When was Florida sales tax due on preneed funeral merchandise, and when did the complete-funeral exemption apply?

Plain-English summary

Florida said sales tax on merchandise sold through the described preneed agreements was due when the merchandise was actually or constructively delivered after full payment—not when the customer signed the contract. Until then, neither title nor possession transferred, so the agreement was an executory contract promising future delivery rather than a completed sale.

At delivery, the applicable tax rate was the rate then in effect. The ruling said tax was calculated on the merchandise's contract sales price or its cost price, whichever was greater at that time.

The result changed for a complete funeral package. When the taxpayer and a commonly owned funeral home worked together to market and provide the complete funeral, the funeral exemption applied to the customer's delivery, provided the taxpayer had paid sales tax to its vendor when buying the merchandise.

But merchandise did not become exempt merely because the customer directed its delivery in connection with an unrelated funeral home's service. Without jointly marketing a complete funeral, the taxpayer had to collect and remit tax on the merchandise when delivered.

What this means for you

Funeral homes and cemetery businesses

Classify each contract by what the business is actually selling. A complete funeral package received different treatment from a contract for selected merchandise or services that did not amount to a complete funeral.

Preneed contract administrators

Track the delivery date and the contract's payment status. Under the ruling's facts, no actual or constructive delivery occurred until the agreement was fully paid, and that delivery date controlled the rate and reporting period.

Accountants and tax professionals

Distinguish customer-facing exemption treatment from tax paid on the business's own purchase. For the approved complete-funeral arrangement, the merchandise was exempt when delivered to the customer only because the taxpayer paid tax to the vendor upon purchase.

Common questions

Q: Was tax due when a customer signed a preneed merchandise contract? A: No. The ruling found no completed sale at inception because neither title nor possession transferred then.

Q: When did tax become due on a taxable preneed merchandise sale? A: When the merchandise was actually or constructively delivered, which the stated contract did not allow until it was fully paid.

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

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

Q: Was merchandise included in a complete funeral package taxable to the customer? A: No when the taxpayer and its commonly owned funeral home marketed the complete funeral and the taxpayer paid tax to its vendor for the merchandise.

Q: Was merchandise exempt when delivered alongside services from an unrelated funeral home? A: No. Without jointly marketing a complete funeral, the taxpayer had to collect and remit tax on the merchandise.

Q: Can another funeral or cemetery business rely on this TAA? A: Not automatically. The advisement states that it binds the Department only under the facts and circumstances described in the request, and later legal changes or judicial interpretations may produce a different result.

Citations and references

• Fla. Stat. § 212.02(16)(a) — sale defined by transfer of title or possession
• Fla. Stat. § 212.06(1)(a) — tax on credit, installment, and deferred-payment sales
• Fla. Stat. § 212.08(2)(a) — funeral exemption and tax paid by funeral directors on business property
• Fla. Stat. § 497.421 — preneed trust disbursement condition described by the ruling
• Fla. Stat. § 672.401 — passage of title to goods
• Fla. Admin. Code rr. 12A-1.035, 12A-1.052, and 12A-1.054 — funeral-home supplies, cemetery organizations, and time of sale
• In re Eli Witt Co., 2 B.R. 492 (Bankr. Fla. 1980), and In re Communications Co. of America, Inc., 84 B.R. 822 (Bankr. M.D. Fla. 1988) — delivery and passage of title
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-059

Original ruling text

Dec 03, 1996

Re: Technical Assistance Advisement (TAA) 96A-059 Sales Tax - Preneed Agreements for Funeral and Cemetery Services and Merchandise Sections 212.02(16)(a) and 212.06(1)(a), F.S., and Chapters 470, 497, and 672, F.S. Rules 12A-1.035; 12A-1.052; and 12A-1.051, F.A.C. Petitioner: XXX (herein referred to as the "Taxpayer")

Dear :

This response is in reply to your April 19, 1996, petition requesting the Department's issuance of a Technical Assistance Advisement pursuant to s. 213.22, F.S., and Chapter 12-11, 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:

1. Taxpayer and Florida affiliates, through cemetery and
   funeral home locations, are engaged in the cemetery and funeral service business throughout the State Florida pursuant to ss. 470 and 497, [F.S.].
2. As typical in the case of funeral and cemetery
   industries, taxpayer enters into preneed arrangements with its customers. These arrangements allow customers to pre-select funeral and cemetery services and merchandise. The customer agrees to make advance payments under the contract terms.
3. "Funeral" or "Funeral Service" means the observances,
   services or ceremonies held to commemorate the life of a specific deceased human being, and at which the

human remains are present pursuant to s. 470.002(13), F.S.

