TAA 21A-004 Boat
QUESTIONS:
1) Are Taxpayer’s sales of the technology installed onto a boat considered to be a “working unit” for purposes of the cap on surtax on items over $5,000?
2) Are Taxpayer’s line-item charges for labor associated with the installation of technology onto a boat subject to the same cap on surtax for sales in excess of $5,000?
3) Are Taxpayer’s sales of custom canvas products installed onto a boat considered to be a “working unit” for purposes of the cap on surtax on items over $5,000?
4) Are Taxpayer’s sales of a tuna tower installed onto a boat considered to be a “working unit” for purposes of the cap on surtax on items over $5,000?
ANSWERS:
1) Each invoice for XXXXXXX sales of technology on a single boat would be considered a single sale. All technology installed on a single boat pursuant to the invoice meets the working unit test. Therefore, for purposes of applying the $5,000 discretionary sales surtax limitation, the entire invoice (including labor charges associated with the installation of technology) would be subject to the limitation, not each line item.
2) Please see response to #1.
3) Each invoice for XXXXXXX sales of custom canvas products for a single boat would be considered a single sale. All custom canvas products on a single boat pursuant to the invoice meet the working unit test. Therefore, for purposes of applying the $5,000 discretionary sales surtax limitation, the entire invoice would be subject to the limitation, not each line item.
4) Each invoice for XXXXXXX sale of a tuna tower on a single boat would be considered a single sale. A tuna tower on a single boat pursuant to the invoice meets the working unit test. Therefore, for purposes of applying the $5,000 discretionary sales surtax limitation, the entire invoice would be subject to the limitation, not each line item.
February 17, 2021
Technical Assistance Advisement 21A-004
STATUTE CITE(S): Sections 212.054 and 212.055, Florida Statutes (F.S.)
RULE CITE: Rule 12A-15.004, Florida Administrative Code (F.A.C.)
XXXXXXX ("Taxpayer")
FEIN: XXXXXXX
BP#: XXXXXXX
Dear XXXXXXX:
This is in response to your letter dated March 25, 2020, requesting this Department’s 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 the services offered by your client. An examination of your letter has established you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.
Facts
Taxpayer was issued a Letter of Technical Advice (LTA) on the identical requested advisements that Taxpayer seeks guidance on in this TAA. The LTA was issued by the Department on August 21, 2019.
Taxpayer made an initial request for a TAA on September 6, 2019. However, since Taxpayer failed to provide all of the requested documentation, it did not meet the requirements of Rule 12-11.003, F.A.C., and consequently, the TAA was closed on February 19, 2020. Taxpayer then submitted this TAA request along with the requested documentation.
The following information was provided in Taxpayer’s TAA request and in several email exchanges:
Taxpayer is in the marine industry in Florida. Taxpayer has three distinct lines of business. The first line of business is the installation of technology on boats, which is done by XXXXXXX (FEIN XXXXXXX). The second line of business is custom canvas work (indoor and outdoor) on boats, which is done by XXXXXXX (FEIN XXXXXXX). The third line of business is the fabrication and installation of tuna towers onto boats, which is done by XXXXXXX (FEIN XXXXXXX).
Taxpayer, XXXXXXX, XXXXXXX, and XXXXXXX are all separate entities with separate ownerships. All have the same physical address. XXXXXXX (FEIN XXXXXXX) is the marina where boats that are being repaired are kept while the work is being performed. Taxpayer owns 100% of XXXXXXX. Taxpayer also owns 100% of XXXXXXX and XXXXXXX. Taxpayer owns 51% of XXXXXXX.
