Were separately stated delivery charges for precast construction materials taxable after the buyer gained delivery choice?

Subject

Transportation Services

Plain-English summary

The separately stated transportation charge became nontaxable after the purchase-order addendum gave the contractor sole control over delivery. The contractor could collect the precast piles and beams with its own equipment, hire a third-party carrier, or choose supplier delivery. The government project owner had no discretion over that choice.

The original TAA had correctly taxed delivery because the earlier contract made the supplier responsible for delivery and risk of loss until destination acceptance. The addendum materially changed those terms and satisfied the rule requiring delivery to be both separately stated and avoidable solely by the purchaser.

The Department refused retroactive treatment. Materials had already been delivered and the tax became due when the costs were incurred under the original contract. Rewriting the agreement after performance and an adverse TAA did not create a refund for those completed transactions.

What this means for you

Optional-delivery language must exist in the operative contract when the transaction occurs. A separately stated freight line alone is not enough if the seller still controls delivery or bears destination risk, and a later amendment cannot undo tax already imposed.

Common questions

Q: What made the revised delivery charge nontaxable? The buyer alone chose among self-pickup, a third-party carrier, or supplier delivery, and the charge was separately stated.

Q: Did the government customer choose the delivery method? No. The ruling confirmed that the contractor alone had that discretion.

Q: Could the contractor recover tax paid before the addendum? No. The Department treated the addendum as a material prospective change, not a clarification with retroactive effect.

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(4)(a) — separately stated transportation avoidable solely by the purchaser
• Fla. Stat. § 213.22 — Technical Assistance Advisements

OCR citation check: the scanned ruling contains no case citations requiring list-mode verification.

Source

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

Original ruling text

SUMMARY

This letter revises Technical Assistance Advisement (TAA)
number 98A-036 dated May 13, 1998. In this case a general
contractor in performance of a real property improvement
contract for a governmental entity purchased pre-cast piles
and beams from a supplier. The purchase order served as
the contractual agreement between contractor and supplier.
The order included itemized transportation charges to be
paid to the supplier. The original TAA determined that

title passed at the destination point because title to the
materials passed upon delivery. The Advisement concluded
that the delivery charges are included in the taxable cost

of the goods.

The subsequent letter provided an addendum to the original
purchase order. The addendum to the purchase order gave
the contractor sole discretion over delivery options. It

was also determined that the government agency that
contracted the job retains no discretion over the delivery
options. The addendum supersedes the other previous
contract terms that indicated that the title passed upon
delivery. Because the transportation charges are
separately stated on the invoice, and the contractor now
has the stated choice of delivery, Rule 12A-1.045(4)(a),
F.A.C., is satisfied. The charges for transportation

services are therefore not subject to tax.

The letter also sought a retroactive application of any
determination that the transaction was not taxable.
Reformation of transactions after both their performance

and the Department's issuance of an adverse technical
assistance advisement, might severely compromise collection
of legally imposed taxes. The transaction was carried out

to the extent that goods were delivered. The tax became

due at the moment the costs were expended. The tax
consequences changed because of a material change in the

contract.

Sep 18, 1998

Re: Technical Assistance Advisement 98A-036R (Ref. 98A-036)
Sales and Use Tax - Transportation Services
Sections: 212.05, 212.06, F.S.
Rule: 12A-1.045, F.A.C.

Dear:

This letter is a response to your re-submitted request dated

July 1, 1998, 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 relevant facts were previously provided in Technical
Assistance Advisement (TAA) number 98A-036 dated May 13, 1998.

From that letter it was determined:

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
(hereinafter referred to as "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.

Your subsequent letter indicates that you have amended your
original purchase order dated July 25, 1997. The one page
addendum to the purchase order refers to a July 25, 1998
purchase order, which | assume is a typographical error. The

addendum, makes the following assertions:

XXI Contractor has the following delivery options solely at

its discretion:

1) Pick up the products being furnished by Supplier at

Supplier's casting yard using Contractor's own equipment.

