Did temporarily warehousing overseas-project equipment in Florida make it subject to Florida use tax?

Subject

Exportation of Tangible Personal Property

Plain-English summary

The contractor did not owe Florida use tax merely because equipment and materials for foreign projects were temporarily gathered in a Florida warehouse. The property entered a continuous and certain export process when the contractor ordered it for a designated overseas job.

Each purchase order identified the foreign project, stated that the items were specifically purchased for export, and prohibited diversion to another destination or use. The contractor and its suppliers tracked the items by foreign job, stored them separately from general inventory in an export-labeled area, confirmed that the necessary components were present and working, and then arranged overseas shipment.

The items generally remained in Florida for less than two weeks, depending on shipping schedules. They were not used in Florida or redirected to other projects. On those facts, the temporary marshaling and storage were necessary steps in an unbroken export process rather than taxable Florida use.

What this means for you

Temporary storage alone does not establish the export exemption. Businesses need objective records showing commitment to a specific foreign destination from the time of purchase and a continuous chain through segregated storage to actual export, with no local use or diversion.

Common questions

Q: Must the seller deliver directly to a common carrier or licensed exporter? Those statutory methods avoid the presumption against export treatment, but the ruling said a taxpayer could also rebut the presumption with evidence of a continuous and certain export process.

Q: Did brief warehouse handling break the export process? No. Gathering, checking, containerizing, and holding the items for shipping schedules did not break the process on these facts.

Q: What documentation mattered? Export-specific purchase-order language, named foreign projects, job-number tracking, segregated storage, anti-diversion terms, and records of actual shipment.

Citations and references

• Fla. Stat. §§ 212.02(21), 212.05 — definition of use and tax on Florida storage or use
• Fla. Stat. § 212.06(5); Fla. Admin. Code r. 12A-1.064(1) — export property and continuous export process
• McGilvary v. Askew, 340 So. 2d 475 (Fla. 1976)
• Great Lakes Dredge & Dock Co. v. Department of Revenue, 381 So. 2d 1078 (Fla. 1st DCA 1979)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-061

Original ruling text

SUMMARY

The Department held that equipment and materials imported into Florida for ultimate export overseas are not subject to use tax as a result of their temporary warehousing in Florida. In this instance, the taxpayer irrevocably commits to exportation the equipment and materials purchased for overseas from the moment it places an order with its supplier. The taxpayer documents that the property remained in transit and that the course of the exportation process was unbroken. This is established based on the fact that the taxpayer indicates on the face of the purchase orders that the equipment and materials are purchased specifically for export. The purchase orders expressly prohibit the use or diversion of the property other than for export in connection with a designated project. The exportation process is uninterrupted by the temporary marshaling of the equipment and materials in a Tampa warehouse prior to shipping overseas. The taxpayer does not use the property in Florida, nor redirect the property for sue on other projects. The taxpayer merely maintains the property in a separate storage area specifically labeled for export.

Aug 18, 1998

Re: Technical Assistance Advisement 98A-061 XXX ("Taxpayer") Sales and Use Tax Exportation of Tangible Personal Property Sections 212.02(21), 212.05 & 212.06(5), F.S. Rule 12A-1.064(1)(a), (1)(b)5., F.A.C.

Dear :

This response is in reply to your letter dated December 4, 1997, requesting the Department's issuance of a Technical Assistance

Advisement ("TAA") pursuant to s. 213.22, F.S., and Chapter 1211, F.A.C., regarding the referenced matter and parties. An examination of your petition has established that you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for issuance of a TAA.

Facts

The following facts have been provided to the Department:

A. Taxpayer Information

[Taxpayer] is a Florida corporation.... [Taxpayer] is registered as a "dealer" for Florida sales tax purposes....

Description of Taxpayer's Business

[Taxpayer] is an electrical contractor engaged in the business of constructing, altering, repairing or improving electrical systems on real property. [Taxpayer] accepts contracts involving work on electrical systems located all over the world.

[Taxpayer] purchases all equipment and materials necessary for an overseas job from various suppliers located in and outside of Florida. Because [Taxpayer] frequently works on jobs in remote and undeveloped countries, [Taxpayer] has found it necessary to perform much of the preliminary gathering and testing of equipment and materials at its XXX warehouse. As a result, the equipment and materials for an overseas job are first shipped to [Taxpayer] at its warehouse in XXX. The equipment and materials intended for export are stored in a segregated area and are not commingled with the general inventory of [Taxpayer].
[Taxpayer] confirms that all components necessary for the entire job are present and in good working order.
[Taxpayer] then loads the equipment and materials in shipping containers and arranges for overseas shipment either from the port of XXX or by truck to another port for ultimate shipment overseas.

[Taxpayer] submits purchase orders to its suppliers for equipment and machinery intended for export. Each purchase order submitted by [Taxpayer] to its various suppliers for items intended for export contains a statement near the bottom which reads:

"These commodities are purchased specifically for export to the __ project on or in
__ located in the ____ and diversion for any other destination or use is prohibited. These export commodities are also governed by Article 1, Section 10, Clause 2 of the United States Constitution.

The blank spaces in this provision are filled in with the name of the ultimate foreign destination.

