TAA 22B4-001 Lease of TPP

QUESTION(S): 1) Are finance contracts true leases or secured finance conditional sales contracts where customers, the lessees, enter into contracts for the sale or lease of tangible personal property that transfer substantially all the benefits, including depreciation, and risks inherent in the ownership of tangible personal property to the lessee? 

2) Who is the dealer for purposes of sales tax collection under section 212.06(2), F.S., where a Vendor leases tangible personal property to customers under a financing arrangement with a finance company? 

ANSWER(S): 1) Where the finance contracts presented transfer substantially all of the benefits and risks of ownership of tangible personal property to the lessee, and ownership of the property transfers to the lessee at the end of the lease term, the contracts are conditional-sale type leases. 

2) Where the Vendor is the entity that sells tangible personal property at retail or offers tangible personal property for sale at retail, and collects and reports retail sales tax to the State, the Vendor is the dealer. 

February 09, 2022

Technical Assistance Advisement – TAA #: 22B4-001

Sales and Use Tax – Lease or Finance of Tangible Personal Property

Sections 212.02, 212.05 and 212.054, 212.06 and 212.17, Florida Statutes (“F.S.”)

Rules 12A-1.012 and 12A-1.071, Florida Administrative Code (“F.A.C.”)

BP #: XXXX

XXXX (“Taxpayer”)

FEIN: XXXX

XXXX (“Vendor 1”)

FEIN: XXXX

XXXX (“Vendor 2”)

FEIN: XXXX

Dear XXXX, 

This is in response to your letter dated July 9, 2020, requesting this Department’s issuance of a TAA pursuant to Section 213.22, F.S., and Chapter 12-11, Florida Administrative Code, 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, F.A.C. This response to your request constitutes a TAA and is issued to you under the authority of s. 213.22, F.S. 

Stated Facts 

Your request dated July 9, 2020, provides in pertinent part: 

Taxpayer is an LLC organized and based outside the State that provides financing for retail customers. Taxpayer’s two finance offerings assist Customers with bad credit or no credit in their purchase of durable consumer goods (i.e., furniture, mattresses, tires). Taxpayer’s sole physical presence in the State has been traveling representatives that meet with prospective Vendors. Taxpayer enters into a contract with Vendors for targeted durable consumable items allowing Vendors to execute financing applications on behalf of Customers. The Vendors are retail stores open to the public and accept cash and credit cards, in addition to arranging for financing through several independent finance companies. Financing through the Taxpayer is one of many finance vehicles arranged by the Vendors. 

According to Taxpayer, all terms of the Preapproved Credit Card Finance Contract related to the “XXXX credit cards” are identical to the Same-as-Cash Option Contract, except that in the former, the Customer applies online directly with the Taxpayer for a limited-use credit card under identical terms as the Same-as-Cash Option Contract. The use of the XXXX credit card is limited to purchases from Vendors within the range of Taxpayer’s targeted product industry verticals— tires, mattresses, jewelry and furniture. The XXXX credit card is executed without the knowledge or participation of the Vendor. Therefore, the Vendor is unaware of the nature of the Finance Contract between the Taxpayer and the Customer; the Vendor simply views it as a conventional credit card purchase.

According to Taxpayer, with regard to the Same-as-Cash Option Contract: 

• The Vendor is retail store open to the public and accepts cash and credit cards, in addition to arranging for financing through several independent finance companies. The Company’s Same-as-Cash Option Contract is one of many finance vehicles arranged by the Vendor. 
• The Same-as-Cash Option Contract is not co-branded to the Vendor, the Same-as-Cash Option Contract is non-recourse to the Vendor, and Taxpayer is in no way related to or affiliated with the Vendor. 
• Upon Customer’s request, the Vendor submits Customer information and receives real time approval to proceed with a Same-as-Cash Option Contract. In some instances, a Vendor simply makes available an online portal for Customer to submit the Same-as-Cash Option Contract application directly. Upon Customer agreement, the Vendor executes an approved Same-as-Cash Option application, which shows on its face the Customer’s retail price, including discounts plus sales tax, to be paid on the purchase and explains options of paying off the finance and obtaining ownership. 
• The Vendor invoices and reports the retail sales tax to the State. 
• The Customer typically pays a modest origination fee to the Vendor at check out. 
• The Vendor salesclerk inputs several records into Taxpayer’s online system, including financed invoice and financed sales tax. 
• Taxpayer funds to the Vendor the invoiced retail price of the item plus the sales tax invoiced but deducts the contracted financing discount typical of the percentage charged by credit card companies.

