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