Were paid and free-trial memberships bundling shipping, streaming video, and e-books subject to Florida sales tax or CST?

Plain-English summary

The Florida Department of Revenue reached different results for sales tax and communications services tax on a bundled membership offering shipping, streaming video, and electronic books.

No portion of the membership was subject to sales tax under the represented terms. Electronic books and streaming video were not tangible personal property or taxable services under Chapter 212, and the shipping benefit involved separately stated F.O.B.-origin transportation.

For CST, streaming video was a taxable video communications service when it originated or terminated in Florida and was charged to a Florida service address. E-books were excluded information services, and shipping was not a communications service. If the provider's books could identify the streaming-video portion, only that portion of the paid membership was taxable; otherwise the entire membership fee was subject to CST.

For a free trial, the retailer itself consumed the streaming service because there was no resale to the member. It therefore had to pay or accrue CST on the cost of Florida trial-member video service.

What this means for you

Bundled subscription providers

Sales tax and CST can classify the same digital benefit differently. Maintain a supportable allocation for streaming video within the membership fee.

Free-trial programs

No customer charge does not necessarily eliminate tax. The provider may become the retail purchaser of communications services used in the trial.

Common questions

Q: Was the membership subject to Florida sales tax?
A: No, under the stated benefits and shipping terms.

Q: Was the entire membership subject to CST?
A: Only if the taxable streaming-video portion could not be reasonably allocated from the provider's books and records.

Citations and references

• Fla. Stat. §§ 202.11, 202.12, 202.16, 212.02, 212.04, 212.05, and 213.22
• Fla. Admin. Code r. 12A-1.045

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14A-010

Original ruling text

Executive Director
Marshall Stranburg

QUESTIONS:

1. WHETHER TAXPAYER’S MEMBERSHIP PROGRAM IS SUBJECT TO SALES TAX
   WHEN SOLD AND/OR WHEN PROVIDED AS A FREE TRIAL?
2. WHETHER TAXPAYER’S MEMBERSHIP PROGRAM IS SUBJECT TO
   COMMUNICATIONS SERVICES TAX (“CST”) WHEN SOLD AND/OR WHEN
   PROVIDED AS A FREE TRIAL?
   ANSWERS:
3. NO. TAXPAYER DEMONSTRATED THAT THE SERVICES PROVIDED TO ITS
   MEMBERS ARE NOT SUBJECT TO SALES TAX, WHETHER THE SERVICES ARE
   SOLD TO A MEMBER THROUGH THE MEMBERSHIP, OR PROVIDED AS A FREE
   MEMBERSHIP TRIAL.
   STREAMING VIDEO SERVICES AND ACCESS TO
   ELECTRONIC BOOKS ARE NOT SUBJECT TO SALES TAX IN FLORIDA. THE
   SHIPPING CHARGES ARE NOT SUBJECT TO SALES TAX BECAUSE TAXPAYER
   DEMONSTRATED THAT IT SEPARATELY STATES ALL SHIPPING AND
   HANDLING FEES AND THAT ALL SALES ARE SHIPPED F.O.B. ORIGIN, AS
   REQUIRED IN RULE 12A-1.045, F.A.C. IF THE TERMS OF THE MEMBERSHIP
   AGREEMENT CHANGE AND SHIPPING CHARGES ARE NO LONGER
   SEPARATELY STATED AND SHIPPED F.O.B. ORIGIN, THEN THIS ADVISEMENT
   WILL NO LONGER APPLY.
4. YES. TAXPAYER’S MEMBERSHIP PROGRAM INCLUDES THE PROVISION OF
   STREAMING VIDEO SERVICES, WHICH ARE SPECIFICALLY INCLUDED IN THE
   DEFINITION OF COMMUNICATIONS SERVICES IN S. 202.11(1), F.S. SALES OF
   MEMBERSHIPS WHICH INCLUDE ACCESS TO THESE STREAMING VIDEO
   SERVICES ARE SUBJECT TO CST WHEN THE SERVICES ORIGINATE OR
   TERMINATE IN FLORIDA AND WHEN SUCH SERVICES ARE CHARGED TO A
   FLORIDA SERVICE ADDRESS, PURSUANT TO S. 202.12(1), F.S. ADDITIONALLY,
   TAXPAYER MUST PAY CST WHEN IT PURCHASES STREAMING VIDEO
   SERVICES THAT IT THEN OFFERS TO MEMBERS IN FLORIDA AS PART OF A
   FREE TRIAL MEMBERSHIP, AS THAT PURCHASE IS THE RETAIL SALE OF
   COMMUNICATION SERVICES WHICH WILL TERMINATE IN FLORIDA AND
   HAVE A FLORIDA SERVICE ADDRESS. TAXPAYER’S MEMBERSHIP ALSO
   INCLUDES THE TEMPORARY AND PERMANENT DOWNLOAD OF ELECTRONIC
   BOOKS, WHICH ARE NOT SUBJECT TO CST, AS THEY ARE SPECIFICALLY
   LISTED AS “INFORMATION SERVICES IN S. 202.11(5), F.S., AND INFORMATION
   SERVICES ARE SPECIFICALLY EXCLUDED FROM THE DEFINITION OF
   COMMUNICATION SERVICES UNDER SECTION 202.11(1)(1), F.S. THE SHIPPING
   BENEFITS PROVIDED WITH MEMBERSHIP ARE ALSO NOT SUBJECT TO CST.
   Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
   Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

