When was Florida sales tax due on a cemetery company's preneed merchandise contract, and could merchandise supplied with a complete funeral be exempt?

Plain-English summary

Florida sales tax on the preneed merchandise was due when the merchandise was delivered, not when the customer signed the preneed contract.

The contract was cancelable, did not identify or deliver merchandise at signing, and required trust funding for merchandise to be furnished after the arrangement became at-need. The Department found no actual or constructive delivery, passage of title, or completed sale at inception.

At delivery, the applicable tax rate was the rate then in effect, and tax was calculated on the stated merchandise selling price or its cost price, whichever was greater.

The cemetery company could also join with either a related or unrelated funeral home to provide a complete funeral exempt under the cited provision, provided the records documented that the companies were cooperating to supply the complete package.

What this means for you

The timing result depended on when delivery and title passage occurred under the actual contract. The complete-funeral result depended on the package and audit documentation, not common ownership between the cemetery and funeral home.

Common questions

Q: Was tax due when the preneed contract was signed? A: No. Under the submitted contract, delivery did not occur until the arrangement became at-need.

Q: Which tax rate applied?
A: The rate in effect on the delivery date.

Q: What amount was taxed?
A: The contract's burial-merchandise sales price or the merchandise cost price, whichever was greater at delivery.

Q: Did the funeral home have to be related to the cemetery company? A: No. Related and unrelated companies could cooperate, but sufficient records had to show that their components formed a complete funeral package.

Citations and references

• Fla. Stat. §§ 212.02(16)(a), 212.06(1)(a), and 212.08(2)(a) — sale, timing, and funeral exemption
• Fla. Stat. § 672.401 — passage of title
• Fla. Admin. Code rr. 12A-1.035, 12A-1.052, and 12A-1.054 — funeral homes, cemetery organizations, and time of sale
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-032

Original ruling text

Aug 02, 1995

Re: Technical Assistance Advisement (TAA) 95A-032 Sales Tax - Preneed Burial and Entombment Agreements Offered by a Cemetery Company Sections 212.02(16)(a); 212.06(1)(a); 470.024; 497.006; 497.048(1),(11); 639.085; 639.09; and 639.20, F.S. Rules 12A-1.035; 12A-1.052; and 12A-1.051, F.A.C. Taxpayer: XXXX (herein collectively referred to as the "Taxpayer")

Dear :

This response is in reply to your May 26, 1995, petition requesting the Department's issuance of a Technical Assistance Advisement pursuant to s. 213.22, F.S., and Chapter 12-13, F.A.C., regarding the referenced matter and parties. An examination of your petition has established that you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for issuance of a TAA.

DISCUSSION OF FACTS

Your petition imparts the following information regarding the issue under advisement herein:

"Taxpayer, XXXX, and its subsidiary corporations (hereinafter collectively referred to as `Taxpayer') are engaged in cemetery and funeral service businesses in XXXX. Taxpayer does not have a XXXX state tax identification number. When Taxpayer does file tax related documents with the DOR, it uses its federal identification number, XXXX.

"As typically is the case in the funeral and cemetery industries, the Taxpayer enters into preneed arrangements with its customers. As you know, a preneed arrangement is one where a customer agrees to make advance payments toward

burial and funeral merchandise or funeral services prior to the arrangement turning at-need, i.e., the death of the person who is to receive the merchandise or funeral service.

"The Taxpayer uses a single contract form under the heading
The Simplicity Plan' (hereinafter referred to asthe Contract', a copy of which is attached hereto as Exhibit A) to facilitate both preneed arrangements for burial and funeral merchandise and funeral services. Under the terms of the Contract customers agree to pay in advance similar to an installment arrangement over a period of time to be agreed on by the parties. Actually, the use of the term
Installment Contract' in the heading is not technically accurate, because the purchaser may unilaterally cancel the contract and his or her obligation to pay. Further, the purchaser is entitled to a full refund if the purchaser cancels the contract within 30 days after executing the contract. The relevant language is in theCANCELLATION/ REFUND' section (page 2 of Contract A). No merchandise is delivered until payment is made in full or fulfillment of the contract.

