September 9, 2016

Constitutionality of Sales Tax Origin Sourcing Upheld for Florida-Based Florist

Contributor John Bonk, Tax & Business Services Senior Manager

Constitutionality of Sales Tax Origin Sourcing Upheld for Florida-Based Florist State & Local Tax

The Florida Supreme Court upheld the constitutionality of the recent decision and related statutes pertaining to sales tax origin sourcing within the American Business USA Corp case which stated: “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.” The Court’s reasoning goes against what is usually thought of as sales tax, which is based upon changes of title and possession, the usual and customary foundation for sales tax.

Under the decision and statute, noted above, a flower order placed from Virginia to a Florida florist and delivered to California would be subject to Florida sales tax. However, that same delivery would also be subject to California sales tax. In the American Business case, the Florida florist didn’t actually own flower shops; the company contracted with third parties in various locations for product orders and deliveries. In most cases, the flowers were not being shipped from Florida. This situation created another issue: the florist was being taxed by the state of Florida on the service it provided, and Florida generally doesn’t apply sales tax to services.

Currently, we are unaware if the state has attempted to apply this strategy within the statute to other industries, but a company with facts that could mirror the florist’s business situation referenced in the case could file a Letter of Technical Advice with the Florida Department of Revenue. The Letter of Technical Advice is non-binding and can be anonymous, and could be helpful to allow a business owner to understand potential tax exposure or a possible tax savings. A business that takes orders in Florida but contracts with third parties for the delivery of goods would be a candidate for a Letter of Technical Advice. Conversely, a business that takes orders outside of Florida but contracts with third parties for a substantial amount of goods delivered in Florida would also be a good candidate, as it is possible the state would conclude it would not have to collect sales tax on Florida sales.

Please contact your dedicated Marcum State and Local Tax professional to address any questions regarding this case.

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