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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