Taxability of Drop Shipments in Florida
- Oct 23, 2013 | Gail Cole
It would be an understatement to say that the tax rules surrounding drop shipping and third-party transactions are complicated. No surprise, then, that the Department of Revenue was asked to issue a Technical Assistance Advisement (TAA) on the topic. Bear in mind that TAAs are “binding on the Department only under the facts and circumstances described in the request” for the advisory.
The Taxpayer described in TAA 13-017 is a distributor of used equipment and parts headquartered outside of Florida. The Taxpayer has no physical locations in Florida but does employ traveling sales people who visit the Sunshine State, and is registered as a non-resident retailer to collect sales tax in Florida “on all taxable sales shipped to Florida Customers who buy directly from [the Taxpayer].”
The Taxpayer sought guidance from the Department of Revenue “on the taxing implications of sales to non-Florida dealers, with no legal obligation to be registered in the State of Florida, who direct the Taxpayer to ship goods to the non-Florida dealer’s customer in Florida.” Goods are always shipped via common carrier, and in this case the point of origin is outside of Florida.
In response, the department confirms the Taxpayer’s position that it is not required to collect sales tax on these transactions:
“On third party drop shipments, if the dealer and the buyer are both located outside Florida, and the goods, when purchased, are outside the State, the sale between the seller and the buyer does not come within the jurisdiction of Florida sales and use tax laws…. The taxability of the third-party transaction occurs with the goods are drop-shipped to the buyer’s customers in Florida.”
In short, if the buyer will resell the purchased item, the buyer is exempt from paying sales tax as a reseller and must collect sales tax when the item is resold. If the buyer is the consumer of the goods, “then the Florida customer is responsible for remitting use tax on the cost of the goods.”
Documentation required to substantiate the exempt sale is surprisingly simple: proof that the sale took place outside of Florida and proof of the non-Florida’s dealer’s physical location. “The invoices should indicate the common carrier destination point as that of the non-Florida dealer’s customer.”
Drop shipping rules vary from state to state, and businesses that use drop shippers to sell into multiple states need to stay on top of them all. That’s as exhausting as it sounds.
An automated sales tax solution won’t simplify drop shipping rules, but it will make sales tax easier for you.
Get Free Tax Rate Tables