Sales Use and Tax TAA 19A-010 Nonresidential kitchen hood exhaust inspection, cleaning, and repair; Fire suppression system inspection and repair
QUESTION(S):
- IS THE CLEANING OF NONRESIDENTIAL KITCHEN HOOD EXHAUST SYSTEMS SUBJECT TO FLORIDA SALES AND USE TAX?
- IS THE REPAIR OF NONRESIDENTIAL KITCHEN HOOD EXHAUST SYSTEMS SUBJECT TO FLORIDA SALES AND USE TAX?
- WOULD INSPECTION, ONLY, OF NONRESIDENTIAL KITCHEN HOOD EXHAUST SYSTEMS BE SUBJECT TO FLORIDA SALES AND USE TAX?
- IS THE FIRE SUPPRESSION SYSTEM CONSIDERED REAL PROPERTY, TANGIBLE PERSONAL PROPERTY, OR A BURGLAR/FIRE ALARM COVERED UNDER RULE 12A-1.0092, F.A.C.?
- WOULD AN INSPECTION, ONLY, OF A FIRE SUPPRESSION SYSTEM THAT WAS PURELY LABOR WITH ABSOLUTELY NO TANGIBLE PERSONAL PROPERTY TRANSFERRED BE EXEMPT?
- IF THERE ARE PARTS REPLACED ON THE FIRE SUPPRESSION SYSTEM, IS THE ENTIRE INVOICE TAXABLE, PARTS ONLY TAXABLE, OR NOT TAXABLE AT ALL?
ANSWER(S):
- NAICS CODE 561790 IS NOT LISTED AS A TAXABLE CODE UNDER FLORIDA LAW. THEREFORE, EXHAUST HOOD CLEANING SERVICES MAY ALSO BE CONSTRUED AS NOT BEING SUBJECT TO SALES TAX AS A TAXABLE CLEANING SERVICE.
- MAINTENANCE, MODIFICATIONS, AND REPAIRS MADE TO EXHAUST HOODS WILL BE TREATED AS REAL PROPERTY IMPROVEMENTS, WHICH ARE NOT SUBJECT TO SALES AND USE TAX.
- HOOD INSPECTIONS ALONE DO NOT FALL WITHIN THE TAXABLE SERVICES LISTED IN CHAPTER212, F.S.; THEREFORE, CHARGES EXCLUSIVELY FOR HOOD INSPECTIONS ARE NOT SUBJECT TO SALES AND USE TAX.
- FROM THE DESCRIPTION PROVIDED, THE FIRE SUPPRESSION SYSTEM IS ATTACHED TO THE WALL, AND THE PIPES RUN IN SUCH A MANNER THAT THE SUPPRESSION SYSTEM BECOMES PART OF REAL PROPERTY. THEREFORE, THE FIRE SUPPRESSION SYSTEM IS REAL PROPERTY.
- WHEN THE TECHNICIAN CHECKS THAT THE ALARM PANEL RECEIVES THE SIGNAL FROM THE CONTACTS, IT IS AN INSPECTION OF A COMPONENT PART OF THE ALARM SYSTEM, WHICH IS SUBJECT TO SALES TAX UNDER RULE 12A-1.0092(2), F.A.C., AS THE MAINTENANCE OF AN ALARM SYSTEM. THEREFORE, THE INSPECTION IS SUBJECT TO SALES TAX, WHEN THE TECHNICIAN CHECKS THAT THE ALARM PANEL RECEIVES A SIGNAL FROM THE CONTACTS.
- WHERE TAXPAYER’S INVOICES INVOLVE THE SALE OF BOTH TAXABLE AND NONTAXABLE SERVICES, THE CHARGES FOR THE TAXABLE PORTION OF THE TRANSACTION MUST BE SEPARATELY STATED FROM THE CHARGES FOR THE NONTAXABLE PORTION, OTHERWISE THE ENTIRE INVOICE IS SUBJECT TO SALES TAX. (SEE RULE 12A-1.0092(3)(A), F.A.C.)