"The Taxpayer, in accordance with Florida Statute Section 497.417, deposits to a trust fund pursuant to an indenture of revocable trust, 30% of the purchase price collected or 110% of the wholesale cost, whichever is greater, for all merchandise sold for future delivery. Such trust funds are later used to provide the burial merchandise at the time the arrangement turns at-need."

Examination of the Contract submitted with your petition to your request reveals that the Contract is structured in such manner that the customer can contract on a preneed basis for a complete funeral (full merchandise and services) or alternatively the customer can contract for select services and/or merchandise which do not result in a complete funeral.

The Contract provides in relevant part the following in the second paragraph of the section entitled AGREEMENT FOR SALE AND PURCHASE:

"The Purchaser agrees to purchase, at the price(s) indicated below, services and/or merchandise which conform to the general description or are of equivalent quality to those listed below and SELLER agrees to furnish such services and merchandise upon payment by the Purchaser of the price set forth in this Agreement. The parties acknowledge that this Agreement does not call for the sale of any specific brand or make of merchandise." (Emphasis Supplied)

Item a. in the section of the Contract entitled TRUST DEPOSIT provides the following:

"a. ... For all merchandise items purchased, thirty (30%) percent of the purchase price collected or one hundred ten (110%) percent of the wholesale cost, whichever is greater, will be placed into trust."

REQUESTED ADVISEMENT

You request the Department's advice regarding the following:

"1) If under the terms of the Contract a customer agrees to pay for a funeral service and burial or funeral merchandise in installments over a period of time, and the terms of the Contract require the following: i) no merchandise is delivered under the terms of the Contract and pursuant to Florida law until payment is made in full or upon fulfillment of the Contract; and ii) the Contract is cancelable by the customer during at least the first 30 days after the Contract is executed, does the taxable event for sales tax purposes occur when the merchandise is delivered rather than when the contract is executed?

"2) If the Taxpayer delivers burial and funeral merchandise to a customer in conjunction with a funeral provided by a funeral home entity which is related to the Taxpayer through some form of direct or indirect common ownership, is the merchandise exempt from sales tax when it is delivered to the customer, provided the Taxpayer pays sales

tax to the vendor when it purchases the merchandise?

"3) If the Taxpayer delivers burial and funeral merchandise to a customer in conjunction with a funeral provided by a funeral home entity which is unrelated to the Taxpayer, is the merchandise exempt from sales tax when it is delivered to the customer, provided the Taxpayer pays sales tax to the vendor when it purchases the merchandise?"

DISCUSSION OF LAW

We consult the following provisions of statutory, regulatory law, and case law in addressing the issues under advisement herein.

Chapter 497, F.S., applies to all cemeteries and s. 497.201(1), F.S., provides that no person shall operate a cemetery without first obtaining a license from the Department of Banking and Finance, unless specifically exempted from Chapter 497, F.S.

Section 497.005(5), F.S., defines the term "cemetery company" as follows:

"(5) `Cemetery company' means any legal entity that owns or controls cemetery lands or property."

Section 212.06(1)(a), F.S., provides in part:

"... The full amount of the tax on a credit sale, installment sale, or sale made on any kind of deferred payment plan shall be due at the moment of the transaction in the same manner as on a cash sale."

Section 212.08(2)(a), F.S., provides in part:

"... There shall also be exempt from the tax imposed by this chapter... funerals.... Funeral directors shall pay tax on all tangible personal property used by them in their business."

Rule 12A-1.035(1), F.A.C., provides:

"(1) Supplies used by funeral homes in the conduct of their business are taxable."