2) Pick up the products being furnished by Supplier at

Supplier's casting yard using the services of a third

party.

3) Have Supplier deliver the products according to the
rates and conditions previously established in this

Purchase Order.

Whenever Contractor elects to either pick up the products
or have a third party do it on behalf of Contractor,
Supplier will not be responsible to provide Cargo or
Hauling insurance as required on item IV of the Purchase
Order and title passes at Supplier's plant when loaded on

common carrier (Contractor takes possession).

Item XXI added above is not changing the intent of the
terms and conditions of the original purchase order in any
manner. It is being added solely to clarify what has been

the understanding between the parties from the start.

By a letter dated August 25, 1998 and conversations with
the Florida Department of Transportation's project engineer, it
is my understanding that the FDOT exercises no discretion over
the choice of delivery of the subject materials.

REQUESTED ADVISEMENT

You seek advice on the taxability of the transportation services

under these circumstances.

DISCUSSION, ANALYSIS, AND CONCLUSION OF LAW

Please find pertinent sections of the Florida Statutes and

Florida Administrative Code below.

Section 212.02 (16), F.S. (1997), provides:

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

of the sale.... (emphasis added)

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.

Section 12A-1.045(4), F.A.C., provides in pertinent part:

(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.)

In summary of the facts you presented, it appears that your only
change with respect to the request for Technical Assistance
Advisement is the referenced addendum to the purchase order.

The previous TAA concluded that the transportation charges are

not optional and thus are part of the sales price. That
determination was based on the previous terms of the agreement
between Contractor and Supplier, as stipulated under the terms
and conditions of the Purchase Order, that materials are sold
F.O.B. destination. Title to the materials passes upon

delivery, acceptance, and payment of the items purchased.

Your addendum to the previously considered purchase order
properly delineates the choice of means of delivery with the
purchaser [Contractor]. Because the transportation charges are
separately stated on the invoice, and [Contractor] has the
choice of delivery, Rule 12A-1.045 (4)(a), F.A.C. is satisfied

and the charge for transportation services is therefore not

subject to tax.

Retroactive Application

Your July 1, 1998 letter, written after the Department's

issuance of an adverse technical assistance advisement provides
information that contradicts the documentation provided with

your initial request. Although you state in your letter that

the substance of the transaction has not changed and that you
and Supplier agree to this, we disagree. The contract terms

with respect to the delivery were changed. Previously, the
documents indicated that delivery was to be made at the time and
manner specified in the General Contractor's schedule (paragraph
3). The order refers to A FOB trucks at job sight (special
condition XII) and that Supplier is responsible for delivery,

all risk of loss until delivery shall be borne by Supplier and
Supplier shall purchase insurance to cover the risks of loss
during delivery. (Special condition IV). The conclusion that

the total sales price includes the delivery charges was clear.

The initial technical assistance advisement was a correct
statement of the law in the Department's opinion based on the

facts that surrounded that purchase order.

Your understanding that "if it is determined that sales tax is

not due on the transportation charges, it will be effective
retroactively to the beginning of this transaction ...." is not
correct. The transaction was carried out and the tax was due at

the moment the costs were expended. If taxpayers would be

allowed to reform transactions after full performance and
payment because they learn of unfavorable tax consequences,
collection of legally imposed taxes might be severely
compromised. The reason that the current result of no sales tax
on transportation charges is reached is because of a material
change in the terms and conditions of the transaction. Before
there were several terms that indicated that Supplier was
obliged to bear all risk of loss until acceptance at the

destination point. Although those terms remain, the new
addendum provides the language that satisfies Rule 12A-1.045(4)
F.A.C., thus superseding any previous terms to the contrary.
The question of how you will receive a refund thus does not

arise, because per this advisement you are not so entitled.

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,

Michael C. Gold

Senior Attorney

Technical Assistance & Dispute Resolution

Control #34697