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ACCORDINGLY, THE PORTION OF MEMBERSHIP FEES ATTRIBUTABLE TO THE
PROVISION OF STREAMING VIDEO SERVICES IS SUBJECT TO CST. IF THAT
PORTION IS NOT SEPARATELY ALLOCABLE IN TAXPAYER’S BOOKS AND
RECORDS, THEN THE ENTIRE MEMBERSHIP IS SUBJECT TO CST.

April 7, 2014
RE:

Technical Assistance Advisement 14A-XXX
Sales and Use Tax and Communications Services Tax (“CST”)
XXX (“Taxpayer”)
Chapters 202, 203 and 212, Florida Statutes (“F.S.”)

Dear XXX,
This is a response to your letter dated XXX, for issuance of a Technical Assistance Advisement (“TAA”)
pursuant to Section 213.22, F.S., and Rule Chapter 12-11, F.A.C., concerning the taxability of XXX
(“Membership” or “XXX”). An examination of your request has established you complied with the
statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting
your request for a TAA.
FACTS PRESENTED
Taxpayer offers a Membership program known as XXX to the general public for a fee. This fee is in the
form of a lump sum charge. Members of the general public may also sign up for a free, one-month trial of
the Membership program. With Membership, members receive a number of services. These services
currently include:

1. Shipping benefits on certain purchases made from the XXX website. XXX members are entitled to
   receive free two-day shipping on certain purchases. Items eligible for free shipping are marked as such
   on the XXX website. XXX members are also eligible for reduced shipping costs for items that are not
   otherwise XXX eligible, that have additional shipping costs due to size, bulk, or other special
   circumstances, or on certain products sold by certain third-party websites.
2. Streaming video services. XXX members are able to stream movies and television that are designated
   as “XXX” as many times as they like during the term of their Membership. These videos are viewed
   on the member’s television, computer, tablet computer, or other compatible device. These videos
   cannot be downloaded or stored on devices.
3. Temporary borrowing or permanent download of certain electronic books. Taxpayer’s proprietary
   electronic reading devices are known as “XXX.” The lending benefit is called the “XXX” program,
   and it allows XXX members who also own a XXX to “borrow” one book every thirty days from a
   limited library of electronic books. “XXX” allows XXX members to download one of four selected
   books each month at no cost. These books are available in advance of their official release date and

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are permanent additions to a member’s XXX “library.” Unlike the “XXX,” no XXX device is
necessary for this benefit, as the books are also available via the XXX application that can be
installed on a variety of electronic devices.
Taxpayer also provided a copy of the XXX Terms and Conditions. The terms of service for the
Membership program provide that “[f]rom time to time, [Taxpayer] may choose in its sole discretion to
add or remove XXX membership benefits from paid or free promotional programs.” 1
You have indicated that Taxpayer does not directly provide any services included in the Membership.
Instead, it purchases these services from affiliates and resells them in the form of the Membership
program. For example, one affiliate provides the shipping services the Taxpayer resells, while a different
affiliate provides e-book downloads and video streaming access, also resold by the Taxpayer. Both
services are resold as part of the XXX membership.
REQUESTED ADVISEMENT

1. Is Taxpayer’s sale of XXX Memberships to Florida customers subject to sales tax?
2. Is Taxpayer’s provision of the free, one-month trial period of the XXX Membership to Florida
   customers subject to sales tax?
3. Is Taxpayer’s sale of XXX Memberships to Florida customers subject to communications services tax
   and gross receipts tax (hereinafter “CST”)?
4. Is Taxpayer’s provision of the free, one-month period of the XXX Membership to Florida customers
   subject to CST?
   APPLICABLE LAW AND DISCUSSION
   Chapter 212, F.S., imposes a sales tax on the sale and use of tangible personal property and some
   services in the state of Florida. Sections 212.04 and 212.05, F.S., specifically impose a tax collection
   obligation on persons engaged in the business of making sales of tangible personal property and
   specified services. Chapter 202, F.S., imposes a communications services tax on the retail sale of
   communications services in Florida and a collection obligation for sellers of communications services
   in Florida. Gross receipts tax also applies to sales of communications services. Taxpayer has requested
   advisements on whether sales tax and/or CST apply to XXX Memberships under Florida law. As these
   taxes are in different chapters of the Florida Statutes and cover different types of transactions, they will
   be addressed separately, below.
   As a general matter, XXX Memberships do not fall under the provision in s. 212.02(1), F.S., relating to
   Membership dues. That provision is specifically applicable to membership benefits to “a place of
   amusement, sport, or recreation” or that provide “recreational or physical fitness facilities” which the
   1

The Membership benefits are not limited to these services, nor are any of these services (other than shipping benefits)
guaranteed with the Membership. Taxpayer continues to revise and modify the terms of the Membership.