Rule 12A-1.052, F.A.C., provides:

"12A-1.052 Cemetery Organizations.
"Cemetery organizations are dealers and must procure dealers' certificates of registration and collect the sales tax on sales of tangible personal property to the ultimate consumer. When such organizations brick up graves or construct foundations for monuments, etc., the provisions of Rule 12A-1.051 will apply...." (Emphasis Supplied)

Both preneed and at-need contracts which provide that the funeral director will furnish a complete funeral will be exempt from sales tax as provided by s. 212.08(2)(a), F.S., even though these contracts may be itemized as required by s. 470.035, F.S. Under contracts of this nature, the funeral directors should pay sales tax on all tangible personal property used by them in their business.

Both preneed and at-need contracts which provide for the sale of tangible personal property (contracts which do not include services necessary to be considered a complete funeral, such as contracts for the sale of a casket) are subject to sales tax on the full selling price.

The Taxpayer is licensed as a cemetery company. Cemetery organizations should charge sales tax on their sales of tangible personal property as provided in Rule 12A-1.052, F.A.C., when these sales are not part of the sale of a complete funeral.

Rule 12A-1.054(1), F.A.C., provides in part:

"12A-1.054 Tax Due at Time of Sale.
"(1) The full amount of the tax on cash sales, credit sales, installment sales or sales made on any kind of deferred payment plan shall be due at the moment of the transaction...."

As provided by Rule 12A-1.054, F.A.C., under both preneed and

at-need contracts for the sale of tangible personal property, the tax is due at the moment of the sale.

Your letter contends that the execution of the Contract is not a taxable event, as no merchandise is delivered at the time of execution of the agreement. You point out that under the provisions s. 497.421, F.S., the funds held in trust for the purchase of funeral merchandise cannot be disbursed for the purchase of the contracted merchandise until the trustee is furnished a copy of the contract beneficiary's death certificate. Consequently, there is transfer of title or possession and, therefore, no completed sale of the merchandise until the contract turns at need. Section 212.02(16)(a), F.S., defines the term "sale" as:

"Any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration." (Emphasis Supplied)

Section 672.401, F.S., provides the following relating to the passing of title under the Uniform Commercial Code:

"(1) Title to goods cannot pass under a contract for sale prior to their identification to the contract (s. 672.501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this code.... Subject to these provisions and to the provisions of the chapter on secured transactions (chapter 679), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties. "(2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place...."

The following case summaries typify juristic analysis and

construction by Florida courts of the foregoing statutes governing title passage:

In the matter of Eli Witt Co., 2 B.R. 492 (Bankr. Fla. 1980), the court offered the following commentary: "Under Uniform Commercial Code, as adopted by Florida, title passes to buyer at the time and place that seller completes performance with regard to physical delivery of goods...."

In re Communications Co. of America, Inc., 84 B.R. 822 (Bankr. M.D. Fla. 1988), the court held that title to equipment vested in buyer at time of delivery and that seller's attempt to reserve title pending full payment of the purchase price by purchaser served only to create for seller a security interest in the equipment.

Moreover, BLACK'S LAW DICTIONARY, Sixth Edition, page 428, defines the term "delivery" as:

"The act by which the res or substance thereof is placed within the actual or constructive possession or control of another. Poor v. American Locomotive Co., C.C.A.Ill., 67 F.2d 626, 630. What constitutes delivery depends largely on the intent of the parties. It is not necessary that delivery should be by manual transfer. Jones v. Young, Tex. Civ. App., 539 S.W. 2d 901, 904.... (Emphasis Supplied)

"Constructive delivery is a general term, comprehending all those acts which, although not truly conferring a real possession of the thing sold on the vendee, have been held, by construction of law, equivalent to acts of real delivery. A constructive delivery of personalty takes place when the goods are set apart and notice given to the person to whom they are to be delivered, or when, without actual transfer of the goods or their symbol, the conduct of the parties is such as to be inconsistent with any other supposition than that there has been a change in the nature of the holding. `Constructive delivery' is a term comprehending all those acts which, although not truly conferring a real possession of the vendee, have been held

by construction of law equivalent to acts of real delivery. Lakeview Gardens, Inc. v. State ex rel. Schneider, Kan., 557 P.2d 1286, 1290."

