Florida District Court Of Appeal Finds Internet Sales Of Flowers To Out-Of-State Customers Not Subject To Sales Tax

A Florida District Court of Appeal has ruled that sales of flowers by a Florida-based business via the Internet to customers located outside Florida violated the Commerce Clause of the U.S. Constitution and were not subject to the Florida sales tax.1 Conversely, the Court determined that Internet sales made by the same business of prepaid calling arrangements to customers located both within and outside Florida were properly subject to sales tax.

Background

The Florida-based taxpayer specialized in the online sale of flowers, gift baskets, and other items of tangible personal property, as well as prepaid calling arrangements, to customers located throughout Latin America, Spain, and the United States, including Florida. All of the company's sales were generated via the Internet and the taxpayer maintained no inventory. Orders received by the taxpayer for tangible personal property, including flowers, were filled by "local" florists.2 However, the goods were not grown in, stored in, or delivered from Florida. The taxpayer did not charge its customers sales tax on sales of flowers, gift baskets, or other items of tangible personal property delivered outside Florida. Also, the taxpayer did not charge its customers Florida sales tax on any sales of the prepaid calling arrangements.

The Florida Department of Revenue issued a proposed assessment against the taxpayer including both taxes and interest on all of the taxpayer's sales of prepaid calling arrangements occurring between April 1, 2008 and March 31, 2011, as well as all sales of flowers and gift items to non-Florida customers during the same period. Also at issue was whether the taxpayer's books and records were inadequate and whether the taxpayer retained statutorily mandated records of transactions. Due to the limited records produced by the taxpayer, the Department relied upon estimated sales amounts to determine the amount of assessment.

The taxpayer filed a timely protest, resulting in a hearing by an administrative law judge, who recommended that the assessment be validated. The Department accepted the recommendation and entered a final order, which was appealed by the taxpayer, resulting in the current dispute.

Sales of Flowers and Gifts

Florida law specifies that florists located in the state are liable for sales tax on sales to retail customers regardless of where or by whom the items sold are to be delivered.3 Related regulations further state that "florists are engaged in the business of selling tangible personal property at retail and their sales of flowers, wreaths, bouquets, potted plants and other such items of tangible personal...