Sales and Use Tax - TAA 16A-003 - Boats/Interstate & Foreign Commerce

Question: Whether various types of leases and charters of vessels are subject to sales or use tax in Florida 

Answer: Taxpayer’s lease of the vessel is subject to tax only for the use within Florida The subsequent charter of the vessel by taxpayer’s customers is not subject to tax. All supplies used or consumed and charges sustained within Floridaare subject to tax.

February 29, 2016

Re: Technical Assistance Advisement 16A-003

Florida Sales and Use Tax

Vessel Lease/Charter in Interstate and Foreign Commerce 
Sections 212.05, 212.06, 212.08, Florida Statutes (“F.S.”) 
Rules 12A-1.007, 12A-1.0641, and 12A-1.071, Florida Administrative Code (“F.A.C.”)

Dear XXXXX:

This letter is a response to your petition received on September 8, 2015, for the Department of Revenue’s (“Department”) issuance of a Technical Assistance Advisement ("TAA") concerning the above-referenced petitioner and matter. Your petition has been carefully examined, and the Department finds it to be in compliance with the requisite criteria set forth in Chapter 12-11, F.A.C. This response to your request constitutes a TAA and is issued to you under the authority of Section (“s.”) 213.22, F.S.

FACTS PRESENTED

The following facts are based on documents and statements provided by Taxpayer, as well as Departmental research.

Taxpayer, a registered dealer and Florida Limited Liability Company, has been approved by the Office of Foreign Assets Control of the United States (“U.S.”) Department of the Treasury for operation of various yacht charters within Cuban territorial waters. Taxpayer uses various vessels, which will be used for chartering purposes, within Cuba. All U.S. based vessels are properly licensed with the U.S. Coast Guard.

These vessels are broken up into three categories:

1. U.S. flagged and based in Florida;
2. Foreign flagged and based in Florida; and
3. Foreign flagged and based outside of Florida.

Taxpayer does not own any vessels. Taxpayer states that with respect to foreign-flagged vessels, Taxpayer will engage in a “bareboat demise charter” of the vessel, whereby Taxpayer will “charter” just the vessel. For U.S.-flagged vessels, Taxpayer will “charter” the vessel under a different type agreement. In either “charter” scenario, Taxpayer will obtain a crew.1 Taxpayer’s customers do not have any control over the vessel. Accordingly, the customers charter the vessels. At no point in time will the vessels be operated as a “head-boat” or “party boat.” During the charter, the customers have the ability to disembark.

For the charter, Taxpayer provides two options for the charter to its customers. With Option One, the customer has a package deal, inclusive of fuel, food, dockage, crew gratuity, visas, additional health and charter insurance, etc. Option Two allows the customer to pay a weekly charter rate for the vessel, and an a-la-carte approach to those expenses from Option One that is incurred. It is worthy to note the meals are not served or consumed within Florida.

REQUESTED ADVISEMENT

Taxpayer inquires as to tax implications of the following scenarios:

1. U,S,-flagged vessel based in Florida and is chartered via an Uninspected Passenger Vessel Charter Agreement:2
   1. The charter commences in Florida, where the charterers board and depart immediately for Cuba. At the end of the charter, they disembark in Florida.
   2. The charter commences in Florida, where the charterers board and depart immediately for Cuba. At the end of the charter, they disembark in Cuba.
   3. The charter commences in Cuba. At the end of the charter, the disembark in Florida.
2. Foreign-flagged vessel based in Florida and is chartered under a Recreation Bareboat Charter Agreement:3
   1. The charter commences in Florida, where the charterers board and depart immediately for Cuba. At the end of the charter, they disembark in Florida.
   2. The charter commences in Florida, where the charters board and depart immediately for Cuba. At the end of the charter, the end of the charter, they disembark in Cuba.
   3. The charter commences in Cuba. At the end of the charter, they disembark in Florida.
3. Foreign-flagged vessel based outside of Florida and is chartered under a Recreational Bareboat Charter Agreement:
   1. The charter commences in Florida, where the charterers board and
   2. The charter commences in Florida, where the charterers board and depart immediately for Cuba. At the end of the charter, they disembark in Cuba.
   3. The charter commences in Cuba. At the end of the charter, they disembark in Florida.

Taxpayer also inquires as to when:

4. Sales tax applies to the chartering of the vessels, i.e., will the tax be paid on Taxpayer’s “charter” of the vessel from the primary charterer or will tax be payable by Taxpayer’s customers?

