Sales and Use Tax - TAA 16A-016 Rental of Tangible Personal and Real Property

Question: Whether payments made by xxxx pursuant to its agreement with xxxx constitute payments for services that are not subject to sales tax?

Answer: The payments made pursuant to the terms of the agreement are for services that are not subject to sales tax.

September 12, 2016 

Re: Technical Assistance Advisement 16A-016

Sales and Use Tax – Rental of Tangible Personal and Real Property

Sections: 212.05, 212.08, and 212.031, Florida Statutes (“F.S.”)

Rule: 12A-1.070 and 12A-1.071, Florida Administrative Code (“F.A.C.”) 

Dear XXXX: 

This letter is a response to your faxed letter dated November 16, 2015, for the Florida Department of Revenue’s (the “Department”) issuance of a Technical Assistance Advisement ("TAA") concerning the above referenced party and matter. Your request has been carefully examined and the Department finds it to be in compliance with the requisite criteria set forth in Chapter 12-11, Florida Administrative Code. This response to your request constitutes a TAA and is issued to you under the authority of s. 213.22, F.S.  

QUESTION   

WHETHER PAYMENTS MADE BY XX PURSUANT TO ITS AGREEMENT WITH XXXX CONSTITUTE PAYMENTS FOR SERVICES THAT ARE NOT SUBJECT TO SALES TAX?  

ANSWER  

THE PAYMENTS MADE PURSUANT TO THE TERMS OF THE AGREEMENT ARE FOR SERVICES THAT ARE NOT SUBJECT TO SALES TAX.  

FACTS  

You are the representative of XXXX, dba XXXX (“XXXX”). According to your letter, XXXX has entered into a Product Throughput Agreement (the “Agreement”)1 with XXXX (“XXXX”).  

XXXX owns and operates a terminal in Florida. Pursuant to Section II, 2., Facilities, of the Agreement, XXXX will provide and operate the storage and terminaling of paving grade asphalt (the “Product”) at XXXX’s asphalt terminaling facility (the “Facility”), located in XXXX, Florida, exclusively for XXXX. In support of your inquiry, you have provided a copy of the Agreement. Your letter further provides that:  

… XXXX will provide the operators, all the connections, other auxiliary appurtenances[,] and all equipment necessary to receive [the Product] from vessel, tank, [and] truck, store the product in [moveable] tankkage, and deliver product into tank trucks. XXXX will provide dock line access to two berths and operate all equipment and services for offloading XXXX products into 150,000 barrels of usable capacity [(see Exhibit B)] into XXXX owned tanks located at XXXX’s [Facility] or it can contract with [XXXX] for services. In regards to this service[,] XXXX will pay XXXX a Monthly Throughput Charge [(the “Throughput Charge”)] of $130,000.00, a month and an excess throughput charge of $1.00 fee per ton in excess of [60,000] tons per calendar year.  

Sections 4, 5, 6,7,13, and 15 of Exhibit A, General Terms and Conditions for Storage and Product Handling (the “Terms and Conditions”), of the Agreement provide the following:  

4. Records: Facility shall maintain accurate inventory records of XXXX’s Product….  

5. Title: Title to all [of] XX’s Product received at the Facility shall remain at all times in XXXX’s name … XXXX shall have a warehouseman’s or warehouse’s lien, as applicable, upon any Product in the Facility for any amounts owed to XXXX for throughput fees hereunder that have not been paid per the Agreement.  

6. Custody: Facility shall have care, custody and control of the Product from the time it passes the flange connection between the delivery mode’s line and Facility’s receiving line and shall maintain care, custody and control until it passes the flange connection between Facility’s delivery line and the receiving mode’s connection. Facility warrants that XXXX’s title and/or interest in the Product will not be encumbered in any way through [the] action or inaction of Facility.  

7. Loss or Damage: … Facility shall be liable for damage or loss in value to Product resulting from negligence or willful misconduct of Facility …. 

13. Independent Contractor: In all its operations hereunder, Facility shall be deemed to be an independent contractor retaining control of its own employees, agents, and representatives, and shall not be authorized to incur liability to third parties on XXXX’s behalf.

15. Insurance: Facility shall maintain marine terminal operators’ liability insurance … and shall name XXXX as an additional insured on its marine terminal operator liability insurance.  

You request advice on whether the Throughput Charges paid to XXXX for its services under the Agreement are exempt from sales tax pursuant to Rule 12A-1.071(9)(d), F.A.C. Because the Agreement also raises implications regarding the license to use real property (i.e., the Product is stored at XXXX’s Facility), advice will also be given on whether the Agreement is a license for the use of real property. 