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XXX Membership does not. Although Taxpayer uses the moniker “Membership” to encompass the
various services that Taxpayer provides in return for a single fee, the Department must examine such
services individually.
Sales and Use Tax
Download of Electronic Books
Florida law does not currently impose sales or use tax on the sale of electronic books. As such, the
portion of XXX Membership fees attributable to the lending or permanent download of electronic
books is not subject to sales and use tax.
Streaming Video Services
Streaming video services are not subject to sales and use tax, as they are neither tangible personal
property nor any of the enumerated taxable services in s. 212.05, F.S. As the XXX services are not
subject to sales and use tax, the portion of XXX Membership fees attributable to streaming video
services is also not subject to sales and use tax.
Shipping Benefits
Rule 12A-1.045, F.A.C., provides the general rule for the taxability of transportation charges associated
with the sale of tangible personal property:
(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.

(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

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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.

In general, sales of tangible personal property in Florida are subject to sales tax on both the item sold
and on any services that are part of the sale. See s. 212.02(16), F.S. Transportation charges that are
included with the sale of tangible personal property and are not separately stated are subject to sales
tax. See Rule 12A-1.045(2), F.A.C. Taxpayer’s shipping fees fall squarely within the definition of
“transportation charges” found in Rule 12A-1.045, F.A.C. These charges are therefore taxable unless
another provision applies.
Rule 12A-1.045(5), F.A.C., stipulates that separately stated transportation charges on items sold F.O.B.
origin are not taxable. Taxpayer’s Conditions of Use, as referenced in the XXX Terms and Conditions
provide that all sales are F.O.B. origin, and each invoice or other billing statement breaks out shipping
fees from the item(s) sold, even if the shipping fees are $0.00. Consequently, XXX Membership costs
attributable to S&H Fees are not subject to Florida sales tax, provided that each sale is shipped F.O.B.
origin and the S&H Fees are broken out on all billing documents.
As none of the provided services (electronic downloads, streaming video, and F.O.B. origin shipping
services) are subject to Florida sales and use tax, neither the sale of a full XXX Membership, nor the
provision of a free trial XXX Membership are subject to Florida sales and use tax.
Communications Services Tax
Section 202.11(1), F.S., provides the following definition of “communications services:”
“Communications services” means the transmission, conveyance, or routing of voice,
data, audio, video, or any other information or signals, including video services, to a
point, or between or among points, by or through any electronic, radio, satellite, cable,
optical, microwave, or other medium or method now in existence or hereafter devised,
regardless of the protocol used for such transmission or conveyance. The term includes
such transmission, conveyance, or routing in which computer processing applications are
used to act on the form, code, or protocol of the content for purposes of transmission,
conveyance, or routing without regard to whether such service is referred to as voiceover-Internet-protocol services or is classified by the Federal Communications
Commission as enhanced or value-added. The term does not include:
(a) Information services.

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Section 202.11(5), F.S., provides the following definition for information services:
“Information service” means the offering of a capability for generating, acquiring,
storing, transforming, processing, retrieving, using, or making available information via
communications services, including, but not limited to, electronic publishing, webhosting service, and end-user 900 number service. The term does not include video
service.
Download of Electronic Goods
The temporary or permanent download of electronic books, via the XXX or the XXX program, is the
acquisition or retrieval of information. More specifically, it is access to electronic publishing products.
As these items are specifically listed as “information services” in s. 202.11(5), F.S., and information
services are specifically excluded from communications services in s. 202.11(1)(a), F.S., these services
are not subject to communications services tax in Florida. Accordingly, the portion of the XXX
Membership fees attributable to the lending or permanent downloading of electronic books is not
subject to communications services tax.
Streaming Video Services
In general, CST applies to the retail sale of communications services. Communications services are
broadly defined in s. 202.11(1), F.S., to mean the:
“… transmission, conveyance, or routing of voice, data, audio, video, or any other
information or signals, including video services, to a point, or between or among points,
by or through any electronic, radio, satellite, cable, optical, microwave, or other medium
or method now in existence or hereafter devised, regardless of the protocol used for such
transmission or conveyance.…” (Emphasis supplied.)
Video services are defined in s. 202.11(24), F.S., as:
… the transmission of video, audio, or other programming service to a purchaser, and the
purchaser interaction, if any, required for the selection or use of a programming service,
regardless of whether the programming is transmitted over facilities owned or operated
by the video service provider or over facilities owned or operated by another dealer of
communications services. The term includes point-to-point and point-to-multipoint
distribution services through which programming is transmitted or broadcast by
microwave or other equipment directly to the purchaser’s premises, but does not include
direct-to-home satellite service. The term includes basic, extended, premium, pay-perview, digital video, two-way cable, and music services.
XXX services are “video services” pursuant to Florida law and, therefore, are communications services.

