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