It is important for dealers to understand the Florida sales tax treatment of leased vehicles. The failure to do so could result in a devastating assessment down the line. Generally, when a car is rented or leased in Florida, the payment is subject to Florida’s six percent (6%) state sales tax rate and any county sales tax on each lease payment. However, there are some exceptions that could help to save your customers/company some money.
Taxability of Leases
If a car is rented or leased for less than twelve (12) months and if the car is rented or leased in Florida, the entire contract will be subject to Florida sales tax regardless of whether the car is dropped off in another state. Also, and in cases where a car is rented or leased for less than twelve (12) months and the car is rented or leased in another state but subsequently dropped-off in Florida, the rental or lease is exempt from Florida sales tax.
Should the car be leased for twelve (12) months or longer, Florida sales tax will be due on the lease if the car is registered in Florida. However, no Florida sales tax will be due if it can be documented the leased car is being used outside of Florida and sales tax on the car lease payments is being made to another state, despite the car being registered in Florida. In these instances, the Florida Department of Revenue (“Department”) requires copies of invoices, or other similar documents, to be kept that evidences the lessor is collecting another state’s sales tax from the lessee. If the lessee has self-accrued (i.e., paid) the tax to another state, copies of cancelled checks would be sufficient for this purpose, per the Department’s rule.
Credit for Tax Paid
Florida may give credit for sales tax paid to another state on a car lease. The car must have been leased outside of Florida before being brought to Florida and registered in Florida. The Department lists four criteria to obtain a credit:
(1) the other state requires the sales tax to be paid at the time of the lease on the total lease payments;
(2) the tax must be imposed upon the lessee(just because the lessee is charged sales tax does not mean the tax is imposed upon the lessee);
(3) the other state does not allow for a refund of the sales tax paid at the time of the lease if the car is later removed from the state; and
(4) the lessee must provide some document to show the tax was paid to the other state.
If the amount of tax paid to the other state is greater than the Florida sales tax would have been, Florida will not provide a refund on the excess.
Taxability of Fuel and Insurance; Surcharges
What if you rent or lease a car and there is a charge for insurance or fuel? For insurance, the charge must be separately itemized and optional to the customer for the insurance charge to not be subject to sales tax. If both criteria are not met, then the insurance charge will be taxable. As it relates to fuel, itemized charges for fuel which are already taxed under what is called a “motor fuel tax” (most gas is taxed under this provision) and which fuel charge is optional to the customer will not be subject to sales tax. Likewise, if the charge for the fuel is not itemized on the invoice or optional to the customer, the fuel charge is subject to sales tax.
Rental car surcharges can be an overlooked aspect to renting or leasing a car. The charge is generally $2 per day or any part of a day for the rental or lease of a car. The surcharge is only on the first thirty (30) days of the rental or lease. What catches many off-guard is the surcharge is subject to sales tax! If a rental car is provided at no charge to a person whose car is being repaired or serviced by the entity providing the replacement car, the rental car surcharge does not apply.
Commercial Vehicles
There is a very specific provision for what are called “commercial motor vehicles,” which have a gross vehicle weight rating of 10,000 pounds or more. When a commercial motor vehicle is leased to one lessee for a period of at least twelve (12) months and sales tax was paid on the purchase of the commercial motor vehicle by the lessor, tax is not owed on the lease. This concept is very important to understand, because it goes against the general rule of tax being owed on each lease payment. If you go this route, ensure you have proof tax was paid on the purchase of the motor vehicle and that the motor vehicle meets the weight requirement. Also, having a written lease to one lessee for at least twelve months can be a good idea to demonstrate tax is not owed on the lease.
Ride Sharing
There is an exception for car-sharing services using a car for less than twenty-four (24) hours. In these instances, the surcharge is $1 per usage. If a member of the car-sharing service uses the same car for twenty-four (24) hours or more, the surcharge defaults to the normal $2 per day or any part thereof rule. A car-sharing service is a membership-based organization or business which requires payment of an application or membership fee and only provides members access to motor vehicles meeting certain requirements. These exceptions are: the car access is (1) only at locations not staffed by car-sharing service personnel employed solely for the purpose of interacting with car-sharing service members; (2) twenty-four hours a day, seven days a week; (3) only through automated means (e.g., smartphone applications); (4) on an hourly basis or shorter increment of time; (5) without a separate fee for refueling the car; (6) without a separate fee for minimum financial responsibility liability insurance; and (7) owned or controlled by the car-sharing service or its affiliates.
Selling Rental Cars
Some rental or leasing companies sell their cars at some point. These companies may mistakenly believe because they are not a car dealer, the company does not need to collect sales tax on the retail sale. Such a belief is incorrect. The company must collect sales tax on the retail sale, even though the company is not registered with the Department of Highway Safety and Motor Vehicles. Alternatively, the company must have proof of why the sale is exempt (e.g., a Florida resale certificate from a car dealer). This mistake could cost the business a substantial amount of money, as the Department will audit the business and hold the company responsible for the uncollected sales tax. In other words, instead of the sales tax coming a little bit from each customer, the total sales tax will come from the company’s bottom line!
Conclusion
In conclusion, renting or leasing a car can be complex from a tax standpoint. Not only must one consider where the rental or lease originated, but also the length of the rental or lease as well as the prior payment of sales tax.. As if the sales tax aspects were not enough to worry about, the rental car surcharge must also be accounted for. Rental or leasing companies should collect sales tax on any retail sales of rental cars, despite not being registered as a car dealer, or obtain the proper exemption documentation. If a business fails to collect the proper amount of sales tax or rental car surcharge, the business can be held liable by the Department not only for the tax, but also interest and penalties.
About the author: David Brennan is an associate attorney with Moffa, Sutton, & Donnini, P.A. His primary practice area is multistat
e tax controversy. David received a B.S. in Accounting and Finance, with a minor in Computer Science, from Florida State University. He worked as an accountant for a CPA firm before attending law school at Regent University. He received his Juris Doctor in 2013 and was licensed to practice law in Florida in the same year. In 2015, David earned his Masters of Laws in Taxation from Boston University. While working for the Florida Department of Revenue as a Senior Attorney, David focused on sales and use tax issues for cars, among other areas. You can read his BIO HERE.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 150 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
AUTHORITY
Section 212.05, F.S., Sales, storage, use tax.
Section 212.0606, F.S., Rental car surcharge.
Rule 12A-1.007, F.A.C., Aircraft, Boats, Mobile Homes, and Motor Vehicles.
ADDITIONAL ARTICLES TO READ
FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, C.P.A., Esq.
FLORIDA SALES & USE TAX APPORTIONMENT HANDBOOK, published March 28, 2019, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.
FL SALES TAX - RESALE TO OUT OF STATE CAR DEALERS, published September 19, 2014, by James Sutton, C.P.A., Esq.
FL SALES TAX AUDITS ON USED CAR DEALERS - WHAT IS TAXABLE?, published July 22, 2014, by Matthew Parker, Esq.
BOAT CAR PLANE DEALERS: FL SALES TAX FORMS, published June 14, 2013, by Jerry Donnini, Esq.
FL CAR DEALER: WHEN IS A SALE TAX EXEMPT?, published March 17, 2013, by James Sutton, C.P.A., Esq.