April 19, 2019
RE: Technical Assistance Advisement Florida Sales and Use Tax
Taxability of Hood Cleaning Services XXX [“Taxpayer”]
Sections 212.05 and 212.06, Florida Statutes [“F.S.”]
Rules 12A-1.0091, 12A-1.0092, and 12A-1.051, Florida Administrative Code [“F.A.C.”]
Dear XXX,
This letter is in response to your request dated November 14, 2018, for issuance of a Technical Assistance Advisement [“TAA”] pursuant to Section 213.22, F.S., and Rule Chapter 12-11, F.A.C., concerning the taxability of exhaust hood cleaning services and inspecting and repairing kitchen fire suppression systems. An examination of your request has established you complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.
FACTS
From Taxpayer’s request for technical assistance the facts are understood to be as follows:
Nonresidential Kitchen Hood Exhaust Inspection, Cleaning, and Repair
Taxpayer is in the business of inspecting, cleaning, and repairing nonresidential kitchen hood exhaust systems. Technicians clean the kitchen hood exhaust system in accordance with the National Fire Protection Association [“NFPA”] Standard 96 code. The procedure includes cleaning the exhaust fan, all related ductwork, filters, and the hood canopy. The hood canopy and backsplash are wiped down and polished. The floor in the service area is cleaned and any grease that may have settled on the roof or parking area is removed. Taxpayer will also make repairs or modifications to the hood system during a cleaning service, when needed.
Fire Suppression System Inspection and Repair
Taxpayer is also in the business of inspecting and certifying fire suppression systems. The fire suppression system is designed to provide fire protection for cooking appliances, hoods, and ductwork in restaurants. The system suppresses fire by spraying the area, filters, cooking surfaces, and the exhaust ductwork with a liquid fire suppressant. Accessories may be added, such as alarms and warning lights. The alarms allow remote monitoring of the system. Once the suppression system is actuated, it sends a signal to the central station monitoring the location, who will contact the local fire department.
Taxpayer’s inspection and certification includes: (i) visual inspection for signs of tampering or leakage; (ii) UL-300 Compliance Review; (iii) installation of current fusible links; (iv) clean and de- grease nozzles; (v) inspect various working components of the system; (vi) replace activation cartridges, as necessary; (vii) dry test the system for both, automatic operation and manual release, control panel, and pull station; and (viii) check for proper inspection of K-class extinguisher. Should Taxpayer’s inspection of the system determine a need for repair, Taxpayer performs the repairs.
The fire alarm, fire suppression system, and the hood cleaning itself are all separate systems, separate inspections, and typically done by separate technicians. Fire alarm system inspection and repair requires licensure. If a fire alarm system is present, the suppression system is required by code to be monitored by the fire alarm. If the suppression system is connected to a fire alarm system, Taxpayer’s technician will test the system and verify receipt of a signal by the fire alarm system.
REQUESTED ADVISEMENT
- Is the cleaning of nonresidential kitchen hood exhaust systems subject to Florida Sales and Use Tax?
- Is the repair of nonresidential kitchen hood exhaust systems subject to Florida Sales and Use Tax?
- Would inspection, only, of nonresidential kitchen hood exhaust systems be subject to Florida Sales and Use Tax?
- Is the fire suppression system considered real property, tangible personal property, or a burglar/fire alarm covered under Rule 12A-1.0092, F.A.C.?
- Would an inspection, only, of a fire suppression system that was purely labor with absolutely no tangible personal property transferred be exempt?
- If there are parts replaced on the fire suppression system, is the entire invoice taxable, parts only taxable, or not taxable at all?
APPLICABLE LAW
Section 212.05(1)(i), F.S., provides that nonresidential cleaning services are subject to sales tax. Nonresidential cleaning services are those services, not involving repair, rendered to maintain the clean and sanitary appearance, and operating condition of a nonresidential building. Repairs made to real property are addressed in Rule 12A-1.051, F.A.C., and are not covered under cleaning services. (See also Rule 12A-1.091(1)(a), F.A.C.)
Section 212.05, F.S., provide in pertinent part:
It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who . . . furnishes any of the things or services taxable under this chapter . . .
