Did Public Law 86-272 protect an out-of-state seller whose products were regularly delivered to Florida customers in the seller's own trucks?

Plain-English summary

Regular deliveries to Florida customers in the seller's own trucks were not protected by Public Law 86-272.

The products were ordered and approved outside Florida, but company-owned trucks made frequent Florida deliveries, usually weekly. Independent contractors drove the trucks; customers handled unloading and the drivers did no setup. Florida nevertheless treated the trucks as the company's tangible property in the state and the delivery work as a service beyond solicitation.

The advisement also notes that the company's other activities had already established Florida corporate-income-tax nexus. Its analysis was deliberately limited to whether this delivery method was protected.

What this means for you

Shipping by common carrier and regularly delivering in seller-owned vehicles were not treated alike under the Department's 1995 position. Charging a separate delivery fee—or not charging one—did not change the result.

Common questions

Q: Did it matter that the drivers were independent contractors rather than employees?
A: No. They acted for the company and performed in-state delivery services beyond solicitation.

Q: Did customer unloading and the absence of setup preserve protection?
A: No.

Q: Did the ruling decide nexus solely from these deliveries?
A: It said other activities already established nexus, but separately concluded that company-owned-vehicle delivery was unprotected activity.

Citations and references

• 15 U.S.C. §§ 381-384 — Public Law 86-272
• Fla. Stat. § 220.11 — Florida corporate income tax
• Fla. Admin. Code r. 12C-1.011 — activities creating corporate-income-tax nexus
• Zeigler Coal Co. v. Kleppe, 536 F.2d 398 (D.C. App. 1976)
• Besette v. Enderlin School Dist., 288 N.W. 2d 67 (N.D. 1980)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C1-004

Original ruling text

Mar 17, 1995

Re: Technical Assistance Advisement No. 95(C)1-004
Corporate Income Tax; Shipment or Delivery in Company Owned

Vehicles
Dear :

Your request for a technical assistance advisement ("TAA")
for XXX (hereafter "Company") has been referred to this office

for a response.

ISSUE

Although other activities engaged in by Company have
already established corporate income tax nexus by Company in
Florida, based on your request, I will restrict the answer of
this TAA to the issue presented. Specifically, you want to know
if the shipment or delivery of Company's goods to Florida
customers in Company's owned vehicles is protected by Public Law
86-272 (73 Stat 555, 15 U.S.C. ss. 381--384) (hereafter "Public

Law").

STATEMENT OF FACTS

The facts that you have provided to the department are as

follows:

1) The distributors purchase Company's products by calling
Company customer service in Georgia to place an order. An
order must be approved by a customer service account
representative in Georgia.

2) A distributor's order constitutes the sale of Company's
products. After a distributor places an order, products
are shipped or delivered from outside Florida to the

distributor.

(a) Company's products are either delivered on Company

owned trucks or are shipped via common carrier.

(b) Company contracts with third parties to operate the
trucks. The drivers are not Company employees.

(c) Unloading merchandise and taking it into the
distributor's premises is the responsibility of the
distributor--not the truck driver. The merchandise is

not "set up" by the drivers.

The department's research of Company's delivery related

activities also revealed:

1) The Company shipments and deliveries are regular and

frequent, usually occurring once a week.

DISCUSSION OF LAW

The "Florida Income Tax Code" imposes an excise or privilege tax
measured by net income, provided certain criteria are met, on
all corporations, organizations, associations. Specifically, s.

220.11, Florida Statutes, states in pertinent part:

"220.11 Tax imposed.--"
"(1) A tax measured by net income is hereby imposed on
every taxpayer for each taxable year..., for the privilege
of conducting business, earning or receiving income in this

state, or being a resident or citizen of this state..."

Therefore, provided the Company has established corporate income
tax nexus by either "conducting business, earning or receiving
income in this state" or by "being a resident or citizen of this

state," it would then be subject to Florida's corporate income

tax. In general, business activities that create nexus are

addressed in Chapter 12C-1, Florida Administrative Code. Rule
12C-1.011, F.A.C., states in part:

"12C-1.011 Tax Imposed.

"(1) The following activities, notwithstanding others
within the meaning of taxable privileges described in s.
220.02, F.S., will be construed as conducting business,
earning or receiving income in this state... for purposes
of this tax, and corporations participating therein are

subject to taxation unless exempted by the constitution or

the laws of the United States or this state.

"(c)1. Owning or leasing real or tangible personal property
in this state.

