA 15A-020, the issue of drop shipments, and associated record retention responsibilities, was raised.
A drop shipment is a simple transaction, with complicated tax consequences based on the location of the parties. The customer orders an item from a retailer. The retailer either does not have that item stock or, like many online retailers, does not have any inventory. The retailer will order the item from a third party manufacturer or wholesaler. The manufacturer/wholesaler then ships the item directly to the customer. The sale legally occurred between the retailer and the customer, but the shipment went from the manufacturer/wholesaler to the customer. If all the parties are in Florida, then the sales tax consequences are easy. The retailer will give manufacturer/wholesaler a resale certificate (no tax) and the retailer will collect sales tax from the customer based on the price the customer paid and the tax rare where the customer is located. Simple, no? However, the sales tax consequences get much more complicated if one or more of the parties are not in Florida.
The TAA addresses a scenario where both the manufacturer and the seller are outside Florida. Under Section 212.05, Florida Statutes. (“F.S.”), “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…” Here, the mail order sale was from the seller to the buyer, not from the manufacturer to the seller. So generally the seller would collect sales tax from the buyer and remit to the State of Florida. Per the TAA, because the seller in this particular set of facts is outside Florida, and the buyer is a Florida company, the sellers are not required to collect and remit the tax. Rather, the buyer must remit use tax on the invoice price of the purchase. The TAA goes on to note that in order to all the moving pieces of this transaction, the seller and manufacturer should maintain certain documentation. Specifically, the parties should maintain invoices that list the non-Florida dealer’s location, and common carrier destination point as that of the non-Florida dealer’s customer.
An interesting part of this TAA denotes that if the manufacturer is not in Florida, they have no obligation to check whether the seller is registered to collect tax in Florida. Presumably, because the manufacturer in this scenario is outside of the state, they are under no obligation to collect or remit Florida tax, so that burden will lie with either the seller or the buyer. Had the manufacturer been in Florida, and the seller been outside the state, the manufacturer would have been required to collect and remit the tax, because they would not have been able to get a valid resale certificate from their customer, and Rule 12A-1.091, Florida Administrative Code, dictates a manufacturer is required to collect sales tax from an out of state dealer who, being unregistered, is unable to furnish a valid resale certificate. The location of each player in this scenario plays a major role.
If your business drops ships, or uses drop shipping to supply customers in Florida, consulting a professional to identify the responsibilities of the parties upfront can save time and money long term. An audit in a scenario like the one described above can be very complicated, and time consuming. At the Law Offices of Moffa, Sutton, & Donnini, P.A. we represent taxpayers and business owners throughout the entire state of Florida, from Department of Revenue to County Property Appraisers and Tax Collectors. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help!
About the author: Amanda Levine is an associate attorney with Moffa, Gainor, & Sutton, P.A. Her primary practice area is Florida tax controversy. Ms. Levine received a B.S. in Accounting from University of Central Florida. She spent several years working in public accounting before attending Nova Southeastern University Law School. She received her Juris Doctorate in 2014. During her time at Nova Law, Ms. Levine was the Executive Justice of Academics for the Moot Court Honor Society, as well as the Finance Chair. She was awarded by the National Order of the Barrister, a national honor society which recognizes oral advocacy and brief writing skills. Read more about the author HERE.
AUTHORITY
TAA 15A-020 – Third Party Drop Shipments
Rule 12A-1.091 Florida Administrative Code – Self-Accrual Authorization; Direct Remittance on Behalf of Independent Distributors.
ADDITIONAL RESOURCES
FLORIDA NEXUS QUESTIONNAIRE - WHAT IS NEXUS FOR FLORIDA TAX?, published July, 7, 2012, by James Sutton, CPA, Esq. and Jerry Doninni, Esq.
AMAZON APPEALS CLICK-THRU-NEXUS TO US SUPREME COURT, published Aug 31, 2013, by Jerry Donnini, Esq
AMAZON STARTS CHARGING SALES TAX IN FLORIDA - MAY 1 2014, published May 2, 2014, by James Sutton, CPA, Esq