Did one annual customer visit or the described drop shipments create Florida sales-tax nexus?

Plain-English summary

An out-of-state wire-and-cable distributor had no Florida property, inventory, employees, representatives, or agents. Its only direct Florida contact was one employee's 12-hour visit to one customer, during which no order was taken.

Under its 2005 analysis, Florida treated that visit as inconsequential and found it did not create nexus. The Department also said nexus was not created merely because an out-of-state manufacturer shipped goods to the distributor's Florida customer, even when the manufacturer had Florida nexus. A vendor's shipment from a Florida location likewise would not create nexus by that act alone.

The ruling separately explained that a Florida manufacturer shipping to the Florida customer would have to collect tax from the unregistered distributor unless the distributor supplied a resale certificate. Approximately $5,000 already collected from customers had become state funds and had to be reported as a one-time remittance rather than refunded.

What this means for you

This ruling turned on a narrow 2005 fact pattern and expressly treated the shipment acts as insufficient only "by themselves" or "alone." It should not be read as a current nexus safe harbor or as approval of additional Florida activities.

Common questions

Did the annual Florida visit create nexus? No. The one 12-hour customer visit, with no sales orders taken, was considered inconsequential.

Did the described shipments create nexus by themselves? No. The ruling reached that result for shipments by an out-of-state manufacturer and for a vendor's shipment from a Florida location.

Could tax still apply to a Florida-origin shipment? Yes. Without the distributor's resale certificate, the Florida manufacturer would have to collect Florida sales tax on its sale to the distributor.

Could the distributor refund tax it had already collected? No. The Department said collected sales tax became state funds at collection and should be reported as a one-time remittance.

Citations and references

• Fla. Stat. § 212.05 (taxable sales and mail-order sales)
• Fla. Stat. § 212.06 (dealers and imported property)
• Fla. Admin. Code r. 12A-1.091 (use tax and drop shipments)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-045

Original ruling text

SUMMARY
QUESTION: Does the taxpayer's activities in Florida create nexus?
ANSWER - Based on Facts Below: If the taxpayer's only physical contact with the State of Florida is a once a year
visit to one customer, where no sales orders are taken, then the one visit would be considered inconsequential and
not create nexus.

November 2, 2005

Re: Technical Assistance Advisement 05A-045
XXX ["Company"]
Sales Tax - Nexus
Sections 212.05, 212.06, F.S.
Rule 12A-1.091, F.A.C.
Dear:
This response is in regard to your petition requesting the Department's issuance of a Technical Assistance
Advisement pursuant to s. 213.22, F.S., and Chapter 12-11, F.A.C., regarding the above referenced matter.
You are seeking guidance on the sales tax obligations that may be applicable to your out-of-state company. Your
letter provides in pertinent part:
[Company] is a specialty distributor of electrical Wire and Cable (W&C) primarily to electrical contractors. The
company was incorporated in [State A] as an S-Corp.... for the purposes of acquiring substantially all of the assets
(including the name) of a predecessor company.... The Company has only two locations, its headquarters in [State A]
and a sales office in [State B]. The Company maintains a small amount of stock in its only warehouse at the
headquarters location.
[Company] buys W&C products from roughly 40 different sources located around the country. It then resells the same
product for use in construction and maintenance projects. Products are ordered using a combination of phone, fax and
emails and are almost never ordered in person. Roughly 97% of the product ordered is shipped using third party
freight lines directly from vendors of the Company (W&C manufacturers) to customers of the Company (contractors).
The remaining 3% is warehouse stock maintained by [Company] at the [State A] headquarters. [Company] does not
own trucks or vans for the delivery of material and relies totally on third party freight carriers.
The W&C sold by [Company] is used most frequently in the construction and maintenance of industrial plants, public
transit projects, power generating and transmission facilities and large public buildings. Many projects are tax exempt
due to the nature of the project's ownership (e.g. transit authorities, public universities, building authorities).

[Company] completes some sales to customers either working in or domiciled in Florida. The vast majority of W&C
product supplied to the Company's customers for use in Florida is purchased by contractors from their headquarters in
other states. The majority of the cable sold to our main Florida customer has been for work in other states.
...
The Company's Florida business activities indicate nexus has not been established [Company] does not, and has
never maintained a physical presence in Florida. It has never owned or leased any property, held inventory or
materials in Florida, nor has it had any employees, representatives, brokers, agents or other representation present in
Florida. Occasionally, an employee of the Company may travel to Florida to visit a customer. Since January 14, 2005,
one such visit has occurred to a single customer, lasting a total of 12 hours over a weeknight. The company has not
attended a trade show or any networking event in Florida, and does not intend to do so. No order was taken.
[Company] purchases W&C product from one manufacturer headquartered in Florida. The specific product purchased
has only one customer, a California based manufacturer of liquid natural gas compressors. The Company has
purchased cable from this vendor only for shipment to a manufacturing company in California. The total amount of this
order is approximately 0.4% of the Company's annual revenue.
...
The attached copies of two original documents illustrate a typical transaction completed by the Company. The
purchase order (Exhibit #1) from [Company] to its vendor,..., lists the customer's [Florida] shipping address as the ship
to address. [Vendor] manufactured the cable in [State C] and shipped it either from NY or TN. [Customer] is
headquartered in [State A]. The invoice from [Vendor] (Exhibit #2) shows the same ship to address and the cost of
freight paid by [Vendor] to ship the product direct. [Vendor] uses a lock box in [State D] for collection of accounts
receivable.
[Company] did not see the product and relied completely on its vendor..., the vendor's freight company and the
customer... for delivery and acceptance of the cable. No representative of [Company] has ever visited the customer's
site in [Florida]. The transaction was completed using phone, fax and email. At no time did representatives of the three
parties involved ([Vendor], [Company] or [Customer]) meet in person.
Attempting to fulfill its obligations, [Company] did collect sales tax on the transaction (see request for clarification #1
below) and is prepared to return the tax to the customer for remittance to Florida pending a favorable assessment of
this request.
...
In an attempt to comply with its obligations, [Company] began collecting sales tax for sales in Florida, under the
assumption that a sales tax number would be quickly forthcoming and that the Company would have an obligation to
collect and remit sales tax. From January 14, 2005 through September 16, 2005, [Company] collected roughly $5,000
in sales tax from three customers on sales of approximately $78,000. The money is accounted for and well
documented in a separate account. In the event the FL DOR validates the Company's belief that it has not established
nexus, the Company will refund the tax to the three customers and direct them to remit the tax to the [S]tate. In the
event the State concludes that nexus has been established, [Company] will obtain a FL sales tax ID and remit the tax
in the first return filed.