XXXXXXX handles the first line of business involving the repair to and installation of technology on boats. This includes a variety of instruments which work together to run all the parts of a boat. Examples of XXXXXXX activities include installing radars, sound and lighting systems, and automatic identification systems (AIS Systems). Taxpayer asserts that these components function together to become a “working unit” that runs the boat. All of the technology added to the boat is billed on a single invoice. XXXXXXX also includes the cost of labor to install the technology on the invoice. The “terms and conditions” for work done by XXXXXXX is found on XXXXXXX quote. The quote is signed by XXXXXXX and the customer. Taxpayer provided a transaction that it asserted was representative of its business activity and accounting methodology. The transaction included a quote, three (3) change orders, and an invoice issued by XXXXXXX to the customer. Taxpayer also provided an invoice from XXXXXXX to the customer and a “Dock report” reflecting the time the boat arrived for the work to be performed and the time the boat left after completion of the job. Taxpayer asserts that the documentation from XXXXXXX substantiates its assertion that XXXXXXX maintains care, custody, and control of the boats throughout the repairs/installation jobs.
The second line of business is performed by XXXXXXX, and it is custom canvas coverings for all the various parts of a boat. XXXXXXX typically makes coverings for cushions, both indoor and outdoor, as well as sail covers and covers for tuna towers and outriggers. Some vessels require covers for the boat while the boat is in storage. These covers are custom made to cover the artwork on the boat, as well as to cover the furniture, equipment, and even the toilets. The cost of each individual piece is itemized, and all of the custom canvas pieces are billed on one invoice. XXXXXXX fabricates the canvas pieces, and as such, there is no charge for labor on the invoice. Taxpayer stated that there are no contracts/agreements for work done by XXXXXXX which outline the “terms and conditions” of the transaction. Taxpayer provided a transaction that was representative of XXXXXXX’s business activity and accounting methodology. The transaction included a quote, a work order, a sales copy, and an invoice issued by XXXXXXX to the customer. Taxpayer also provided a “Dock report” reflecting the time the boat arrived for the work to be performed and in which case the boat was stored at XXXXXXX. Taxpayer asserts that the documentation from XXXXXXX substantiates its assertion that XXXXXXX maintains care, custody, and control of the boats throughout the repairs/installation jobs.
The third line of business is performed by XXXXXXX, and it involves the building of custom tuna towers. These are large structures affixed to the center of a boat. A tuna tower can be multiple levels and generally has a fiberglass top to provide shade. The tuna tower can be outfitted with a number of customizations including seating, lighting, wing masts, and outriggers that act to counterbalance the weight of the tower. These items are all separate line items on a single invoice. XXXXXXX fabricates the towers at its location; so, the cost of labor is built into the price and not separately stated on the invoice. The “terms and conditions” for work done by XXXXXXX are found on XXXXXXX’s quote. The quote is signed by XXXXXXX and the customer. You provided a transaction that was representative of XXXXXXX’s business activity and accounting methodology. The transaction included a quote, a sales copy, change orders, and an invoice issued by XXXXXXX to the customer. Taxpayer also provided a “Dock report” reflecting the time the boat arrived for the work to be performed and in which case the boat was stored at XXXXXXX. Taxpayer asserts that the documentation from XXXXXXX substantiates its assertion that XXXXXXX maintains care, custody, and control of the boats throughout the repairs/installation jobs.
The three lines of business operate independently of each other. As such, a boat receiving all three of the aforementioned services would receive three separate invoices, one for each line of business.
Requested Advisements
5) Taxpayer’s sales of the technology installed onto a boat is a “working unit” for purposes of the cap on surtax on items over $5,000.
6) Taxpayer’s line item for labor associated with the installation of technology onto a boat is subject to the same cap on surtax for sales in excess of $5,000.
7) Taxpayer’s sales of the custom canvas products installed onto a boat is a “working unit” for purposes of the cap on surtax on items over $5,000.
8) Taxpayer’s sales of a tuna tower installed onto a boat is a “working unit” for purposes of the cap on surtax on items over $5,000.
Law and Discussion
Under section 212.054(2)(a), F.S., the basic principle in applying discretionary sales surtaxes is that they piggyback the state sales and use tax. If a transaction is subject to sales tax and occurs at a location where surtax is imposed, the surtax also applies. The surtax is imposed on all transactions that are subject to sales tax.
