SALT Report 3098 – The Florida Department of Revenue issued a technical advisory regarding the application of sales and use tax to products that are drop-shipped. In this case, the Taxpayer makes a significant number of sales to out-of-state dealers who request that the Taxpayer drop-ship the purchased products to their Florida customers. When this occurs, the Taxpayer will ship the goods via common carrier from a location outside Florida.
The Taxpayer requested a ruling as to whether it is required to collect tax on this type of sale, and if not, what type of documentation is appropriate to substantiate the exempt nature of the sale. In its response, the Department stated that in the case of third-party drop shipments, if the Taxpayer and the dealer are both located outside Florida, and the property, when purchased, is located outside Florida, then the sale between the dealer and the Taxpayer does not fall within the jurisdiction of Florida’s sales and use tax laws.
Additionally, the Department stated that whether the dealer is registered in Florida, or not, is not relevant in this situation. This is because the taxability of the third-party transaction occurs when the products are drop-shipped to the customer in Florida. Therefore, if the Florida customer is the consumer of the product, then the Florida customer is responsible for remitting use tax on the cost of the product.
As for documenting a nontaxable sale, the Taxpayer must be able to establish that the sale took place outside Florida’s jurisdiction and that delivery was made via common carrier. To do so, the Taxpayer should indicate on its invoices the non-Florida dealer’s physical location. It should also be noted that the common carrier destination point is that of the non-Florida dealer’s customer.
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