Were separately invoiced trucking charges for F.O.B.-origin lime-rock sales subject to Florida sales tax?

Subject

Optional Freight Charges on F.O.B.-Origin Lime-Rock Sales

Plain-English summary

The related trucking company's transportation charges were not subject to Florida sales tax. One corporation sold lime rock and charged sales tax on the per-ton price. A separately operated corporation issued its own invoice for hauling the rock to the customer's construction site.

The rock invoices stated F.O.B. origin, so title passed at the point of origin, and the rock seller did not include freight charges. Customers could also choose a different carrier instead of the related trucking company.

Those facts met Rule 12A-1.045: the charge was separately stated and could be avoided solely by the purchaser's choice. Transportation arranged after an F.O.B.-origin sale was therefore outside the taxable selling price.

What this means for you

Separating a freight charge on paper was not the only requirement. The buyer also needed a genuine option to avoid the charge, or title needed to pass F.O.B. origin with the transportation separately stated.

The common ownership of the rock and trucking companies did not change the result on the submitted facts because they operated separately, invoiced separately, and left carrier selection to the customer.

Common questions

Q: Why were the hauling charges untaxed? They were separately invoiced, the customer could choose another carrier, and the rock was sold F.O.B. origin.

Q: Was the lime rock itself taxable? Yes. The rock company charged the appropriate sales tax on its per-ton sales price.

Q: Would a mandatory delivery charge be treated the same way? No. The quoted rule taxed transportation where the seller agreed to deliver and the purchaser could not avoid the charge.

Q: Did related ownership automatically make freight part of the rock sale? No on these facts. The Department emphasized the two separate businesses, invoices, F.O.B. term, and customer choice.

Citations and references

• Fla. Stat. § 212.05 — taxable privilege of selling tangible personal property at retail
• Fla. Stat. § 212.06(1)(a) — tax on the retail sales price
• Fla. Admin. Code r. 12A-1.045 — transportation-charge rules
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-018

Original ruling text

SUMMARY

The taxpayer owns two separate corporations. One corporation sells lime rock; the other provides trucking services for the lime rock company. Each company issues it's own invoice for it's sales or service. The lime rock is shipped F.O.B. Origin. The customer has the option of using the trucking company of it's choice. Pursuant to the criteria of Rule 12A-1.045, F.A.C., the transportation charges are not subject to tax.

Mar 31, 1998

Re: Technical Assistance Advisement 98A-018 Sales and Use Tax - Transportation Services Sections: 212.05, 212.06, F.S. Rule: 12A-1.045, F.A.C. Petitioner: XXX (herein "Transportation Company") and XXX (herein "Rock Company") FEI: XXX

Dear:

This letter is a response to your petition dated November 24, 1997, for the Department's issuance of a Technical Assistance Advisement ("TAA") concerning the above referenced party and matter. Your petition has been carefully examined and the Department finds it to be in compliance with the requisite criteria set forth in Chapter 12-11, F.A.C. This response to your request constitutes a TAA and is issued to you under the authority of s. 213.22, F.S.

DISCUSSION OF FACTS

The facts were previously provided with a request for a Letter of Technical Advice. From that request:

[T]wo corporations which are separately operated yet are

owned by the same individuals provide separate sales and services to their various customers.

One corporation is involved in [the] trucking business and the other is involved in the sale of lime rock. A customer will call the trucking corporation and secure transportation services related to lime rock which is purchased by the customer from the lime rock corporation.

The lime rock corporation bills the customer on a per ton basis for the lime rock which it acquires on a resale basis from a third party and charges the customer [the] appropriate sales tax on the per ton charge.

In a separate invoice the transportation company charges the customer for [the] transportation charge for hauling the lime rock to the customer's construction site. This is invoiced separate from the lime rock and no sales tax is collected on the transportation charge.

Additionally, in a telephone conference with our General Counsel's office, you related that the customer of the lime rock corporation does have the option of selecting a carrier, other than the trucking corporation, to transport the lime rock to the customer's desired location.

