Were military goods taxable when a foreign-government purchasing authority staged and repackaged them at a Florida airport before export?

Plain-English summary

The military goods were exempt because they were continuously and certainly committed to foreign export.

The foreign-government authority bought specifically identified goods for military destinations abroad. The goods were gathered at one Florida airport, sometimes consolidated or divided for different foreign military bases, held for no more than about two weeks, and transported only on the foreign government's military aircraft. Those steps did not cause the goods to settle into Florida's general property mass, and diversion to domestic use was remote.

What this means for you

Temporary Florida handling did not defeat export treatment where the facts showed a fixed foreign destination and an unbroken export process.

Common questions

Q: Did up to two weeks of airport staging make the goods taxable? A: No.

Q: Did repackaging break the export journey? A: No. The described consolidation and division of packages were necessary export steps.

Q: What would nullify the Department's determination? A: Diversion of any goods to the domestic market or domestic use.

Citations and references

• Fla. Stat. § 212.06(5)(a)1 and Fla. Admin. Code r. 12A-1.064 — goods purchased for export
• U.S. Const. art. I, § 10, cl. 2 — Import-Export Clause
• Great Lakes Dredge & Dock Co. v. Department of Revenue, 381 So. 2d 1078 (Fla. 1st DCA 1979)
• Gough Industries, Inc. v. State Board of Equalization, 336 P.2d 161 (Cal. 1959)
• Fred McGilvray, Inc. v. Askew, 340 So. 2d 475 (Fla. 1976)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-005

Original ruling text

Jan 26, 1995

Re: TAA 95A-005
Military Goods Purchased for Export
Section 212.06(5)(a)1., F.S.
Rule 12A-1.064, F.A.C.

Dear :

This is a response, styled a Technical Assistance Advisement, to your letter dated November 3, 1994, wherein you asked whether Florida sales or use tax may be validly levied on the purchase both within and without Florida of military equipment and supplies by a certain entity, the XXX (herein Authority), exclusively for the XXX (herein Military), in the instance when the goods, after purchase, are marshalled at a Florida airport, repackaged, and then after a delay of up to two weeks are transported by air to XXX (herein Foreign Country). Military aircraft of the Foreign Country are used exclusively in the transport of the goods.

At issue is whether a Florida statute, s. 212.06(5)(a)1. F.S., interpreted by Rule 12A-1.064, F.A.C., which relates to goods imported, produced, or manufactured for export, or the limitations placed on a state by the Import-Export Clause of the United States Constitution, exempts such purchases from Florida sales and use taxes.

You describe the transaction in the following manner:

"The taxpayer, [Authority], operates under control of the
[Foreign Country] as the sole purchasing agent of the
[Military] and has done so for several years. The personal property purchased by [Authority] in the state is acquired exclusively for the [Military] and is never sold to any other entity or person. Property is purchased by
[Authority] only on the explicit orders of the [Foreign Country]. All property acquired by [Authority] is delivered by [Authority] to the [Military] within the

geographical boundaries of [Foreign Country]. The property purchased may be delayed for repackaging before shipment but in few instances remains in the [sic] Florida for more than two weeks pending shipment."

You state that Authority has purchased such property free of Florida sales tax, and that since March 29, 1971, Authority has "... operated under a sales tax exemption authorized under section 212.08(6) of the Florida Statutes." You describe the revocation of the Authority's certificate of exemption as follows:

"During 1994 the [Authority's] status as an organization exempt from tax was reviewed by the Florida Department of Revenue. The Department took the position that such exemption under section 212 of the Florida Statutes was not warranted. The Department of Revenue served a notice of intent to revoke the [Authority's] sales tax exemption on April 8, 1994. The Department based its notice on the contention that the [Authority] does not qualify for such an exemption under section 212.08 governing exemptions for political subdivisions."