DISCUSSION  

Rental of Tangible Personal Property 

Florida law imposes a state sales tax on the general privilege of engaging in the business of selling, renting, or leasing tangible personal property in this state. See s. 212.05, F.S., and Rule 12A-1.071, F.A.C. The tax is imposed at the rate of six percent (6%)2 on the “gross proceeds derived from the lease or rental of tangible personal property.” See s. 212.05(1)(c), F.S. Florida law provides that “when the owner of equipment furnishes the operator and all operating supplies, and contracts for their use to perform certain work under his direction and according to his customer’s specifications, and the customer does not take possession or have any direction or control over the physical operation, the contract constitutes a service transaction and not the rental of tangible personal property, and no tax is due on the transaction.” See Rule 12A-1.071 (7)(d), F.A.C. 

Rental of Real Property 

Florida law also imposes a state sales tax on the general privilege of engaging in the business of renting, leasing, letting, or granting a license for the use of any real property. See s. 212.031, F.S., and Rule 12A-1.070(1)(a), F.A.C. The tax is imposed at the rate of six percent (6%)3 on “the total rent or license fee charged for such real property by the person charging or collecting the rental or license fee.” See s. 212.031(1)(c), F.S. 

According to your facts, XXXX has entered into an agreement with XXXX for certain Product handling and storage services. Pursuant to the Agreement, certain items of tangible personal property, as well as real property, will be used; therefore, the general rules of taxability, discussed above, are implicated and apply. 

You have provided that the Product is delivered to the Facility, either by boat or truck, and XXXX sends the Product to tanks, owned by XXXX, located at the Facility. XXXX then takes the Product from the tanks and sends it to the loading rack where it is loaded into trucks and shipped. You have further provided that XX never comes in contact with the Product (i.e., XXXX does not take possession of the Product). According to the Agreement, XXXX supplies the equipment, the employees, and the supplies that are necessary to operate the equipment.4 As discussed above, when the owner of equipment furnishes the operator and all operating supplies, and contracts for their use to perform certain work under his direction and according to his customer’s specifications, and the customer does not take possession or have any direction or control over the physical operation,5 the contract constitutes a service transaction and not the rental of tangible personal property, and no tax is due on the transaction. See Rule 12A-1.071(9), F.A.C. Based on the facts presented, the Agreement is a contract for transportation and handling services that is not subject to sales tax. See Rule 12A-1.071(9)(d), F.A.C. For the foregoing reasons, the Throughput Charges and payments are not subject to sales tax. 

Furthermore, pursuant to the Agreement, XXXX provides Product handling and storage at the Facility that XXXX owns. However, once XXXX arranges for the Product to be delivered to the Facility, XXXX relinquishes possession and control over the Product, and does not have direct access to or control over the Product while it is in XXXX’s care and custody.6 Therefore, XXXX is not renting or leasing real property from XXXX within the meaning of s. 212.031, F.S., and Rule 12A-1.070(1)(a), F.A.C. Accordingly, the Throughput Charges and payments are not subject to sales tax. 

This response constitutes a Technical Assistance Advisement under section 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 section 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 that 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 section 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 15 days of the date of this letter. 

Sincerely, Pamela Hernandez, Esq. Senior Attorney Technical Assistance & Dispute Resolution 

Record ID: XXXX

End Notes:

1.Your email of July 6, 2016, states that:

… [T]he [Product] is delivered to the [F]acility either by boat or truck and XXXX sends the [P]roducts to tanks located at the [F]acility.… XXXX then takes the [P]roduct from the tanks and sends it to the loading rack where it is loaded into trucks for resale or sent to ships for resale. XXXX never comes in contact with the [P]roduct.

You have further provided that XXXX offers the Product for resale to XXXX and XXXX obtains the necessary resale certificates for sales tax purposes.

2.Discretionary county sales surtax, if any, is also owed on the sale or rental charge if the 6% Florida state sales tax applies. See s. 212.054, F.S.

3.Discretionary county sales surtax, if any, is also owed on the rental charge if the 6% Florida state sales tax applies. See s. 212.054, F.S. 4 See section II, 2., Facilities, of the Agreement. 5 See section 6 of Exhibit A, Terms and Conditions, of the Agreement. 6 See section 6 of Exhibit A, Terms and Conditions, of the Agreement.