Were separately itemized pipeline charges for delivered natural gas taxable in Florida?

Subject

Delivery Charges Associated with the Sale of Natural Gas

Plain-English summary

The separately itemized pipeline charges were taxable as part of the natural gas sale. The buyer chose one vendor to provide both the gas and transportation, and title passed at the Florida delivery point.

The Department found delivery integral rather than optional on those contract facts. Separate invoicing did not remove the charge from sales price. It also said that if title passed outside Florida, transportation would still be included in cost price.

What this means for you

Separately stating freight or transportation did not control. The ruling focused on what the seller was obligated to deliver, where title passed, and whether the buyer was paying for one delivered product.

Common questions

Q: Did separate invoicing make the delivery charge nontaxable? No.

Q: Where did title pass? At the city-gate delivery point in Florida.

Q: What if title passed outside Florida? The Department said transportation still entered the total cost price.

Citations and references

• Fla. Stat. § 212.02(4) — cost price includes transportation and service costs
• Fla. Stat. § 212.02(16) — sales price includes services that are part of the sale
• Fla. Stat. § 212.05 — sales tax
• Fla. Admin. Code r. 12A-1.045 — transportation charges
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-023

Original ruling text

SUMMARY

QUESTION: Are transportation charges for the delivery of
natural gas purchased from an out of state vendor taxable,
even though the charges are separately itemized?

ANSWER - Based on Facts below: The transportation charges
are taxable even though separately itemized on the sales
invoice. When title passes to the purchaser in Florida, the
sales price includes the transportation charge.

May 05, 2000

Re: Technical Assistance Advisement 00A-023
Sales and Use Tax - Delivery Charges Associated with the
Sale of Natural Gas
XXX ("Taxpayer")
FEI Number: XX
Sections 212.02, and 212.05, F.S.
Rule 12A-1.045, F.A.C.

Dear :

This response is in reply to your letter dated October 8, 1999,
requesting the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S., and Chapter
12-11, F.A.C., regarding the referenced matter and parties. An
examination of your petition 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.

ISSUE

Whether separately itemized transportation charges associated
with the delivery of natural gas purchased from an out-of-state
vendor are subject to sales tax.

FACTS

The Taxpayer is a for-profit healthcare service provider owning
and operating hospitals and related medical facilities
throughout the United States and abroad. In 1997, the Taxpayer
negotiated a contract with a provider of natural gas for the
purchase and delivery of the gas to its facilities in Florida.
The contract provides in part that, "Seller shall have the sole
responsibility for transporting the Gas to the Delivery Point(s)
and for delivering such Gas at a pressure sufficient to effect
such delivery but not to exceed the maximum operating pressure
of the receiving Transporter."

The contract also provides that title to the gas passes from the
vendor to the buyer at the delivery point. The delivery point
is the "City Gate," which is located in Florida. The transport
service to the delivery point is provided by an interstate
pipeline carrier which is regulated by the Federal Energy
Regulatory Commission (FERC). The natural gas is transported
into Florida via the Florida Gas Transmission (FGT), which is
deemed a common carrier with open access. Any agency, marketer,
or utility may obtain capacity rights through the capacity
release, bidding and auctioning process mandated by the FERC.
Before entering the contract, the Taxpayer had the option of
purchasing the natural gas from the vendor and obtaining the
transportation services from another. The Taxpayer elected to
purchase both the gas and the delivery service from the same
vendor. The vendor invoices the transportation charges
separately from the natural gas charges.

You state in your letter that in today's deregulated
environment, the sale of natural gas may be handled by one
company, with the transportation services being provided by
either the same company or a totally separate entity. The
consumer has the option to select between multiple vendors in
order to minimize its energy costs. You state that the Taxpayer
has taken advantage of this cost savings opportunity through
reviewing all of its options for the purchase of natural gas and
the associated cost of delivery. In 1997, The Taxpayer elected
to purchase both the gas and the delivery service from one
vendor. You also state that, while not a practical approach,

you have the right to have the gas liquified and transported by
tankers.

LAW

Pursuant to Section 212.05, F.S., sales tax is imposed on the
sales price of tangible personal property. Section 212.02(16),
F.S., defines the term "sales price" to mean "... the total
amount paid for tangible personal property, including any
services that are a part of the sale, valued in money, whether
paid in money or otherwise...." Section 212.02(4), F.S.,
defines the term "cost price" as the actual cost of articles of
tangible personal property without any deductions therefrom on
account of the cost of materials used, labor or service costs,
transportation charges, or any expenses whatsoever. Here the
delivery of natural gas is integral to the acquisition of the
tangible personal property.

DETERMINATION

It is our determination that delivery charges associated with
the sale of natural gas purchased from an out-of-state vendor
and transported via the FGT are taxable. It is our finding
that, in this set of facts, the delivery charge is part of the
sales price and is not an optional service. When title passes
to the Taxpayer in Florida, the Taxpayer is paying for the total
cost of the delivered product, inclusive of the transportation
charge, whether or not such charge is stated separately on the
invoice.

If title to the gas is accepted by the Taxpayer outside Florida,
tax is payable on the total cost price which, as defined in
Section 212.02(4), F.S., includes the transportation charge.

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 and
administrative rule changes or that 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,

Richard R. Parsons
Tax Law Specialist
Technical Assistance & Dispute Resolution
(850) 922-4838

Ctrl. No. 39199