In addition, your letter of July 23, 1998, provides the following additional facts:

1. Length of time items remain in Florida. The items
   exported by [Taxpayer] for use in its foreign jobs remain in Florida for varying lengths of time; however, these items generally remain in Florida for less than two weeks. Moreover, the length of time the items remain in Florida is largely dependent on shipping schedules.

2. Foreign Job Codes. [Taxpayer] tracks its purchase orders
   and the corresponding invoices for foreign jobs by job description and job number. [Taxpayer] requires its suppliers to track the foreign jobs in the same manner. In virtually all cases, the suppliers comply with these requirements and track the items supplied to [Taxpayer] by foreign job description and job number.

Ruling Requested

Whether the equipment and materials purchased by Taxpayer and shipped to its warehouse facility in XXX for ultimate export overseas are subject to Florida use tax?

Discussion

Section 212.05, Florida Statutes (F.S.), provides that every person is exercising a taxable privilege who stores for use or consumption in this state any item or article of tangible personal property. "Use" is defined in Section 212.02(21), F.S., to include the exercise of any right or power over tangible personal property incident to its ownership.

Section 212.06(5), F.S., provides in part:

(a)1. Except as provided in subparagraph 2., it is not the intention of this chapter to levy a tax upon tangible personal property imported, produced, or manufactured in this state for export, provided that the tangible personal property may not be considered as being imported, produced, or manufactured for export unless the importer, producer, or manufacturer delivers the same to a licensed exporter for exporting or to a common carrier for shipment outside the state or mails the same by United States mail to a destination outside the state....

Rule 12A-1.064, Florida Administrative Code, further provides that sales and use tax is not assessed on tangible personal property "irrevocably committed to the exportation process at the time of sale, when such process has been continuous or unbroken." 12A-1.064(1)(a). A taxpayer must demonstrate a specific commitment of the property to the exportation process in order to avoid the use tax. Rule 12A-1.064(1)(b)5., F.A.C., specifically confirms that if goods are imported into Florida for export, use tax will be due unless the importer can demonstrate that the property was irrevocably committed to the exportation process at the time of importation, and that the exportation process was continuous and unbroken while the property remained in Florida.

The Florida Supreme Court in McGilvary v. Askew, 340 So.2d 475 (Fla. 1976), established that a rebuttable presumption exists that goods are not to be considered in the exempt export stream, unless one of the three conditions specified in s.

212.06(5)(a)1., F.S., is satisfied. The three conditions are that the goods are: (1) delivered to a licensed exporter for exportation, (2) delivered to a common carrier for shipment outside the state, or (3) mailed through the United States mail to a destination outside the state.

The rebuttability of the presumption was an issue in Great Lakes Dredge & Dock Company v. Department of Revenue, 381 So.2d 1078 (Fla. 1st DCA 1979). The court stated that McGilvary "... does not stand for the proposition that the statutory presumption may be rebutted only by meeting one of the three stated criteria. Rather, if one of the three criteria of Section 212.06(5), F.S., is met by the taxpayer, then there is no statutory presumption created that the property sought to be taxed is not within the stream of exportation." Id. At 1080-1081. The court then opined that if one of the three conditions is not met because of the necessity for greater speed in delivery, or for a variety of other reasons, the presumption of no exportation arises and must be rebutted if the goods are not to be taxed. Id. At 1081. The facts in this case revealed that none of the three conditions were satisfied, but the presumption was overcome by what the court saw as a "... continuous and certain process of exportation." Id. at 1084. The characterization was used by the court even though the goods were marshaled, stored, and some repackaged in Florida prior to actual shipment by ocean going barges.

The court noted that Great Lakes used purchase orders requiring suppliers to deliver the property to XXX and specifically mark property "for export." The court then tracked Great Lakes' receipt and ultimate export of the inventory at issue, confirming bills of lading and export declarations were prepared during the final loading, and that the inventory was actually exported. The court concluded that the limited delay in moving the property from the vendor to XXX was merely a necessary step in the exportation process and did not result in the property coming to rest in Florida. Id. At 1085.

These two cases reveal that if one of the criteria of s. 212.06(5)(a)1., F.S., is met the goods are exempt. Or, if none of the criteria are satisfied, the exemption may nevertheless

obtain, if other facts that show that the exportation process was continuous and certain, notwithstanding limited delay, limited storage, or repackaging of the goods before final shipment.

In this instant case, the taxpayer irrevocably commits to exportation the equipment and materials purchased for overseas from the moment it places an order with its suppliers. The taxpayer documents that the property remained in transit and that the course of the exportation process was unbroken. This is established based on the fact that the taxpayer indicates on the face of the purchase orders that the equipment and materials are purchased specifically for export. The purchase orders expressly prohibit the use or diversion of the property other than for export in connection with a designated project. The exportation process is uninterrupted by the temporary marshaling of the equipment and materials in a XXX warehouse prior to shipping overseas. The taxpayer does not use the property in Florida, nor redirect the property for use on other projects. The taxpayer merely maintains the property in a separate storage area specifically labeled for export.

Conclusion

Based on the above cited statutes, rule and case law, it is the Department's position that the equipment and materials imported into Florida for ultimate export overseas are not subject to use tax as a result of their temporary warehousing in XXX.

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 and administrative rule changes or that 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.

Sincerely,

Vicki Allen
Tax Law Specialist
Technical Assistance & Dispute Resolution (850) 922-4846

Ctrl. No. 32165