Florida DOR Assesses Tax on Used Repair Parts Supplied by the Customer

Whose Parts are They Anyway?

Florida DOR Assesses Tax on Used Repair Parts Supplied by the Customer

In December 2010, the Florida Department of Revenue ("DOR") assessed tax against Associated Hydraulic Systems, Inc. ("AHSI") for repairs made on equipment. Pursuant to Florida Statute Section 212.02 and Florida Administrative Code ("F.A.C") Rule 12A-1.006, the general rule for sales tax purposes is that if the repairer provides tangible personal property in connection with a repair the transaction is taxable. However, in this case the taxpayer claimed that it only had one customer, Winn Dixie. Further, as part of Winn Dixie's bankruptcy it delivered the equipment to the taxpayer's location but never relinquished or transferred ownership of the equipment. The taxpayer then used the parts from the equipment to repair other equipment in service for Winn Dixie. This begs the question did the taxpayer or its customer furnish the repair parts?

The case settled in June 2011 for about 2/3 of the total tax liability. Rule 12A-1.006, F.A.C., also places the burden on the taxpayer to show that it did not furnish any tangible personal property which becomes incorporated into the repair item. As usual, the DOR has taken the aggressive position that it is immaterial as to the cost of the TPP provided. While it is unclear from the settlement, it appears as though the case was settled because the taxpayer lacked the documentation to show it truly did not incorporate any TPP along with its labor and services. Another potential explanation is that the taxpayer feared the uncertainty of controversy on a relatively small tax assessment which kept this case from going to court.