Did an out-of-state membership association have to collect Florida tax on publications mailed to Florida members when it had no physical presence in the state?

Subject

Imputed Charge for Publications by Out of State Membership Association Having No Florida Nexus

Plain-English summary

Under the ruling's 1994 Quill physical-presence analysis, Florida could not require the association to register and collect sales or use tax. Its only Florida contact was a scattered number of resident members; it had no other presence or contacts, mailed publications from outside Florida, and did not hold Florida meetings or events.

That collection immunity did not eliminate the recipients' liability. If an express or implied portion of a member's payment covered the publication, the Florida recipient had to self-report the 6% use tax and applicable county surtax. The association could remain registered and collect voluntarily for administrative convenience.

What this means for you

This historical ruling separated an out-of-state sender's collection obligation from a Florida recipient's use-tax obligation. Its nexus conclusion was expressly tied to the physical-presence doctrine discussed in Quill and the association's absence of Florida activity.

Common questions

Did Florida membership alone establish collection nexus? No, not under the represented 1994 facts.

Were the mailed publications automatically tax-free to recipients? No. An express or implied charge could create recipient use-tax and surtax liability.

Could the association collect voluntarily? Yes. The Department said it could remain registered for its members' convenience.

Citations and references

• Fla. Stat. §§ 212.06, 212.054, 212.055, and 213.22
• Quill Corporation v. North Dakota, 112 S. Ct. 91 (1992)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-019

Original ruling text

Mar 03, 1994

Re: Technical Assistance Advisement 94(A)-019
Sales Tax - Imputed Charge for Publications by Out of State
Membership Association Having No Florida Nexus
Taxpayer: XXX (herein the "Association")
Address: XXX
Sales Tax Number:XXX

Dear

This response is in reply to your December 10, 1993, petition
for the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S. Your petition
regards the referenced matter and party. The Department has
carefully examined your petition and finds it to meet the
criteria set forth in Chapter 12-11, F.A.C., requisite to
issuance of a TAA. Therefore, the Department is by this
response issuing the requested TAA.

DISCUSSION OF FACTS

Your letter imparts the following information pertaining to the
matter under advisement herein:

"Complying to a letter dated June 1, 1993 from XXX
[Department of Revenue], the [Association] has registered
and paid sales tax for its publications mailed to its
members who are residents of the State of Florida.

"However, according to your letter dated September 3, 1993,
by XXX, our association is not required to collect and pay
the Florida sales tax because:

"-the [Association], a non-profit organization, has no
nexus with the state of Florida, and
"-the [Association] should be immune under the Due Process
or Commerce Clauses of the United States Constitution from
the requirement to register and collect Florida sales tax

on the express or implied amount received for publications
mailed from outside Florida to its members in Florida."

Additionally, in our telephone conversation of February 3, 1994,
your further advised that the Association has no presence in or
contacts with Florida aside from a scattered number of members
who live in Florida. You explained that the members living in
Florida, like all members of the Association, receive the
Association's publications as a privilege of membership. The
publications are provided to the members at no additional charge
apart from their membership dues. We understand that the means
of distribution for the Association's publications is the United
States mail. Moreover, you indicated that the Association had
not in the past and has no future plans to hold conferences,
conventions, seminars, workshops, or other forms of meetings in
Florida.

REQUESTED ADVISEMENT

You endeavor to receive the following action by the Department:

"We would appreciate your ruling letter back to us stating
the Association is not required to register and collect the
sales tax on its publications mailed from outside Florida
to members in Florida."

DISCUSSION OF LAW

In addressing your request, it is fundamental that we consult
the following body of case law with respect to ascertaining the
requisite elements to establishing nexus in a given forum state:

In the matter of Miller Bros. Co. v. Maryland, 347 U.S.
340, 344-345 (1954), the U.S. Supreme Court in construing
the Due Process Clause of the Fourteenth Amendment of the
U.S. Constitution determined that it "requires some
definite link, some minimum connection, between a state and
the person, property or transaction it seeks to tax...."