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Retail sales of communications services are subject to CST when the services (1) originate and
terminate in Florida, or (2) originate or terminate in Florida and are charged to a Florida service
address. (s. 202.12(1), F.S.) The service address, in the instant case, would be the “… location of the
communications equipment from which communications services originate or at which
communications services are received by the customer.” (s. 202.11(14)(a)1., F.S.) A “retail sale” of
communications services means “the sale of communication services for any purpose other than for
resale or for use as a component part of or for integration into communication services to be resold in
the ordinary course of business.” (s. 202.11(11), F.S.)
The retail sale of XXX services is the retail sale of communications services and when such services
originate and/or terminate in Florida and are charged to a Florida service address, the sale is subject to
CST. 2
The sale of a XXX Membership includes XXX services. As such, the portion of the XXX Membership
fees attributable to XXX services is subject to CST.
Additionally, a purchase of XXX services by Taxpayer from XXX that originate and/or terminate in
Florida and are charged to a Florida service address would also be a taxable purchase of
communications services, unless the transaction complies with the requirements to qualify as purchases
for resale. Paragraph 202.16(2)(a), F.S., provides that,
“… charges paid by a video service provider for the purchase of video programming or
the transmission of video or other programming by another dealer of communications
services … for resale, must be made in compliance with the rules of the department.”
That paragraph also provides documentation requirements for sales for resale. 3 Assuming Taxpayer
has complied with these requirements, any purchase of communications services by Taxpayer from
XXX is not subject to CST to the extent such services are later resold in a retail sale.
However, for the free trial XXX Memberships used by Florida residents, Taxpayer’s purchase is the
retail sale of the XXX services. As there was no “resale” to Florida users, but the “service address” for
those users was in Florida, these transactions were retail sales to Taxpayer, rather than resales by
Taxpayer. 4 Taxpayer is therefore responsible for paying to its affiliate, or accruing and submitting
separately, CST on the cost of providing XXX services to trial members of the XXX Membership
program who are located in Florida. 5
2

See s. 202.12, F.S.
See 202.16(2)(b)
4
According to s. 202.11(14), F.S., the “service address” is, except as otherwise provided, “the location of the
communications equipment… at which communication services are received by the customer.” Section 202.12(1)(a), F.S.,
provides that tax is due on the sales price of a communications service which “1. Originates and terminates in this state, or

2. Originates or terminates in this state and is charged to a service address in this
   state . . . .” The services terminate in the homes of Florida customers, and the service address is the location at which such
   services are received (also a Florida location). As such, the purchase of services for use by these customers is taxable to
   Taxpayer.
   5
   See s. 202.16(4), F.S., which provides that a purchaser of communications services is liable for taxes imposed under
   Chapters 202 and 203, F.S.
   3

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Generally, the “sales price” subject to communications services tax is “the total amount charged in
money or other consideration by a dealer for the sale of the right or privilege of using communications
services in this state ….” See s. 202.11(13), F.S. This provision would normally mean that the entire
purchase price of a XXX Membership would be subject to CST. However, paragraph 202.11(13)(b),
F.S., excludes from the charges in subparagraph 8., “[c]harges for goods or services that are not subject
to tax under this chapter … that are not separately itemized on a customer’s bill, but that can be
reasonably identified from the selling dealer’s books and records kept in the regular course of
business.” As such, the tax on the sale of XXX services should be limited to the charges allocated for
such services in Taxpayer’s books and records.
Shipping Benefits
Shipping benefits are not communications services. Therefore, the portion of XXX Membership fees
attributable to shipping benefits is not subject to communications services tax, unless those fees are not
distinguished from taxable communication services in Taxpayer’s books and records, as discussed
above.
CONCLUSION
No portion of Taxpayer’s XXX Membership program is subject to sales and use tax in Florida at this
time. The portion of the Membership attributable to XXX services (or other communications services)
is subject to CST. If that portion is not separately allocable in Taxpayer’s books and records, then the
entire XXX Membership fee is subject to CST. The CST must be paid by members when they purchase
XXX Memberships. Furthermore, the CST must be paid by Taxpayer when it purchases XXX services
or other communications services that it offers to members in Florida as part of a XXX Memberships.
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 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 and 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.

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Sincerely,

Kimberly Bevis
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 617-8346
Record ID: 156260