5. Tax is due on any lease, at a rate of six percent (6%) plus county discretionary sales surtax. Furthermore, tax is not due on any of the chartering direct costs, such as visa fees, charter management, services provided in Cuba, fuel, dockage, and provisioning.

LAW & DISCUSSION

Section (“s.”) 212.05, F.S., provides every person is engaged in a taxable privilege when engaging in the business of selling or leasing, at retail, tangible personal property. In order to exercise such privilege, tax is levied at a rate of six percent (6%).4 See s. 212.05(1)(a)1.a., F.S. Furthermore, any tangible personal property not purchased or leased in the State but brought into the State for any use, consumption, or storage will have tax levied at a rate of six percent (6%). See s. 212.06(1)(a), F.S. Tangible personal property is “property which may be seen, weighed, measured, or touched or is in any manner perceptible to the senses, including ... boats ....” See s. 212.02(19), F.S. Therefore, the lease of a boat in Florida is subject to tax, unless an exemption applies. See also Rules 12A-1.007(13)(a)1. and 12A-1.071(16), F.A.C.

There are specifically enumerated exemptions from various taxes. See generally s. 212.08, F.S. It is well-settled law exemptions are strictly construed against the taxpayer, causing the burden of proof for the exemption to be on the taxpayer. See State ex rel. Szabo Food Servs., Inc. of N.C. v. Dickinson, 286 So. 2d 529, 530-32 (Fla. 1973); Green v. City of Pensacola, 126 So. 2d 566, 569 (Fla. 1961); State v. Thompson, 101 So. 2d 381, 386 (Fla. 1958). Any doubt as to an exemption is resolved favorably towards the State. See Szabo Food Servs., 286 So. 2d at 531; United States Gypsum Co. v. Green, 110 So. 2d 409, 413 (Fla. 1959).

One such partial exemption from tax exists on vessels engaged in interstate or foreign commerce. See s. 212.08(8), F.S.; see also Rule 12A-1.0641, F.A.C. Essentially, one will owe tax computed on the Florida usage of the leased vessel based on an apportionment factor.5 See s. 212.08(8)(a), F.S.; see also Rule 12A-1.0641(3), F.A.C. Based on Taxpayer’s stated facts, Taxpayer is transporting people in interstate and foreign commerce. Because Taxpayer is engaging in the lease of the rental (“bareboat demise charter”) of the vessel is subject to tax, based upon Taxpayer’s use within Florida.6 The corresponding charter of the vessel by Taxpayer’s customers is not subject to tax. See Rule 12A-1.070(15), F.A.C.

With respect to the supplies used or consumed and charges incurred during the charter, only those supplies used or consumed and charges incurred within Florida will be subject to tax.

CONCLUSION

Taxpayer’s lease (i.e., “bareboat demise charter”) of the vessel is subject to tax only for the use within Florida. The subsequent charter of the vessel by Taxpayer’s customers is not subject to tax. All supplies used or consumed and charges sustained within Florida are subject to tax.

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice, as specified in s. 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based, may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response, your request and related backup documents are public records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material and this response, deleting names, addresses and any other details which might lead to identification of the taxpayer. Your response should be received by the Department within 10 days of the date of this letter.

Sincerely,

David J. Brennan, Jr., Esq. 
Senior Attorney 
Technical Assistance & Dispute Resolution Florida Department of Revenue

Record ID: 203930

End Notes:

1. In reality, Taxpayer is dry-leasing the vessel and then hires its own crew when Taxpayer’s customers charter the vessel. Taxpayer enters into a separate contract for the crew.
2. This name is of the contact Taxpayer has provided.
3. The bareboat agreement is another sample contract Taxpayer provided.
4. Counties are authorized to impose, up to 1.5%, a county discretionary sales surtax in addition to the State sales tax rate. See ss. 212.054 and 212.055, F.S.
5. The cited statute provides the apportionment factor is calculated as the prior fiscal year’s total Florida mileage divided by world-wide mileage. However, for the initial fiscal year of operations, the apportionment factor may be determined using estimated Florida mileage divided by estimated world-wide mileage.
6. The Florida Constitution defines the State boundaries. See Fla. Const. art. II, s. 1. The State boundaries extend no farther north than where the States of Alabama and Georgia meet Florida, and the coastal boundaries generally extend no farther than the distance permitted under United States law or international law. Thus, one may conclude “in this state,” as found in ss. 212.05 and 212.06(1)(a), F.S., to mean within the physical boundaries of the State of Florida.