You do not raise any issue connected to the revocation of the certificate of exemption, but you state that "[t]he Department, however, thoroughly considered neither the applicability of the import-export clause of the United States Constitution, Article 1, Section 10, nor the legislative history of Florida Statutes section 212.06(5)1." You then support your contention that purchases by the Authority are free of the tax by an analysis of Florida case law interpreting s. 212.06(5)(a)1., Florida Statues.

Department response

The Department agrees, considering the facts as described by you in the written request and the additional information gained by the Department during a telephone conversation held on November 28, 1994, that the goods purchased by the Authority are exempt from Florida sales and use tax.

As related in the telephone conversation of November 28, 1994, it is the understanding of the Department that the following information is to be considered as supplementary to that which you provided in your letter:

1) The purchase invoices are in the name of the Authority, and the purchases are made from suppliers both within and without Florida.

2) Purchases are of military goods, equipment, or of supplies used by the military forces of the Foreign Government, including units of the air force, army, and the navy.

3) Purchases are initiated through the bid process or by "open" acquisition of commonly obtained equipment, including equipment obtained from the XXX. The vendors are not generally contacted as to any particular purchase until an acquisition order is issued which is specific both as to the item to be purchased and the shipping destination within the Foreign Country.

4) All purchases are marshalled in one airport in Florida and it is from this airport that all goods are transported to Foreign Country.

5) The transport of the goods is solely in the aircraft of the Air Force of the Foreign Government.

6) All payment is made to the suppliers by check drawn on the Authority's account. This payment arrangement is made so that suppliers can obtain American dollars in exchange for the goods sold to Authority. The bank account of the Authority is established and replenished by monetary transfers from the Foreign Government.

7) All senior officials of the Authority which are stationed in the United States are military officers of the Foreign Country and are present in the United States by grant of diplomatic visas.

8) The term "repackaging" as used in your letter describes, in the predominate number of instances, the act of consolidation of the various containers or packages onto a pallet or skid or otherwise grouping them together for ease of handling both within the Florida facility, and during the loading and unloading processes into or from the aircraft. In fewer instances the packages must be broken so that the goods may be sent to two or more designations in the Foreign Country, such as two or more military bases which had jointly submitted an order for the same goods.

9) The consequences of the goods being diverted for domestic uses in Florida would be those normally attached to fraud, theft, or contravention of military orders.

Considering all of the information provided the Department, both in the letter and in the telephone conversation, as presented above, it is the determination of the Department that the transactions at issue are of the kind considered in Great Lakes Dredge & Dock Company v. Department of Revenue, 381 So.2d 1078 (Fla. 1DCA 1979), and that the decision in that case shall control the outcome in the instant situation.

In that case, the company was assessed sales and use tax on certain materials and supplies purchased by the firm from vendors both within and without Florida. The materials and supplies were marked for export, and delivery was required at XXX by the end of January 1976. These goods, some of which were repackaged on XXX, were placed aboard ocean-going barges for shipment to a foreign country.

The process of loading these goods on the ocean-going barges began on or about February 11, 1976, which was the time the barges first became available for use by the company. It appears the goods were marshalled on XXX for a period of about two weeks.

The court in Great Lakes found that the goods in that case were dedicated to a continuous and certain process of exportation in that the property was ordered pursuant to a foreign contract and was marked for exportation. The court determined that the

limited delays before shipment were "... merely necessary steps in the exportation process and did not result in the goods settling into the mass of property of the state." Id. at 1084. The court also noted that "[a]ny possibility that Great Lakes would divert the goods to the domestic market was remote and did not occur." Id. at 1085.

The court set the facts in the Great Lakes case next to the four elements considered in Gough Industries Inc. v. State Board of Equalization, 336 P.2d 161 (Calif. 1959), a case that decided a shipment of goods to an Arabian corporation was not subject to state tax because of the provisions of Article I, Section 10, Clause 2 of the United States Constitution which limits the states from imposing taxes on goods imported or exported into or from the several states. The elements in Gough were: 1) export of goods to a buyer in a foreign country pursuant to a sale of such goods, 2) goods committed at all times to transport to the foreign county, 3) movement of the goods actually started when the tax was sought to be imposed, and 4) the transport of the goods to the foreign country was continuous, and unbroken and any delay was taken for a purpose independent of the transportation of the goods.