In National Bellas Hess, Inc. v. Department of Revenue of
Ill., 386 U.S. 753 (1967), the U.S. Supreme Court declined

to repudiate a distinction which had been drawn in previous
cases. That distinction was between mail order sellers who
had retail outlets, solicitors, or property within a state
and those who do no more than communicate with customers by
mail or common carrier. Those sellers who had retail
outlets, solicitors, or property within a state could be
required to collect and remit that state's sales and use
tax on their mail order sales. When a seller had no
contact with a state other than through mail or common
carrier, however, the state could not require the seller to
comply with this obligation.

Further, with respect to the Commerce Clause of the U.S.
Constitution, the U.S. Supreme Court in Complete Auto
Transit, Inc. v. Brady, 430 U.S. 280 (1977), established a
4-part test which would need to be satisfied in order for a
state tax to sustain a Commerce Clause challenge. The
first part of this 4-part test requires the tax to be
"applied to an activity with a substantial nexus with the
taxing state."

The U.S. Supreme Court in Scripto, Inc. v. Carson, 362 U.S.
207 (1960), affirmed the findings of the Florida Supreme
Court that Scripto was susceptible to the collection of
Florida use tax without violating the Due Process or
Commerce Clauses based on Scripto's systematic exploitation
of Florida markets for its products by use of independent
contractors in the state. Hence, the "minimum connections"
necessary to penetrate a seller's protection from a host
state's use tax collection requirements under the Due
Process and Commerce Clauses, respectively, are met when a
seller uses independent contractors in the forum. Further,
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 199, 107 S Ct (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. Moreover, 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.

Also, the U.S. Supreme Court determined in National
Geographic Society v. California Board of Equalization, 420
U.S. 551, 559 (1977), that the activities of seller's
representatives in the forum did not require a direct
connection to the sales on which the host state was seeking
collection.

The most recent U.S. Supreme Court decision interpreting
the Due Process and Commerce Clauses is Quill Corporation
v. North Dakota, 112 S.Ct. 91 (1992). In Quill, the Court
held that under the Due Process Clause, minimum contacts
with a state are present when an out-of-state seller
purposefully directs its activities towards residents of a
state, even though the seller may not have a physical
presence within that state. The Commerce Clause, however,
requires that a seller have a physical presence within a
state in order for the substantial nexus part of the
Commerce Clause 4-part test to be satisfied. Under the
Commerce Clause, therefore, a seller must be physically
present in a state in order for the state to impose an
obligation upon a seller to collect that state's use tax on
sales made to purchasers within the state.

CONCLUSIONS OF LAW

The Quill decision when applied to the instant matter, offers a
sound defense against Florida's ability to compel registration
and collection of sales or use tax on the subject publications
inasmuch as the physical presence test established by Hess and
followed by Quill will not have been satisfied. Therefore,
given the instant facts as represented to the Department in your
petition and assuming that such facts have been accurately
portrayed and that no other undisclosed facts which could lead
to a different conclusion exist, the Department hereby enters
its finding that the Association would be immune under the
Commerce Clause of the United States Constitution from the

requirement to register and collect Florida sales or use tax on
the express or implied amount received for publications mailed
from outside Florida to Members or other persons in Florida.

CAVEAT
You are hereby alerted to the fact that the described immunity
enjoyed by the Association under the specified circumstances,
would not extend to the members or other persons within Florida
who receive the publications. Without violation of either the
Due Process or Commerce Clauses of the United States
Constitution, such persons are fully susceptible to the 6% use
tax levied under s. 212.06, F.S., and any discretionary sales
surtax (county sales and use tax) levied pursuant ss. 212.054
and 212.055, F.S. This holds true as the publications received
in Florida by the Association's members via the U.S. mail do
commingle with and become a part of the general mass of property
in this state and are for use or consumption within Florida.
The amount on which the Florida members are required to compute
the tax is the cost paid by them to the Association for the
publications. Therefore, provided it is established that there
is an express or implied charge to the members in Florida for
the publications, the burden falls on the members and other
persons in Florida receiving such publications to make a self
declaration and remittance of the attendant use tax directly to
this agency by use of Form DR-15MO. This form is available upon
request from the Department. However, the Association may for
ease of administration and convince of the Association's members
in Florida wish to remain registered and to collect and remit
the Florida sales tax on the distribution of its publications to
members in Florida.

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 are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

Daniel M. Wagner, Jr.
Tax Law Specialist

DW/
Control No. 12614