Ins and Outs: The Taxation of Imports and Exports in Florida

Your client, a computer manufacturer in Illinois, needs advice on a contract with a specialist in Miami to modify computers for customers in South America. They also need help with shipping issues through the port and other Florida-related matters. This article explains how state taxes on imports and exports work, focusing on Florida’s sales and use tax. Essentially, Florida imposes sales tax on tangible items sold within the state, and use tax applies when an item is used in the state without sales tax being paid. The U.S. Constitution prohibits individual states from taxing imports and exports and imposing taxes on interstate commerce. The Supreme Court has defined when property enters the “stream of exportation” or “stream of commerce” and when it is shielded from state taxation. National Cash Register stored cash registers in Ohio before shipping them abroad and the state tried to tax them. The court said the cash registers could be taxed because they hadn’t physically started the journey out of the country. In Carson, an oil company stored petroleum in Louisiana before shipping it overseas, and the court said it couldn’t be taxed by the state because it was in temporary storage in furtherance of its intended transport. In Florida, there are laws that exempt property from taxes if it’s imported, produced, or manufactured for export, and the state also doesn’t tax anything that would violate federal laws. In Florida, there are federal protections for imports and exports that can shield tangible personal property from taxes. Two key questions to consider are whether the property is intended for export at the time of sale or importation, and whether the exportation process is continuous until the property leaves Florida. Florida dealers have to prove that their items qualify for export exemptions, but out-of-state businesses are primarily concerned with avoiding excessive taxes while their items are in transit. The Florida Legislature has rules to help dealers show that an item was sent outside of Florida and not subject to tax. If a dealer follows certain steps, like delivering the item to a licensed exporter or shipping it outside of Florida, they don’t have to collect tax. However, if they don’t follow these steps, the item is considered to be for use in Florida, and tax must be paid. “Use” is broadly defined in Florida, so even just bringing an item into the state can make it taxable, even if it’s not used right away. The Florida Supreme Court ruled that a use tax applies to property used in Florida, even if it’s just passing through the state. In a case involving a gambling cruise, the court said that using equipment in Florida, even briefly, means the tax applies. This means that even if property is just passing through Florida on its way somewhere else, it could still be subject to a tax. In Florida, when property is being prepared for export, it’s important to have proper documentation showing that the property is committed to the exportation process and that the process is continuous and unbroken. Two cases in Florida demonstrate the importance of this. In Fred McGilvray, Inc. v. Askew, the subcontractor was not able to prove that the materials were committed to the export process, so they were not exempt from tax. In Great Lakes Dredge & Dock Co. v. Department of Revenue, a joint venture was involved in modernizing the Port of Dammam in Saudi Arabia. This case also highlighted the importance of proper documentation for property being prepared for export. The joint venture was required to send materials and equipment to Saudi Arabia for a construction project. They prepared and shipped the items from Dade County, Florida. The Florida Department of Revenue wanted to tax the items, but the court ruled in favor of the joint venture because the items were intended for export from the time they were purchased. It’s important to keep good records to prove that items were actually exported to avoid paying unnecessary taxes. In order to avoid paying taxes on exports from Florida, a company needs to show proof that the items were committed to the export process at the time of sale and that the export process was continuous until the items left Florida. The company also needs to maintain records that identify the items sold, their delivery destination, and prove that the items were not mixed in with other items in Florida. If the company doesn’t have sufficient documentation, they will have to pay taxes.
For our potential client, the biggest issue is the modifications made by the Miami business. If they register as a Florida dealer and keep detailed records showing the export of the items outside Florida, they may be able to avoid paying taxes. If they don’t register as a dealer before the manufacturer takes possession of the items, they will likely have to pay taxes on the computers. Every dealer in Florida must keep careful records of all the things they buy and use, as well as any important paperwork related to sales tax. The government can check these records to make sure the right amount of tax is being paid. Some things are exempt from tax, like prescription medicine or items sold to public schools. If something is being sold to someone out of state, it might also be exempt from tax. It’s the seller’s responsibility to prove that something is exempt. If something is being sold out of state, the seller doesn’t have to collect tax, but they can if they want to. Finally, there are some limited exceptions to the rule that everything sold in Florida is subject to tax. Robert Babin and Thomas Butscher work for the Department of Revenue’s Office of Technical Assistance & Dispute Resolution. They both have advanced degrees in taxation law. This article does not represent the views of the Department of Revenue. It was submitted by the Tax Section.

Source: https://www.floridabar.org/the-florida-bar-journal/ins-and-outs-the-taxation-of-imports-and-exports-in-florida/