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