Invoices from the rock company and the transportation company were provided for review. Even though none of the rock company invoices made a charge for freight, all invoices from both companies were either marked F.O.B. origin or the F.O.B. point was not established.

REQUESTED ADVISEMENT

You endeavor to elicit advice on the taxability of the transportation services under these circumstances.

Discussion, Analysis, and Conclusion of Law

Pertinent sections of the Florida Statutes and Florida Administrative Code are consulted to determine the taxable

status of the situation.

Section 212.05, F.S. (1997), provides:

It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state, including the business of making mail order sales, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this state any item or article of tangible personal property as defined herein and who leases or rents such property within the state. (e.s.)

Section 212.06(1)(a), F.S. (1997), provides in pertinent part:

The aforesaid tax at the rate of 6 percent of the retail sales price as of the moment of sale, 6 percent of the cost price as of the moment of purchase, or 6 percent of the cost price as of the moment of commingling with the general mass of property in this state, as the case may be, shall be collectible from all dealers as herein defined on the sale at retail, the use, the consumption, the distribution, and the storage for use or consumption in this state of tangible personal property or services taxable under this part.... (e.s.)

Section 12A-1.045, F.A.C., provides in pertinent part:

(1) "Transportation charges" include carrying, delivery, freight, handling, pickup, shipping, and other similar charges or fees.

(2) Transportation charges which are not separately stated on an invoice or bill of sale, but are included in the sales price of taxable tangible personal property, are subject to tax.

(3)(a) Where the seller agrees to deliver tangible personal property to some designated place and the purchaser cannot elect to avoid the charge for transportation services, the

charge for the transportation service is subject to tax, even if separately stated on an invoice or bill of sale.

(4)(a) The charge for transportation services is not subject to tax when both of the following conditions have been met: 1. The charge is separately stated on an invoice or bill of sale; and

2. The charge can be avoided by a decision or action solely
   on the part of the purchaser. (See subsection (5) for shipping of tangible personal property F.O.B. origin.)

(5) If the seller contracts to sell tangible personal property F.O.B. origin, the title to the property passes at the point of origin. Since the title to the property passes at the point of origin, transportation services arranged by the seller and rendered to the buyer are not a part of the taxable selling price, provided the transportation charges are separately stated. Where the transportation charges are billed by the seller to the buyer but documentation is inadequate to establish the point at which title passed to the buyer, it is presumed that the tangible personal property was sold F.O.B. origin and the title to the property passes at the point of origin. In such instances, the transportation charges are not considered a part of the selling price of the property, if separately stated....

(6) When the purchaser of taxable tangible personal property contracts with a third party carrier at the purchaser's option and pays transportation charges thereon directly to the third party carrier, such transportation charges are not subject to tax.

In summary of the facts you presented, it appears that your client owns two separate companies involved in two separate businesses. One company sells lime rock and the other provides

transportation services for lime rock customers. The invoices from the lime rock company are stamped "F.O.B. Origin," designating that title has passed to the customer and do not include transportation charges. For lime rock delivered by the related trucking company, a separate invoice is issued, but the customer can elect not to have the trucking company deliver the purchase.

Rule 12A-1.045, F.A.C., as set forth above, appears to directly apply to your client's situation. As specified in this Rule, transportation charges are not subject to sales tax when: the charge for transportation is separately stated on an invoice or bill of sale and the charge can be avoided by a decision or action solely on the part of the purchaser, or when goods are shipped F.O.B. Origin and the charge is separately stated. Consequently, the Department concludes, under the circumstances described in your request, that the transportation charges imposed by your client's trucking company are not subject to sales tax.

This response constitutes a Technical Assistance Advisement under Section 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 Section 213.22, F.S. Our response is predicated upon 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 from that which is 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 Section 213.22, F.S. Your name, address, and any other details that 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 this response.

Sincerely,

Sara D. Faulkenberry
Tax Law Specialist
Tech. Assistance & Dispute Resolution
Control #32005