Were supplier delivery charges for custom precast piles and beams taxable when risk stayed with the seller through destination acceptance?

Subject

Transportation Charges

Plain-English summary

Under the original purchase order, the supplier's delivery charges were part of the taxable price of custom precast piles and beams. The supplier retained all risk of loss until the materials reached the job site, were accepted, and were paid for. Florida therefore treated the sale as F.O.B. destination and the delivery as a required part of completing the sale.

A separately stated freight line was not enough to make the charge exempt. Under the rule and cases cited, transportation escaped tax only when the purchaser alone could avoid it. Here, the contract did not let the contractor pick up the materials or choose a different carrier, so delivery was not optional.

This ruling's face says “Refer to 98A-036R.” The later TAA 98A-036R revised the result prospectively after the parties adopted a material addendum giving the contractor sole discretion to self-pick up, hire another carrier, or use supplier delivery. The Department did not apply that change retroactively to deliveries already completed under the original destination terms.

What this means for you

Delivery taxability follows the operative contract when the sale occurs. If the seller controls delivery and bears destination risk, the transportation charge can remain part of taxable sales price even when separately itemized.

Optional-delivery language must be real and timely. A later amendment can change future transactions but does not rewrite the tax consequences of goods already delivered under mandatory terms.

Common questions

Q: Why were the original delivery charges taxable? Title and risk stayed with the supplier through job-site delivery and acceptance, making transportation an unavoidable part of the sale.

Q: Did separately stating freight remove tax? No. The buyer also had to be able to avoid the charge through its own decision or action.

Q: Is TAA 98A-036 still the final word for the later contract terms? No. TAA 98A-036R revised the treatment after the addendum created genuine buyer-controlled delivery options.

Q: Did the revision create a refund for prior deliveries? No. The revised advisement said the material contract change operated prospectively and did not undo tax already due.

Citations and references

• Fla. Stat. § 212.02(16) — sales price includes services that are part of the sale
• Fla. Stat. § 212.05 — Florida sales and use tax
• Fla. Admin. Code r. 12A-1.045 — taxable mandatory transportation and nontaxable separately stated transportation avoidable solely by the purchaser
• Florida Hi-Lift v. Department of Revenue, 571 So. 2d 1364 (Fla. 1st DCA 1990)
• Department of Revenue v. B & L Concepts, 612 So. 2d 720 (Fla. 5th DCA 1993)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-036

Original ruling text

SUMMARY

In this case, a real property contractor, who is performing
a job for a governmental entity, purchases pre-case piles
and beams from his "Supplier". The items are manufactured
specifically for the contractor according to the plans and
specifications given in its purchase order, and in
compliance with the prime contract between the contractor
and the governmental agency, as owner.

The purchase order served as the contractual agreement
between the contractor and the supplier. Under the terms
and conditions of the purchase order, "all risk of loss" of
materials sold to the contractor remained with the supplier
until final acceptance and payment by the contractor.

It was determined that under these terms, materials are
sold F.O.B. destination because title to the materials
passes upon delivery, acceptance, and payment of the items
purchased. In other words, under the terms and conditions
of the Purchase Order, delivery charges are included in the
transaction as a part of the sales price for the goods and
are therefore subject to tax.

Applying the tests used by the court in Florida Hi-Lift and
B&L Concepts, we find that the delivery charges are not
optional. Because the transaction has been structured so
that title to goods does not pass until the items are
delivered and accepted, charges imposed on the purchaser
associated with this objective is part of the sales price.
Given this, Florida Hi-lift and B&L Concepts compel a
finding that the charge for delivery is part of the "sales
price" and, therefore, subject to sales tax.

Refer to 98A-036R

May 13, 1998

Re: Technical Assistance Advisement No. 98A-036

Sales and Use Tax - Transportation Charges
Sections: 212.05; and 212.02(16), F.S.
Rule: 12A-1.0045, F.A.C.

Dear :

Your letter of January 29, 1998, requested a Technical
Assistance Advisement on the application of the Sales and Use
Tax to the above referenced matter. This response to your
request constitutes a Technical Assistance Advisement under
Chapter 12-11, Florida Administrative Code, and is issued to you
under the authority of s. 213.22, Florida Statutes.

