Were separately stated freight charges taxable when goods were sold F.O.B. origin and title passed to the buyer upon delivery to a common carrier?

Subject

Freight Charges

Plain-English summary

The separately stated freight charges were not subject to Florida sales tax. The seller's terms were F.O.B. origin, title and risk of loss passed to the customer when the goods were delivered to the common carrier, and the buyer paid the transportation charge through the seller.

Because transportation was rendered to the buyer after title passed, Florida excluded it from the taxable sales price. The ruling stressed that documentation of where title passed was essential.

What this means for you

Separately listing freight was not the only requirement. The written sales terms also had to establish passage of title at origin; inadequate documentation could make seller-billed transportation part of the taxable price.

Common questions

Did routing the buyer's payment through the seller make freight taxable? No, not under the documented F.O.B.-origin arrangement.

What charges counted as transportation charges? The ruling included carrying, delivery, freight, handling, pickup, shipping, and similar fees.

What fact did Florida call essential? The location where title passed from seller to customer.

Citations and references

• Fla. Stat. §§ 212.02(17) and 213.22
• Fla. Admin. Code r. 12A-1.045(2)
• Florida Hi-Lift v. Department of Revenue, 571 So. 2d 1364 (Fla. 1 DCA 1990)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-022

Original ruling text

Mar 29, 1994

Re: Technical Assistance Advisement 94A-022
Sales and Use Tax - Freight Charges
Section 212.02(17), F.S.
Rule 12A-1.045(2), F.A.C.

Dear :

This response is in reply to your petition received
February 15, 1994, and subsequent documentation received
February 21, 1994, for the Department's issuance of a Technical
Assistance Advisement concerning the above referenced party and
matter. Your letters dated April 16, 1993, and July 20, 1993,
providing information and documentation regarding the above
referenced matter, have also been carefully examined. Since
your letter received February 15, 1994, provides that your
recent audit has been resolved with the Department, the
Department finds your latest request to be in compliance with
the requisite criteria set forth in Chapter 12-11, F.A.C. This
response constitutes a Technical Assistance Advisement under
Chapter 12-11, Florida Administrative Code, and is issued to you
under the authority of s. 213.22, F.S.

DISCUSSION OF FACTS

Your request imparts the following discussion concerning
the matter under advisement:

"[Taxpayer] is a wholesaler/retailer of equipment,
components, and industrial supplies. The Company ships the
goods to the customer via common carrier.

"[Taxpayer's] freight policy is:

"1) F.O.B. origin
"2) title to goods passes to the buyer at the point
of origin.

"3) buyer pays the transportation charges to
[Taxpayer], who remits payment to the freight
company

"The freight charges are listed as a separate item on the
customer's invoice."

Taxpayer's stated freight policy is presented in the
document entitled "Sales and Freight Terms" (copy supplied) as
follows:

"FREIGHT IS PREPAID ON ORDERS FOR A SINGLE SHIPMENT
OF $900 or more of merchandise (before tax and freight) unless
otherwise stated, to customer's place of business anywhere in
the contiguous United States, using routing of our choice.
Other terms apply to Alaska, Hawaii, Puerto Rico and export
orders. Contact local branch for further information.

"Any extra charge incurred for additional services, such as
customer's carrier or special handling at the destination,
must be paid by consignee.

"If any item is backordered on an order qualifying for
freight prepayment, that item will be shipped prepaid.
Title and risk of loss pass to customer on delivery to the
common carrier." (Emphasis Supplied)

REQUESTED ADVISEMENT

Your petition requests that the Department of Revenue
consider whether Taxpayer is required to charge sales tax on
freight charges.

DISCUSSION AND ANALYSIS OF LAW

Section 212.02(17), F.S., provides, in pertinent part:

"(17) `Sales price' means 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, and includes any amount for which credit is

given to the purchaser by the seller, without any deduction
therefrom on account of the cost of the property sold, the
cost of materials used, labor or service cost, interest
charges, losses, or any other expense whatsoever...."
(Emphasis Supplied)

Rule 12A-1.045(2), F.A.C., provides:

"(2) If the seller contracts to sell tangible personal
property f.o.b. origin, the title to the property passes at
such point to the buyer and the buyer pays the
transportation charges, the transportation services are
rendered to the buyer and are not a part of the taxable
selling price. However, where the transportation charges
are billed by the seller to the buyer but documentation is
inadequate to establish the point at which title passed to
the buyer, such charges shall be considered a part of the
taxable selling price."

The appellate court in Florida Hi-Lift v. Department of
Revenue, 571 So.2d 1364 (Fla. 1 DCA 1990), held that sales tax
could not be imposed on transportation charges where the terms
of the lease provide that the lease is f.o.b. lessor's premises
and the transportation charges were not deducted from the rental
price.

CONCLUSIONS OF LAW

The term "transportation charges" includes carrying,
delivery, freight, handling, pickup, shipping, and other similar
charges or fees. The separately stated "ship charge" included
on Taxpayer's invoice to its customer is considered a
transportation charge.

In determining whether separately stated transportation
charges are a part of the sales price and subject to sales tax,
the location where title to the property passes from Taxpayer to
its customer is essential. Taxpayer's stated sales and freight
terms provide that title and risk of loss pass to the customer
on delivery to the common carrier. Under the provisions of Rule
12A-1.045, F.A.C., when tangible personal property is sold to

the buyer under the terms "f.o.b. origin" and title to the
property passes at the seller's location, separately stated
transportation charges are not a part of the sales price. Any
separately stated transportation charge by Taxpayer on sales of
tangible personal property shipped into Florida under the sales
and freight policy as stated above is not subject to Florida
sales tax.

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 upon 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 from that
which is 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 that might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such 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,

Janet L. Young
Tax Law Specialist

JLY/pb
Enclosures