(1) For the exercise of such privilege, a tax is levied on each taxable transaction or incident, which tax is due and payable as follows:
* * * (i)1. At the rate of 6 percent on charges for all:
* * *
b. Nonresidential cleaning, excluding cleaning of the interiors of transportation equipment . . . (NAICS National Number . . . 561720).
2. As used in this paragraph, “NAICS” means those classifications contained in the North American Industry Classification System1, as published in 2007 by the Office of Management and Budget, Executive Office of the President. (See also Rule 12A- 1.0091, F.A.C.)
“Real property” is defined in s. 212.06(14)(a), F.S., and “…. means the land and improvements thereto and fixtures ….” “Fixtures” is defined as “…. items that are an accessory to a building, other structure, or land and that do not lose their identity as accessories when installed but that do become permanently attached to realty ….” (See s. 212.06(14)(b), F.S.) The criteria for determining whether an item is a fixture is provided for in Rule 12A-1.051(3), F.A.C.
1 The North American Industry Classification System [“NAICS”] is the standard used by federal statistical agencies to classify business establishments for collecting, analyzing, and publishing statistical data related to the U.S. business economy.
“Improvements to real property” is defined as “…. The activities of building, erecting, constructing, altering, improving, repairing, or maintaining real property.” (See s. 212.06(14)(c), F.S., and Rule 12A-1.051(2)(d), F.A.C.)
Pursuant to Rule 12A-1.051, F.A.C., real property contractors are the ultimate consumers of materials and supplies used to perform real property contracts; therefore, they must pay sales and use tax on their costs of materials and supplies. (See Rule 12A-1.051(4), F.A.C.) The contractor should not collect sales tax from their customer.
Section 212.05, F.S., provides that detective, burglar protection, and other protective services classified under NAICS numbers 561511, 561612, 561613, and 561521 are subject to sales tax. Additionally, Rule A-1.0092(2), F.A.C., provides that burglar, fire alarm, or other security system devices’ monitoring and maintenance services are taxable. The monitoring or maintenance of alarm or security systems is taxable, whether such systems are considered to be tangible personal property, or a part of real property. “Maintenance” includes “…. any inspection of an alarm or security system to confirm its proper working order.” The rule also states, in pertinent part, that tax applies to “… services … rendered to minimize or prevent loss or damage to life, limb, or property and are of a kind typically performed by security or alarm system companies ….”
DISCUSSION AND CONCLUSION
1. Is the cleaning of nonresidential kitchen hood exhaust systems subject to Florida Sales and Use Tax?
Under Florida Law, the imposition of tax on certain services is now based on NAICS codes. The use of NAICS codes is the result of the 2009 Legislature’s enactment of Chapter 2009-51, Laws of Florida, which became effective on July 1, 2009. This enactment changed the imposition of tax from Standard Industrial Classification [“SIC”] codes to NAICS numbers. The use of NAICS numbers changed the tax treatment of nonresidential exhaust hood cleaning services.
Prior to the law change in 2009, “Services to Dwellings and Other Buildings” (SIC Code 734) was considered to contain services taxable under Chapter 212, F.S. Specifically, s. 212.05(1)(i)2., F.S., previously stated that it was the intention of the Legislature to tax services of a type listed in SIC Industry Group 734. Chimney cleaning services were included within SIC code 734.
In January 2011, Rule 12A-.0091(1)(a), F.A.C., was revised; however, prior to its revision, it provided that chimney cleaning services were subject to sales and use tax as nonresidential cleaning services. There was no mention of hood cleaning services, nor was there a specific classification code. Based on prior Department rulings and its research of SIC codes, hood cleaning services were considered similar to chimney cleaning services. Therefore, it was determined that hood cleaning services were subject to sales and use tax under s. 212.05(1)(i)2., F.S.
Under rule promulgation, “chimney cleaning services” was removed from the list of taxable services within the rule. With revision of the rule, the Department reviewed NAICS codes and did not find a specific classification for hood cleaning. However, the Department found NAICS code 561790, which includes “duct cleaning services,” as well as “ventilation duct cleanings services,” which are categorized as “Other Services to Buildings and Dwellings.” It has been determined these services are akin to hood cleaning services.