DISCUSSION OF FACTS

XXX (hereinafter referred to as "Contractor") is in the
business of making improvements to real property as a general
contractor. Contractor also performs jobs for governmental
entities, such as the Florida Department of Transportation.

Contractor purchases pre-cast piles and beams from XXX
("Supplier"). These items are manufactured specifically for
Contractor according to the plans and specifications given in
its purchase order. Materials ordered from Supplier are in
compliance with the prime contract between Contractor and the
governmental agency as owner.

The purchase order serves as the contractual agreement
between Contractor and Supplier. Under the terms and conditions
of the purchase order, "all risk of loss" of materials sold to
Contractor remains with Supplier until final acceptance and
payment by Contractor.

REQUESTED ADVISEMENT

You question whether sales tax should be charged and
collected on the charge for delivery.

DISCUSSION and ANALYSIS OF LAW

The following statutory and administrative cites, and case law

are relevant to addressing the issue under advisement herein:

Section 212.05, F.S, provides in part:

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.

(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:

(a)1.a. At the rate of 6 percent of the sales price of each
item or article of tangible personal property when sold at
retail in this state....

Section 212.02(16), F.S., defines "Sales price" as:

(16) "Sales price" means the total amount paid for tangible
personal property, including any services that are a part
of the sale....

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

(1) "Transportation charges" includes 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 can not

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....

Rule 12A-1.045, F.A.C., which deals with sales tax on
transportation charges, recognizes the decisions in Florida
Hi-Lift v. Department of Revenue,(FN 1) 571 So.2d 1364 (Fla.
1DCA 1990), and Department of Revenue v. B&L Concepts,(FN 2) 612
So.2d 720 (Fla. 5DCA 1993).

In this case, the transportation charges are part of the
sales price. The term "sales price" means the total amount paid
for tangible personal property, including any services that are
a part of the sale. Under the terms of the agreement between
Contractor and Supplier, as stipulated under the terms and
conditions of the Purchase Order, materials are sold F.O.B.
destination. Title to the materials passes upon delivery,
acceptance, and payment of the items purchased. Under these
conditions, the total sales price includes delivery charges.

Applying the tests used by the court in Florida Hi-Lift and
B & L Concepts to your delivery charges, we find that the
delivery charges are not optional. Because the transaction has
been structured so that title to goods does not pass until the
items are delivered and accepted, then charges imposed on the
purchaser associated with this objective is part of the sales
price. Given this, Florida Hi-Lift and B & L Concepts compel a
finding that the charge for your delivery is part of the "sales
price" and, therefore, subject to sales tax.

In other words, under the current terms and conditions of

the Purchase Order, delivery charges are included in the
transaction as a part of the sales price for the goods and are
therefore subject to tax.

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
based 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,

Joseph D. Franklin III
Tax Law Specialist
Technical Assistance and
Dispute Resolutions Section
JDF3/
Ctrl# 32914

NOTICE UNDER THE AMERICANS WITH DISABILITIES ACT
Persons needing an accommodation to participate in any
proceeding before the Tax Policy and Dispute Resolution Office,
should contact that office at 904-488-0717 (voice), or 1-800DOR-8331 (TDD), at least five working days before such
proceeding, You may also call via the Florida Relay System at

1-800-955-8770 (voice), or 1-800-955-8771 (TDD).

FOOTNOTE 1 In Florida Hi-Lift v. Department of Revenue, the
court found that the rental of equipment was a "sale"; that Rule
12A-1.045, F.A.C., was applicable; and the transportation
charges, while incidental to the sale, were not part of the
total sales prices because the equipment lease was F.O.B.
lessor's site, and the lessee had the option of picking up the
equipment or having delivery made by the lessor.

FOOTNOTE 2 The court held that the proper line of demarcation
was that if service charges or fees incidental to the sale or
lease are imposed at the option of the vendor or lessor, those
service charges or fees are a part of the "sales price" and are
subject to the sales tax, but if such service charges or fees
are separately itemized and applied at the sole option or
election of the vendee or lessee or can be avoided by decision
or action on the part of the vendee or lessee alone, then those
charges and fees are only incidental to the sale, are not of the
"sales price" and are not subject to sales tax. Applying this
line of reasoning, the court held that late fees and delivery
fees were to be excluded from the taxable "sales price", since
the late fees could be avoided by the timely return of the
rented items and because of the optional nature of the delivery
fee.