4. "Burial Service", "Funeral Service" or "Service" means
   any service offered or provided by any person in connection with the final disposition, memorialization, interment, entombment, or inurement of human remains pursuant to s. 497.005(13), F.S.
5. "Burial Merchandise", "Funeral Merchandise" or
   "Merchandise" means any personal property offered or sold by any person for use in or in connection with the final disposition, memorialization, interment, entombment or inurement or human remains pursuant to s. 497.005(12), F.S.
6. s. 470.0087(1)(e), F.S., establishes that the practice
   of funeral directing may only be performed by a licensed funeral director and include such functions as directing, being in charge or apparent charge of, or supervising, directly or indirectly, any funeral service held in a funeral establishment, cemetery, or elsewhere.
7. Merchandise is sold on a preneed basis through Retail
   Installment Contract Cemetery Interment Rights, Merchandise and Services Purchase/Security Agreements or Preneed Funeral Merchandise and/or Service Contracts ([hereinafter] collectively referred to as "Cont[r]acts").... These are standard contracts used by Taxpayer and its related entities in Florida to market Services and Merchandise.
8. Under the terms of the Contracts the customer agrees
   to pay for funeral services, entombment and related merchandise in installments over a period of time to be agreed upon by the parties.
9. No Merchandise is delivered until full payment is made
   under terms of the Contracts.
10. The Contracts are unilaterally cancelable by the
    purchaser. If canceled within 30 days of execution, purchaser is entitled to a full refund.
11. Taxpayer, in accordance with Florida Statutes may
    either: (i) deposit percentages or payments received in trust under s. 497.417, F.S., or comply with the financial responsibility alternatives in s. 497.423 or

497.425, F.S.; [Form 604-FL] or (ii) deposit to a trust in accordance with Florida Statutes, an amount equal to 110% of the merchandise wholesale cost sold for future delivery, or 30% of the purchase price collected for such merchandise, whichever is greater
[Form 604T-FL].

12. Customers, through the use of Contracts, may purchase,
    on a preneed basis, selected Services and/or Merchandise from either, or both, of the contracts.

Examination of the Contracts submitted with your petition 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.

REQUESTED ADVISEMENT

You request the Department's advice regarding the following:

I. If under the terms of the Contracts a customer agrees to pay for Merchandise in installments over a period of time and the terms of the Contracts provide that: (i) upon payment in full of the Total Sales Price to Seller or Seller's assignee, Seller will convey to Purchaser all rights, title or interests in the within described Internment Rights, and (ii) Purchaser shall have 30 days from date of execution of this agreement to cancel this agreement and receive a total refund of all monies paid; does the taxable event for sales tax purposes occur when the Merchandise is delivered rather when the contract is executed? II. If Taxpayer delivers Merchandise in conjunction with a Funeral, marketed in conjunction with a funeral home related by common ownership to the Taxpayer, is the merchandise exempt from sales tax when it is delivered to the customer, provided Taxpayer pays sales tax to the vendor upon purchase of the merchandise? III. If Taxpayer does not join with an unrelated funeral home to market a complete Funeral, but delivers

Merchandise at the direction of the customer in Conjunction with a Funeral, is the Merchandise exempt from sales tax to the vendor upon purchase of the Merchandise?

DISCUSSION OF LAW

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

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.

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.

Under the provisions of 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 no 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 judicial 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 I: Our analysis of the contractual terms and conditions of the Contracts, as cast, leads the Department to conclude that the elements of delivery (actual or constructive) will not be satisfied until the Contact is fully paid. This finding is supported by the fact that under the terms and conditions of the Contract, neither title nor possession to Merchandise transfers until the Contracts are paid in full.

Thus, at the inception of the Contracts executed on a preneed basis there is no occurrence of actual or constructive delivery and hence no passage of title or possession unless and until such time the Contracts are paid in full.

Therefore, pursuant to 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 judicial analysis and construction thereof, set out in the foregoing discussion, the Department hereby enters its finding that the Contracts executed on a preneed basis do not constitute executed sales contracts but are more in the nature of executory type contracts which guarantee delivery of merchandise and services at some future date. Accordingly, no sales tax will be due at the inception of the Contracts 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 is fully paid. 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 Contracts or on the cost price of the burial merchandise, whichever price is greater at the time of delivery.

RESPONSE, ISSUE II: If Taxpayer delivers Merchandise in conjunction with a Funeral, marketed in conjunction with a funeral home related by common ownership to the Taxpayer, it is evident that the parties are working in concert to sell a complete funeral package. Therefore, the exemption for funerals under s. 212.08(2)(a), F.S., would clearly apply. Accordingly, the merchandise would be exempt from sales tax when it is delivered to the customer, provided Taxpayer pays sales tax to the vendor upon purchase of the merchandise.

RESPONSE, ISSUE III: If Taxpayer does not join with an unrelated funeral home to market a complete Funeral, but delivers Merchandise at the direction of the customer in conjunction with a Funeral, the exemption for funerals under s. 212.08(2)(a), F.S., would not apply. The Department in construing the statutory exemption for funerals must adhere to, and be guided by, the long-standing and fundamental precept of statutory construction, established by the Florida Supreme Court. Such principles of construction mandate that exemptions from, or exceptions to, taxing statutes are special privileges granted by the legislature and must be strictly construed against the taxpayer and in favor of the administering agency. See Asphalt Pavers v. Dept. of Revenue, 584 So.2d 57 (Fla. 1 DCA 1991); Dade Cty. Taxing Auth. v. Cedars of Lebanon, 355 So.2d 1205 (Fla. 1978); Williams v. Jones, 326 So.2d 425 (Fla. 1975); Straughn v. Camp, 293 So.2d 689 (Fla. 1974); United States Gypsum Company v. Green, 110 So.2d 409 (Fla. 1959). This doctrine of strict construction cannot be reconciled with the liberal interpretation of the funeral exemption necessary to support that the Taxpayer and the unrelated funeral home were working in concert to sell a complete funeral. Therefore, under such

circumstances, the Taxpayer is required to collect and remit tax on the Merchandise. If the Merchandise is sold pursuant to the Contracts (preneed), then the tax is due with the return due for the month in which the Merchandise is delivered.

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/
Control No. 25404