"(l) Having employees that are present in the state and
that perform functions other than the solicitation of sales
within Florida.

"(m) Performing any service within the state."

Relating to the issue addressed in this TAA (which does not take
into account other activities conducted by Company which would
cause it to be subjected to the corporate income tax), nexus was
established by the regular and systematic delivery of goods into
Florida using the Company's own trucks, which are tangible
personal property. Additionally, the Company has independent
contractors, who while acting on behalf of Company, are
performing a function or service in Florida other than

solicitation of sales, i.e., the delivery of Company's products.

Company would not have been subject to the Florida Income Tax
Code if its activities were protected by the Public Law. This

law, attempted to limit the local activities that give a state

the right to tax the net income of foreign corporations. In

pertinent part the Public Law states:

"Sec. 101. (a) No State, or political subdivision thereof,
shall have power to impose, for any taxable year ending
after the date of the enactment of this Act, a net income
tax on the income derived within such State by any person
from interstate commerce if the only business activities
within such State by or on behalf of such person during
such taxable year are either, or both, of the following:

"(1) the solicitation of orders by such person, or his
representative, in such State for sales of tangible
personal property, which orders are sent outside the State
for approval or rejection, and, if approved, are filled by
shipment or delivery from a point outside the State..."

(Emphasis added).

Florida has held that tangible personal property shipped via
common carrier is an activity protected by the Public Law. The

question that has to be answered for this request is: Does this

protection extend to the delivery of such goods in Company owned
vehicles? Two interpretations may be made in regards to the
Public Law. One, advocated by Company, argues that deliveries
in the seller's own truck is a protected activity, while the one

followed by Florida, holds such activity is not protected.

Mr. Alan H. Friedman, Hearing Officer, Multistate Tax
Commission, has done extensive research on this subject, and in
his "Final Report of Hearing Officer Regarding Public Law 86-272
Statement,” he discusses his findings and conclusions. Some

points he makes concerning this matter are pertinent here.

In his report he found a review of the legislative history of

the Public Law prior to its passage revealed little on whether
Congress intended to limit the protection to only those sellers
who transport their goods to the buyer by for-hire and common
carriers, as opposed to private carriers. The closest

references to this issue were found in the report of the

hearings held by the Special Subcommittee on State Taxation of
Interstate Commerce of the House of Representatives, Judiciary
Committee, H.R. Rep. No. 1480, 88th Congr., 2nd Sess. (1964)
(hereafter, the "Willis Committee Report"). The Willis
Committee Report was issued five years after the passage of the
Public Law and, therefore, is of limited value as a source of

legislative history. The following was reported on p. 146

"The primary area of ambiguity in the statute revolves
around the terms ‘solicitation’ and ‘delivery’ - the
question of what kinds of activity may be considered an
integral part of the process of solicitation and sale. It
seems highly probable, at one extreme that the statute
would be held to protect a company whose soliciting
salesmen used company-owned automobiles in the performance
of their duties. It also seems highly probable that

soliciting salesmen may carry samples of their company's
products. But it is much less clear whether a company is
protected in a State if it rents a display room there, or

has its salesmen investigate complaints of customers. Are
these activities integral parts of the process of
soliciting trade, or are they discrete activities not

covered by Public Law 86-272? Similarly, although the

statute makes it clear that delivery of goods into a State

does not deprive the selling company of statutory immunity,
there can be doubt about the meaning of delivery. Does the
term "delivery", for example include installation work - a

term broad enough to encompass both jobs requiring 5
minutes and those requiring 5 weeks? Has a company done
more than deliver its products into a State if it retains a
security interest in the goods sold? Is it deprived of the
statutory protection if, in response to warranty

obligations, it services the products sold on the

customer's premises? These are some of the questions on
which the guidance given by Public Law 86-272 is not wholly

clear." (Emphasis added).

The Willis Committee Report does not directly and unambiguously
discuss the issue raised in this TAA. Through this discussion

of the term "delivery," one might argue that the Willis

Committee Report, while suggesting that the term is unclear,
nevertheless assumed that delivery by any means, including
private carrier, was protected. However, the discussion by the
Committee did not center on the means of delivery, but what
activities - installation and retention of a security interest -

occurred at or after delivery.

Rather than attempting to decipher the meaning of the terms
"shipment" and "delivery" from the Willis Committee Report
findings, Mr. Friedman attempted to find the common usage of
these terms by the transportation industry before the passage of
the Public Law. However, he found no evidence of such common
usage in the trucking trade, and therefore assumed that no such

common usage existed.