At the advice of the FL DOR, the Company will continue to collect and hold sales tax on sales to customers in FL until
it receives a TAA.
Additional request for clarification #2.
[Company] notes that one vendor of the Company maintains a warehouse facility In Florida which contains building
wire (wire and cable for general building projects, not for industrial projects). [Company] is not in the building wire
market - a volume and rebate driven market. The Company's customers buy building wire at a lower cost from [a local
vendor] than the Company could if it bought directly from building wire manufacturers. [Company] does not, and has
not purchased building wire from this warehouse and does not anticipate ever doing so.
[Company] believes purchasing industrial cable from this vendor's other locations to be then delivered in Florida does
not establish nexus in Florida. [Company] requests a TAA confirming this belief. Additionally, [Company] requests a
TAA on whether the Company would create nexus if it ever did ship W&C from this vendor's FL warehouse. While this
is extremely unlikely and has never happened in the 20 year history of the predecessor company, it would be helpful
to know if such a shipment would create nexus so that the Company could insist that the vendor ship from one of its
other locations.
...
It appears that the TAA OOA-021, issued April 25, 2000, supports the Company's assertion that its actions have not
established nexus. The Florida Supreme Court ruling in Department of Revenue v. Share Int'l: 676 So.2d 1362
(Florida 1996) further supports the Company’s position. The Company is not aware of any TAA, legislation or court
ruling which might indicate nexus has been established.
LAW and DISCUSSION
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....
Section 212.06(2)(b), F.S., provides:
(b) The term "dealer" is further defined to mean every person, as used in this chapter, who imports, or causes to be
imported, tangible personal property from any state or foreign country for sale at retail; for use, consumption, or
distribution; or for storage to be used or consumed in this state.
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. It was established in the U.S. Supreme Court case Scripto v. Carson
, 362 U.S. 207 (1960), that sufficient nexus exists to create a sales or use tax obligation on the part of a taxpayer
when independent contractors or agents solicit or conduct business in a state on behalf of the out-of-state business.
The reasoning of the Scripto court was followed in the more recent matter of Tyler Pipe Inds. v. Dept of Revenue, 483
U.S. 232, 97 L. Ed. 2d 199, 107 S. Ct. 2810 (1987), wherein the U.S. Supreme Court affirmed the findings of the
Washington Supreme Court that the activities of Tyler Pipe's independent representatives in the host state, which
resulted in improved name recognition, market share, goodwill, and individual customer relations, did constitute a
substantial nexus. In Tyler Pipe, the U.S. Supreme Court reiterated its sentiments in Scripto, that the distinction
between employees and independent representatives is so fine that it is without constitutional significance.
With regard to drop shipments Rule 12A-1.091, F.A.C. provides in part:
...
(7) Under s. 212.06(1), F.S., use tax is imposed upon the cost of tangible personal property imported into this state for
use, consumption, distribution, or storage for use or consumption in this state, after it has come to rest and has
become a part of the general mass of property in this state, subject to the provisions contained in Rule 12A-1.045,
F.A.C.
...
(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.
...
CONCLUSION
It is the Department's position that if the only physical contact with the State of Florida is a once a year visit to one
customer, where no sales orders are taken, then this would be considered inconsequential, and thus not create
nexus. Also, having items shipped to a Florida customer from out-of-state by an out-of-state manufacturer would not
by itself create nexus, even if the out-of-state manufacturer has nexus in Florida. Likewise, when a vendor, using an
out-of-state manufacturer, ships from a Florida location, nexus would not be created by this act alone. However,
without presentation of a resale certificate by your company, the manufacturer that shipped from a Florida location to
your Florida customer would be required to collect Florida sales tax on its billing to you. Therefore, it would be
advantageous, in such situations, to be registered for sales tax purposes so that a resale certificate could be issued.
With regard to the sales tax already collected, these amounts should be reported as a one time remittance, as sales
tax becomes state funds at the moment of collection, even if collected by an unregistered dealer. There would be no
monetary gain to your customers if you refunded the sales tax to them as they would then owe use tax which is the
same tax rate as the sales tax.

CLOSING STATMENT
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 advisement 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.
If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at
(850) 922-4840.
Sincerely,
Jonathan E. Swift
Tax Law Specialist
Technical Assistance and Dispute Resolution
Control No. 16744