The Department finds that all of these four elements, as in Gough, are present in the instant case.

The court in Great Lakes distinguished the decision in Fred McGilvray, Inc. v. Askew, 340 So.2d 475 (Fla. 1976). In Fred McGilvray the court considered the three criteria provided in s. 212.06(5), F.S., as to the mode of shipment of goods outside the state and determined that the statutorily specified shipment by licensed exporter, common carrier, or by the United States mail were descriptive of the certainty of exportation, and if any one of these modes of transportation was selected then no statutory presumption was present that the goods were not purchased for export. Thus, the goods were not subject to tax. If none of the three methods of shipment is selected then the presumption arises in s. 212.06(5)(a)1., F.S., that the goods were not purchased for export. Such a presumption can be rebutted.

The Great Lakes court stated that this rebuttal can be achieved

by a showing that the "property has been started upon its foreign transportation in a continuous route or journey with a high degree of certainty that it is headed for its foreign destination and will not be diverted to domestic use." Id. at 1084. Under the facts in that case the court found that it "... was convinced that the property assessed was dedicated to a continuous and certain process of exportation from the time it was shipped from the various vendors within and outside the state." Id. at 1084.

Using the rationale in the Great Lakes decision, and considering the similar facts in the instant case, the Department finds that from the issuance of the purchase order to the time of the loading aboard Foreign Country's military aircraft at the Florida airport, the goods were dedicated to a continuous and certain process of exportation. At no point in this process had the goods settled into the mass of property within Florida.

This certain and continuous process is seen by the issuance by the Authority of the purchase order which is specific as to the goods ordered and the destination of the goods. The military forces of the Foreign County determine what is to be ordered. The goods are precisely identified, and the notations of the military sites in Foreign Country to which these goods are to be delivered are part of the initial order.

The arrival of the goods pursuant to the purchase order at the Florida airport is a necessary step in the exportation process as is the subsequent repackaging, meaning merely, in the larger number of instances the grouping or consolidation of individual containers on skids or pallets. In fewer instances the containers are broken. This occurs, typically, when the same product, part, or equipment is ordered by two different military bases. This type of repackaging divides the initial purchase into smaller portions pursuant to the order of this product, part, or equipment by the different military bases or commands in the Foreign Country. Both of these acts of repackaging are necessary steps in the exportation process, as are the limited delays of up to two weeks at the Florida airport before shipment of the goods to the Foreign Country.

The Department takes the position that in no instance, as was found in the Great Lakes case, does either the delay, or the repackaging result in the goods settling into the mass of property in Florida.

As also found in Great Lakes, the possibility that the goods would be diverted to the domestic market is remote in that the military officers who direct the operation of the Authority in Florida are under orders to purchase, ship, and deliver the goods to the sites specified within the Foreign Country. Any diversion of the goods to the domestic market would be in contravention of military orders and would doubtless result in punitive consequences as set forth in the laws of the Foreign Country. This element of the transaction differs from the presence in other cases of contract terms the breech of which allows the injured party a remedy. Here, military orders may be unilaterally altered. Thus, the Department considers that all orders for the purchase and shipment of goods, as described herein, are irreversible, and that the diversion of any part of the goods to either the domestic market or domestic use will nullify the determination of the Department as expressed in this communication.

Considering the whole of the transactions which are at issue, the Department takes the position that Authority has successfully rebutted the presumption residing in s. 212.06(5)(a)1., F.S., that the property purchased was not for export.

The Department determines also that the four elements in Gough are present, and it is the Department's position, as was the decision in Great Lakes, considering facts markedly similar to the instant facts, that the provisions or the Import-Export Clause of the United Statutes Constitution are applicable. Consequently, the Florida sales or use taxes cannot be levied on the purchases which are at issue here.

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 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 the response.

Sincerely,

Robert G. Parsons
Tax Law Specialist

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