United States

Florida: State Supreme Court Upholds Origin Sourcing for Floral Sales Delivered Out-Of-State

Jun 06, 2016
From KPMG TaxWatch

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The Florida Supreme Court recently reviewed an appellate court decision addressing whether an in-state taxpayer was liable for sales and use taxes on sales delivered to out-of-state customers. The taxpayer, a Florida-incorporated business specializing in flowers, gift baskets, and other items of tangible personal property, received orders through its online website and facilitated the sales by using florists local to the customer to fulfill the orders. The taxpayer did not maintain any inventory at its principal location in Florida. The taxpayer collected sales tax on flowers and gift orders delivered to customers in Florida. It did not collect sales tax on orders received in Florida, but referred for delivery out-of-state. Under Florida law, florists located in the state are liable for sales tax on orders they receive and process even when they subsequently refer the order to a non-Florida florist for delivery to a location outside of Florida. That is, Florida law incorporate the so-called “florist rule,” obligating a Florida florist to collect tax on all orders they received even if the ultimate delivery was performed by another florist in a state other than Florida. Conversely, Florida law does not impose tax on sales received and processed by florists in other states and ultimately delivered into Florida. On audit, the Florida Department of Revenue assessed sales tax on the sales delivered out-of-state.

The appeals court, citing a lack of substantial nexus between Florida and the orders processed and delivered out-of-state, concluded that the assessment of tax on the out-of-state floral sales placed an undue burden on interstate commerce. On appeal, the Florida Supreme Court reversed after applying the four-prong “Complete Auto test” to evaluate whether Florida’s statute was constitutional. First, the court determined that the taxpayer’s activities in Florida had substantial nexus with the state. Notably, the taxpayer’s transactions originated at its headquarters in Florida. Second, the so-called “florist’s rule” statute was internally and externally consistent. It was internally consistent because no florist would be taxed twice if all states adopted Florida’s statute. External consistency was met because the statute taxed the transactions that originated in Florida, including order acceptance, order facilitation, and receiving of payments. Finally, the court held that the third and fourth prongs of Complete Auto were met, noting that the tax did not discriminate against interstate commerce because tax was imposed only on orders originating in Florida and not on orders originating elsewhere and delivered into Florida and that the tax was fairly related to the services the taxpayer received at its location in Florida. It is unclear whether the taxpayer will appeal the decision to the U.S. Supreme Court. Please contact Jeremy Dukes at (954) 847-3971 with questions on Dep’t of Revenue v. American Business USA Corp.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.