When did Florida tax drop-shipped equipment sales and separately billed installation or repair charges?

Subject

Drop Shipments-Installation and Repair of Equipment

Plain-English summary

The Florida-registered manufacturer had to collect tax on a drop-shipped equipment sale unless the Florida distributor gave it a valid resale certificate. Knowledge that the distributor intended to resell the equipment was not a substitute, and an unregistered distributor could not issue the required Florida certificate.

For installation and repair work, incorporating any tangible personal property made the entire charge taxable. That included separately itemized labor, employee travel time, travel expenses, and parts. If no parts or other tangible property were attached or incorporated, the labor, trip, and expense charges were not taxable, but the company needed clear documentary evidence supporting the labor-only treatment.

What this means for you

Drop-shipment documentation and service invoices both matter. A seller should obtain the permitted resale documentation before treating a distributor sale as exempt, and a service provider should be able to prove when an installation or repair used no parts.

Common questions

Q: Could the manufacturer rely on knowing the distributor would resell the equipment? No. The ruling required a valid resale certificate or another specifically authorized exemption basis.

Q: Were separately stated installation labor and travel charges exempt? Not when tangible property was incorporated into the equipment; the entire charge was taxable.

Q: What if an installation or repair used no parts? The labor, trip, and expense charges were not taxable if the company retained clear evidence that no tangible property was attached or incorporated.

Citations and references

• Fla. Stat. §§ 212.02, 212.05, 212.06, and 212.07 — retail sales, dealer collection duties, and resale treatment
• Fla. Admin. Code r. 12A-1.038 — resale certificates
• Fla. Admin. Code r. 12A-1.006 — installation and repair charges involving tangible personal property
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-036

Original ruling text

May 20, 1997

Re: Technical Assistance Advisement 97(A)-036 Drop Shipments-Installation and Repair of Equipment XXX (herein Company) Sections 212.02(14)(a), 212.05(1)(a),(2), 212.06(2)(c),(3), 212.07(1)(b), F.S. Rules 12A-1.006(4), 12A-1.038, F.A.C.

Dear :

This is a response, styled a Technical Assistance Advisement, to your letter dated March 6, 1997, in which you asked whether your firm, Company, a Florida corporation, operating manufacturing plants in Texas and Florida, incurs a sales tax liability in connection with drop shipments to its Florida distributors of the equipment it manufactures at the Texas plant. You also ask two other questions, with subparts, as to the taxability of the installation and repair by Company in Florida of the same equipment at the location of the customers to whom the equipment was sold by the distributors.

Company is a registered Florida dealer for the purposes of the collection and remittance of Florida sales tax. You state that the Texas plant makes equipment which manufactures roof trusses, and that the Florida plant manufactures truss connector plates.

With respect to the sales to its Florida distributors of the equipment manufactured in the Texas plant, Company drop ships the equipment to the Florida customer of its distributor. The distributor, who is paid by its customer, then remits its own payment to Company.

Department Response

Section 212.05(1)(a), F.S., imposes the Florida sales tax on the privilege of engaging in the sale of tangible personal property in this state. Section 212.05(2), F.S., further provides that "(t)he tax shall be collected by the dealer,... and remitted by

the dealer to the state at the time and in the manner as hereinafter provided." Section 212.06(2)(c), F.S., defines the term "dealer" to include any person "... who sells at retail or who offers for sale at retail... tangible personal property...."

Also, subsection (3) of the statute requires that "(e)very dealer making sales, whether within or without the state, of tangible personal property for distribution, storage, or use or other consumption, in this state, shall, at the time of making sales, collect the tax imposed by this chapter from the purchaser." The term, "sale at retail" is defined in s. 212.02(14)(a), F.S., to mean "... a sale to a consumer or to any other person for any purpose other than for resale...."