Section 212.054(2)(b), F.S., limits application of that principle when there is a sale of an item of tangible personal property for over $5,000. The surtax in that case applies only to the first $5,000. Subparagraph (b)l. of the statute then sets out very specific circumstances in which more than one item can be aggregated for purposes of application of the surtax. The statute requires application of the $5,000 limitation on an item-by-item basis, except for very specific circumstances when multiple items will be viewed as a single item. In order for the exception to apply, two tests must be satisfied. There must be a single sale in which one purchaser buys all the items at the same time, with a purchase order or other documentary evidence that there has been such a single transaction. Second, the multiple items reflected on that documentation will be aggregated for purposes of applying the $5,000 limitation only if they fall into one of two categories. They must either be items that are normally sold in bulk, or they must be items that will be assembled into a working unit or a part of one.
Items that meet the bulk sale/working unit test cannot be aggregated if they are not purchased in a single sale. The single sale requirement addresses the character of the transaction itself, whether there has been one discrete transaction to which the limitation can be applied or multiple sales that are separately subject to the limitation. Meeting this requirement is a matter of documenting that there was one buyer, one seller, and that the agreement to buy and sell occurred at the same time as to all of the items involved (See 12A-15.004(3)(a), F.A.C.).
Items cannot be aggregated solely because they are purchased in a single sale. The bulk sale/working unit test must also be met. This requirement addresses the character of the items purchased.
Rule 12A-15.004(3)(b), F.A.C., provides that items comprising a working unit are either: items normally sold as a set or a unit and the utility of each for its intended purpose is dependent on the set being complete; items sold to a purchaser for use in the normal business practice of the purchaser as an integrated unit; or items are component parts that have no utility unless assembled with each other to form a working unit or part of a working unit.
As discussed above in the relevant Florida Statutes and Florida Administrative Code cites, there must be an invoice or other evidence of sale that establishes that the items were sold in a single sale. In Taxpayer's case, the three distinct business entities independently document their sales by each entity issuing an invoice for its respective line of business. Each invoice will be treated as a single sale. Another requirement in order for there to be a single sale is that the entity performing the boat repairs and/or installation has to maintain care, custody, and control of the boat throughout the repair/installation job. Each of Taxpayer’s three distinct business entities has asserted and provided documentation reflecting that it maintains care, custody, and control of the boats throughout the repairs/installation jobs. In addition, any additional repair work added during the repair job must relate back to the original repair contract or work order. From the documentation provided, it appears that the single sale test will be met. Once the single sale test is met, the bulk sale/working unit test must also be met before the $5,000 discretionary sales surtax limitation can be applied.
The Department would view a boat as a “working unit” for purposes of Rule 12A-15.004(3), F.A.C. Therefore, sales and installation of technology installed on a single boat meets the working unit test. Custom canvas products installed on a single boat meets the working unit test, and a tuna tower installed on a single boat meets the working unit test.
It should also be noted that the maximum amount of tax imposed on a single repair of a boat in Florida cannot exceed $60,000 (surtax included). See s. 212.05(5), F.S.
Conclusions
5) Each invoice for XXXXXXX sales of technology on a single boat would be considered a single sale. All technology installed on a single boat pursuant to the invoice meets the working unit test. Therefore, for purposes of applying the $5,000 discretionary sales surtax limitation, the entire invoice (including labor charges associated with the installation of technology) would be subject to the limitation, not each line item.
6) Please see response to #1.
7) Each invoice for XXXXXXX sales of custom canvas products for a single boat would be considered a single sale. All custom canvas products on a single boat pursuant to the invoice meet the working unit test. Therefore, for purposes of applying the $5,000 discretionary sales surtax limitation, the entire invoice would be subject to the limitation, not each line item.
8) Each invoice for XXXXXXX sale of a tuna tower on a single boat would be considered a single sale. A tuna tower on a single boat pursuant to the invoice meets the working unit test. Therefore, for purposes of applying the $5,000 discretionary sales surtax limitation, the entire invoice would be subject to the limitation, not each line item.
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.
Leigh L. Ceci
Tax Law Specialist
Technical Assistance and Dispute Resolution