Other useful discussion and analysis of the elements comprising and constituting "delivery" is found in C.J.S. Deeds s. 181:

"Delivery has been described as a composite act; a thing in which both parties must join and the minds of both parties concur.

"However, a manual act is not necessary to constitute a delivery, and the word does not necessarily import an actual physical tradition of possession from one hand to another, for there may be a delivery without handling the property or changing its position.

"The word `delivery' has been variously defined by the juristic authorities; and in its legal sense it may denote either a transfer of title or merely a transfer of possession.

"As used in connection with the transfer of title to property, the word has been construed frequently by courts, and there have grown up at least two meanings, one signifying an actual or physical, and the other a symbolical or constructive, transfer of property; and in this sense has been defined as meaning the act by which one party parts with his title and possession to property, and the other acquires the right and possession thereto.

"In its other sense relating to the giving of mere possession, the term imports a surrender or parting with possession for a permanent purpose, and has been defined as the transfer of possession, actual or constructive, from one person to another...."

CONCLUSIONS OF LAW

RESPONSE, ISSUE 1: Our analysis of the contractual terms and conditions of the Contract, as cast, leads the Department to

conclude that the elements of delivery (actual or constructive) will not be satisfied until the Contact turns at-need. This finding is supported by the fact that out of the proceeds from the Contract, the Taxpayer is required to deposit the greater of 30% of the purchase price collected or 110% of the wholesale cost of the merchandise for future delivery to a trust fund pursuant to an indenture of revocable trust with a bank or savings and loan association having trust powers or a trust company pursuant to s. 497.417, F.S., which trust funds are later used to provide the burial merchandise at the time the Contract turns at-need. The mandatory balance of the trust funds is not released by the trustee to the Taxpayer until the beneficiary's death certificate is presented to the trustee. Thus, when the Contract is executed on a preneed basis it does not result in the occurrence of actual or constructive delivery and hence no passage of title or possession unless and until the Contract turns at-need.

Therefore, as so lead by the statutory definition of the term "sale" contained in section 212.02(16)(a), F.S., when interpreted together with the statutory guidelines on delivery and the juristic analysis and construction thereof, set out in the foregoing discussion, the Department hereby enters its finding that the Contract executed on a preneed basis does not constitute an executed sales contract but is more in the nature of an executory type contract which guarantees delivery of merchandise and services at some future date. Accordingly, no sales tax will be due at the inception of the Contract executed on a preneed basis, but instead the sales tax will be due at the time of delivery (actual or constructive) of the burial merchandise (tangible personal property) specified in the Contract which we understand does not occur unless and until the Contract turns at-need. Moreover, the applicable rate of sales tax will be that rate in effect on the date of delivery of the burial merchandise, and the tax will be calculated on the burial merchandise sales price as stated on the Contract or on the cost price of the burial merchandise, whichever price is greater at the time of delivery.

RESPONSE, ISSUES 2 AND 3: As you are aware, in TAA 89A-058 dated November 2, 1989, the Department stipulated the following with

respect to the exemption from sales and use tax on the charges for a complete funeral provided in s. 212.08(2)(a), F.S.:

"This rule [Rule 12A-1.052, F.S.] does not preclude a cemetery organization from joining with a funeral establishment for the purpose of furnishing a funeral which would be subject to the provisions of s. 212.08(2)(a), F.S."

Although it is the common practice for related companies to join together in carrying out transactions to provide a complete funeral, there is no statutory or regulatory mandate that the companies be related to carry out such an endeavor. Therefore, both issues 2 and 3 are responded to in the affirmative provided that sufficient documentation exists for audit purposes to support that the Taxpayer and an unrelated company are working together in cooperation to provide different components which together result in a complete funeral package. In the absence of such documentation supporting that Taxpayer and related or unrelated company are working together to sell complete funeral packages, it would be impossible for an auditor auditing the Taxpayer to detect and corroborate through the Taxpayer's records alone that the Taxpayer was joining with another company to provide complete funeral packages.

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/
Con. #21670