Florida: When Sales Tax Should and Shouldn't Be Collected
- Nov 14, 2014 | Gail Cole
Update, 5.31.2016: The Florida Supreme Court has ruled that Florida tax applies to sales of tangible personal property made to out-of-state residents and fulfilled and shipped out-of-state. Learn more.
Florida sales tax is levied on the transfer of tangible personal property when there is substantial nexus—or connection—between the sales activity and the state. When a bouquet of flowers is purchased at a florist shop in Miami, for example, the sale is taxable. Yet when that same bouquet is ordered online by an out-of-state customer and delivered to a location outside of Florida, should Florida sales tax be collected?
The Florida Department of Revenue (DOR) thought it should be, since the company that took the order is located in Florida. The seller disagreed.
The seller is an internet business located in Florida and all sales transactions take place online. Many of the seller’s customers are located outside of the United States, primarily in Spanish speaking countries, and the seller did not charge sales tax on orders made by out-of-state customers and delivered to out-of-state locations. Flowers used to fill these orders were neither grown nor stored in Florida.
The seller did charge sales tax on orders delivered to Florida locations; these orders were filled by local florists.
In addition to flowers, the seller sold prepaid calling arrangements and did not charge customers tax on any of these sales.
During an audit, the DOR found the seller liable for the unpaid sales tax, both on floral arrangements and gift baskets and on the prepaid calling arrangements. It pointed to the law that reads, in pertinent part:
“Florists located in this state are liable for sales tax on sales to retail customers regardless of where or by whom the items sold are to be delivered. Florists located in this state are not liable for sales tax on payments received from other florists for items delivered to customers in this state.”
An administrative law judge agreed with the DOR that the seller owed sales tax for all sales transactions, even those delivered out-of-state. The seller appealed.
After reviewing the case, Florida’s Fourth District Court of Appeals found that “Florida impermissibly burdened interstate commerce when it taxed out-of-state customers for out-of-state deliveries of out-of-state tangible goods.” It elaborated:
“We … find that the imposition of taxes on out-of-state customers for out-of-state flower deliveries violates the dormant commerce clause…. We further find that the tax is unconstitutional as applied to the taxpayer’s sales to out-of-state customers for out-of-state delivery.”
Simply put, there was no nexus. The flowers used to fill the orders were never stored or even brought into Florida.
However, the court sided with the DOR regarding sales of prepaid calling arrangements. The seller did not keep records of who purchased these and so could not prove that they were sold to people living out-of-state. As a result, the court determined that all sales of prepaid calling arrangements were subject to tax. Better record keeping could have resulted in a different verdict.
It is a fascinating ruling, quoting Founding Fathers Alexander Hamilton and James Madison and referencing pivotal nexus Supreme Court cases: National Bellas Hess, Inc. v Department of Revenue and Quill Corp. v. North Dakota. Read it here.
Automated sales tax software as a service (SaaS) helps businesses collect the sales tax required. Learn more.