NAICS code 561790 is not listed as a taxable code under Florida law. Therefore, exhaust hood cleaning services may also be construed as not being subject to sales tax as a taxable cleaning service.
2. Is the repair of nonresidential kitchen hood exhaust systems subject to Florida Sales and Use Tax?
Exhaust hoods are physically attached to the building and, by definition, are considered real property as “fixtures.” (See Rule 12A-1.051(2)(c)3., F.A.C.) Exhaust hoods are a necessary part of the building for its use in a commercial kitchen and, as such, they are expected to remain with the building, indefinitely. Therefore, exhaust hoods qualify as a “fixture” pursuant to s. 212.06(14)(b), F.S. Maintenance, modifications, and repairs made to exhaust hoods will be treated as a real property improvements, which are not subject to sales and use tax. As the ultimate consumer, Taxpayer should pay sales tax, or accrue and remit use tax, on its purchases of materials and supplies for use in such contracts.
3. Would inspection, only, of nonresidential kitchen hood exhaust systems be subject to Florida Sales and Use Tax?
Under Florida law, service transactions that do not involve the sale of tangible personal property are not subject to sales and use tax, unless specifically authorized under Chapter 212, F.S. Based on the description provided by Taxpayer, hood inspections alone do not fall within the taxable services listed in Chapter212, F.S.; therefore, charges exclusively for hood inspections are not subject to sales and use tax.
4. Is the fire suppression system considered real property, tangible personal property, or a burglar/fire alarm covered under Rule 12A-1.0092, F.A.C.?
As discussed, the monitoring or maintenance of alarm systems is a taxable service, whether such systems are considered tangible personal property or a part of real property. The fire suppression system is designed to minimize loss of life, limb, or property; however, it is not the type of service typically rendered by a security or alarm service. Instead, fire suppression systems are similar to a sprinkler system. From the description provided, the fire suppression system is attached to the wall, and the pipes run in such a manner that the suppression system becomes part of real property. Therefore, the fire suppression system is real property.
5. Would an inspection, only, of a fire suppression system that was purely labor with absolutely no tangible personal property transferred be exempt?
As stated in item 4, above, the fire suppression system is not an alarm system under Rule 12A- 1.0092(2), F.A.C., and is, instead, part of real property. Therefore, the inspection of the fire suppression system, alone, is not subject to sales tax.
However, as noted in the facts, when a fire alarm system is present the fire suppression system must be connected. The technician will check that the alarm panel receives a signal from dry contacts. The inspection and/or repair of a fire alarm system, including components of the sprinkler system, and any other part of the fire alarm system would be included under NAICS code 561621 – Security Systems Services (except Locksmiths). This includes the inspection or repair of any part of the fire alarm system. When the Technician checks that the alarm panel receives the signal from the contacts, it is an inspection of a component part of the alarm system, which is subject to sales tax under Rule 12A-1.0092(2), F.A.C., as the maintenance of an alarm system. Therefore, the inspection is subject to sales tax, when the technician checks that the alarm panel receives a signal from the contacts.
6. If there are parts replaced on the fire suppression system, is the entire invoice taxable, parts only taxable, or not taxable at all?
As stated, above, the fire suppression system qualifies as a fixture and, therefore, is real property. Replacement of parts for the suppression system, alone, is the repair and maintenance of real property. Therefore, a transaction exclusively for the replacing of parts of a fire suppression system would be a real property contract, and Taxpayer should not collect sales tax. Rather, Taxpayer is required to pay sales tax, or accrue and remit use tax, on the cost of the parts, materials, and supplies used.
However, where Taxpayer’s invoices involve the sale of both taxable and nontaxable services, the charges for the taxable portion of the transaction must be separately stated from the charges for the nontaxable portion, otherwise the entire invoice is subject to sales tax. (See Rule 12A- 1.0092(3)(a), F.A.C.)
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 15 days of the date of this letter.
Cordially,
Barbara Ann Bohannan
Barbara Ann Bohannan Tax Law Specialist
Technical Assistance and Dispute Resolution (850)717-6745
RECORD ID: 134290 CC: XXX
