In order to claim a ‘resale’ exemption in the state of Florida, purchasers must normally only use a resale certificate issued by the Florida Department of Revenue. These generally expire annually and are automatically renewed for all businesses registered with the Department. As more companies use ‘drop shipments’ as a way to fulfill orders the issue of what exemption certificates are valid in the ‘ship to’ state becomes an important question. In TAA 15A-020 the Florida Department of Revenue clarifies a very important point as to how it would treat drop-shipments and what type of documentation it would require to exempt the Florida sale from being taxed by the original shipper. http://salestaxstrategies.com/third-party-drop-shipment-analysis/
Let’s take a quick review of the Florida drop-shipment situation. Drop-shipment’s involve at least 3 different parties. These are the final customer, the vendor, and the shipper. Drop-shipments also involve at least 2 different states. In the ruling, the final customer was located in Florida, the vendor (who is selling to the final customer) is located outside of Florida and the shipper is also headquartered outside of Florida but it sends salesmen into Florida and is registered for Florida sales tax. The shipper sends his invoice to the vendor outside of Florida.
The sale from the shipper to the vendor is a “sale for resale” that occurs in Florida. The sale from the vendor to the final customer is a retail sale that may be taxable or may be exempt depending on the property. Because the shipper has nexus in Florida and is registered with the Florida DOR, it asked the question as to whether it would be required to collect Florida sales tax on the sale to the vendor because it had nexus in Florida.
Florida law Section 212.05 states that if the shipper and the vendor are both located outside of Florida and the goods are outside of Florida when purchased, the sale between the shipper and the vendor is outside of Florida jurisdiction. In the past I have had client situations similar to this and could not find clarification to what was meant by the phrase “located outside Florida.” Even though the shipper has nexus with Florida through the presence of salesmen in the state, this ruling concludes that does not mean that the shipper is located in Florida and must collected tax . It does not even require that the shipper collect a Florida resale certificate from the vendor.
If either the shipper is located in Florida at the time of the sale, then Florida sales tax would need to be collected from the vendor or a valid Florida resale certificate would need to be obtained. Florida requires that the vendor register with the DOR to issue a valid resale certificate.
Ned Lenhart, CPA
President Interstate Tax Strategies.