Did Congress, by using the two different words, "shipment" and
"delivery," intend two different meanings; and, if so, did

either word necessarily encompass the use of the seller's own
trucks or other mode of private carrier delivery? Under normal
rules of statutory construction, a statute is to be construed,
whenever possible, to give meaning and effect to every word, and
statutes are not to be considered to render certain words
superfluous or insignificant. See, Zeigler Coal Co. v. Kleppe,

536 F.2d 398 (D.C. App. 1976) and Besette v. Enderlin School

Dist., 288 N.W. 2d 67 (N.D. 1980).

Cases construing the terms "shipment" and "delivery" have
normally concluded that the former is satisfied by placing goods
in the hands of a common carrier for transportation to the
buyer, while the latter is met by placing the goods in the

actual or constructive possession of the buyer or the buyer's

agent. Indeed, Black's Law Dictionary, Fifth Edition (1979),

defines "shipment" as:

"The delivery of goods to a carrier and his issuance of a

bill of lading therefor. The transportation of goods."

It also defines "delivery" as:

"The act by which the res or substance thereof is placed
within the actual or constructive possession or control of

another."

Under normal shipment contracts, the seller is merely obligated
to place the goods in the hands of a carrier for title and risk
of loss to pass to the buyer; while a delivery or destination
contract normally obligates actual delivery to the buyer or
buyer's agent before title passes. Thus, unless otherwise
agreed to, delivery ordinarily occurs either (i) when the goods
are placed in the hands of a common carrier under a shipment
type of contract or (ii) when physical possession is actually
delivered to the buyer or its agent under a destination or

delivery contract.

Based upon the forgoing, whether "shipment" is called for or
"delivery" is called for may well depend upon the terms of the
sales contract and intent of the parties. What is fairly

certain is that each term has a different meaning when used as a

term of the sale.

Mr. Friedman also looked to the Uniform Division of Income for

Tax Purposes Act (UDITPA). UDITPA was drafted by the National
Commission on Uniform State Laws in 1957, and was clearly before
the Congressional committees dealing with the Public Law. When

addressing the assignment of sales to the receipts factor

numerator for division of income purposes, Section 16 of UDITPA

provides that

"[s]ales of tangible personal property are in this State

if:

"(a) the property is shipped or delivered to a purchase...
within this State regardless of the f.o.b. point or other
conditions of the sale; or

"(b) the property is shipped from [a location] in this
State... and the taxpayer is not taxable in the State of

the purchase." (Emphasis added).

Under UDITPA, the seller has "shipped" its goods for sales
factor sourcing purposes by merely transferring the goods toa
common or for hire carrier, irrespective of the use of either a
shipment or a delivery type of contract. The UDITPA states

treat the sale as sourced to the destination state when common
carriers are used, although the shipping documents may reflect a

shipment contract.

The term "delivery" under Section 16 has often been construed by
the UDITPA states (for "dock sales" purposes) as meaning the
transferring of actual possession to the buyer, ordinarily by

the loading of the purchased goods onto the buyer's truck (or
one under the control of the buyer) at the seller's dock. Thus,
under many circumstances, the construction of both terms under
Section 16 of UDITPA - "shipment" and "delivery" - allows for
different meanings between the terms themselves; but some of
those meanings do not necessarily include the use of the

seller's own truck for transporting the goods into the market

state.

Thus, meaning may be given to both terms found in the federal
legislation, as is required by general rules of statutory
construction, but neither would necessarily support the
arguments and conclusions advanced by Company. It remains
possible that Congress intended the same meanings to be
attributed to the terms "shipment" and "delivery" as
contemplated under UDITPA. Therefore, a seller can ship by
common carrier and a seller can deliver to a buyer at the

seller's dock, with actual or constructive possession being

transferred in each case "from a point outside of the [taxing]
State." If this is what was meant by Congress, then the
delivery of goods by the seller's own trucks into the taxing
state would not have been intended to be protected under the

Public Law.

CONCLUSION

Therefore, based on the reasons outlined above, Florida
will continue to treat the shipment and delivery of goods by
Company owned vehicles as unprotected activity, irrespective of
whether a separate shipment or delivery fee or other charge is

imposed, directly or indirectly, upon the purchaser.

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,
Paul J. Munyon

Tax Law Specialist

Statutory Compliance Section

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