Thus, any sale by Company, which is a Florida registered dealer, of its equipment to the Florida distributor, is subject to tax unless the Florida distributor extends to Company a resale certificate as provided in s. 212.07(1)(b), F.S., and as this statute is interpreted in Rule 12A-1.038, Florida Administrative Code.

If the distributor is not a registered Florida dealer, it may not extend a Florida resale certificate. In such an event, Company is required to collect sales tax even if, as you state, it is known that the distributor had purchased the equipment for resale.

Considering the statutory provisions cited above, your statement on page 1 of your letter is affirmed in that Company must collect the tax from the distributor in the event the distributor is unwilling or unable to extend a resale certificate to Company. Also, there is no other documentation permitted by statute to substitute for the receipt by Company of a resale certificate from the distributor.

You are alerted that there are statutory provisions for the receipt by a dealer of an exemption certificate, or evidence of direct pay authority from a purchaser. However, it is understood by the Department that you do not advance a claim that the distributor is an exempt organization, nor do you assert that the distributor has received authority from the

Department to pay the applicable sales taxes directly to the State on its taxable purchases.

In your second question you ask about the taxability of the installation charges billed by Company to the customer of the distributor. These charges arise from the installation of the equipment at the customer's location following the sale of the equipment by the distributor to the customer.

You state on page 2 that the installation charges are separately itemized, and an assumption is made that in the installation of the equipment "... some form of tangible personal property..." is used in the process. The billing by Company lists "installation labor"; "standard trip charge" (which represents an hourly charge for an employee of Company to travel to the customers (sic) location); and a "standard expense" charge which includes the traveling expenses of the Company's employee to the location of the customer.

Your conclusion is affirmed that all of these separately itemized installation expenses are subject to sales tax when tangible personal property is attached to, or incorporated in the equipment being installed. The tax is applicable to these charges because s. 212.05, F.S., as cited above, imposes the tax on the sale of tangible personal property.

If tangible personal property is attached to, or incorporated in, the equipment, the inclusion of these items as part of the sale triggers the tax. The installation charges would be taxable irrespective whether the three charges described above were separately itemized. Rule 12A-1.006(1)(a), F.A.C., interprets the statute in the following manner:

Where parts are furnished by the repairer, the entire charge the repairer makes to a customer for adjusting, applying, installing, maintaining, remodeling or repairing tangible personal property is taxable....

Thus, the tax applies to the total of the three itemized charges of labor, standard trip charges, and the travel expense charges.

You also ask if the three itemized charges would be subject to tax if no tangible personal property was attached to, or incorporated in, the equipment installed by Company.

In such an event there is no sale of tangible personal property to the customer. Consequently, if no tangible personal property were attached to, or incorporated in, the equipment being installed, the three expenses billed the customer would not be taxable. Rule 12A-1.006(4), F.A.C., requires Company to show documentary evidence if it is claimed that only labor was expended in the installation process. You question the form such documentation may take.

The documentary evidence may include a notation on the billing invoice or on a record attached to such invoice, or evidence otherwise retained by Company which is of sufficient clarity or import to show that no tangible personal property was attached to, or incorporated in, the property which was installed. You are alerted that it is whether tangible personal property was actually attached to or incorporated in the property which is installed that is determinative, not whether these items appear on the billing.

In your third question, which is similar to the second question answered immediately above, you ask whether, in the repair of the equipment following its installation, itemized charges of labor, standard trip charge, standard expense charge, and parts would be taxable.

As in the response to the second question, s. 212.05(1)(a), F.S., imposes the tax on the privilege of engaging in the sale of tangible personal property. A retail sale occurs, which triggers the tax, if parts, in the process of repair, are attached to, or incorporated in, the equipment.

Thus, all of the itemized charges, including the charge for the parts, would be taxable. However, none of the itemized charges would be taxable, as explained in the response to the second question above, if no parts or any other tangible personal property were attached to, or incorporated in, the equipment under repair.

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
Technical Assistance and
Dispute Resolution

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