According to Taxpayer, with regard to the XXXX credit card:

• The VIRTUAL XXXX CARD is a single use credit card. The term, “XXXX card”, is an internal reference by Taxpayer that describes the XXXX card program when it was being developed. As a means of internal communication in the development of the card program, Taxpayer used the term “XXXX card” until the XXXX card arrangement was completed. 
• XXXX is a credit card company. Taxpayer has an agreement with XXXX to facilitate the Same-as-Cash Option Contract through a XXXX card. Taxpayer has funds on deposit with the sponsoring bank of the XXXX card. As the funds are already with the sponsoring bank when the card is used, the bank releases those funds through the XXXX card network whereby the Vendor receives its funds. 
• Customer goes to https://XXXX where Customer provides a valid email or SMS text contact and completes the online application. Taxpayer’s terms and conditions are given along with Taxpayer’s privacy policy. Customer is then directed to a page where name, address, income and bank account are entered. 
• Taxpayer has a database of preauthorized account numbers. Taxpayer reviews and approves the application, creates the XXXX credit card, assigns a preauthorized account number, and notifies XXXX of the Customer name, expiration date, purchase limit, and class of Vendor authorized. 
• Taxpayer provides Customer the XXXX credit card issued by XXXX with the credit card information, credit limits and expiration date. 
• If Customer is approved for finance, the approval amount is communicated, and Customer is issued a XXXX credit card. 
• The XXXX credit card has the appearance of a Taxpayer-sponsored credit card usable through the XXXX network demonstrated by the XXXX logo. This is similar to XXXX and XXXX issued through sponsoring financial institutions (XXXX, XXXX, XXXX) and/or sponsoring vendors (XXXX, XXXX, XXXX) such that the customer and vendor do not have any knowledge of the “XXXX” including terms of payments, rewards and other nuances. Customer can only use the XXXX credit card at XXXX-enrolled Vendors in targeted industries (e.g., mattresses, furniture, jewelry) on a single use basis up to the maximum credit limit. 
• Vendor treats the XXXX credit card as a XXXX card and enters it into its sales system as it would accept a physical card, with the only difference is that the Vendor inputs manually the XXXX-backed XXXX credit card information rather than swiping a physical card. 
• Contracts between Vendor and XXXX specify the time between approval, posting and payment. Generally, the funds are made available to Vendor on the next business day. 
• Taxpayer’s agreement with XXXX requires Taxpayer to fund its obligation to XXXX within 1 business day.

Requested Advisement 

XXXX (hereinafter “Taxpayer”) requests advisement regarding both its Vendor Finance Business and its Credit Card Finance Business. Taxpayer states it does business in all 50 states as a third-party finance option for 100-day-Same-as-Cash/Lease-to-Own Contracts (hereinafter “Same-as-Cash Option Contract”) and allows some purchases through a Preapproved Credit card (hereinafter “XXXX credit card”) (which is also referred to by the taxpayer as the Virtual XXXX Card.). As the State of Florida (hereinafter “State”) has not formally adopted the Streamlined Sales and Use Tax Act (hereinafter “SSUTA”), Taxpayer requests this TAA confirm that it’s historical interpretation of law is correct for the three finance agreements presented. 

Taxpayer further states it has historically paid the Vendor for retail sales tax on both types of finance contracts on behalf of its Customers, and the Vendor remits the sales tax to the State. Taxpayer asks the following questions:

1. What is the true nature of both types of finance contracts – a true lease or a secured finance conditional sales contract? 

2. Who is the Dealer for purposes of sales tax collection under section 212.06(2), F.S.? 

Taxpayer provides copies of the following:

• three Finance Contracts with customers: Customer 1 XXXX (Same-as-Cash Option Contract example); identified by Taxpayer as XXXX via XXXX card Customer 2 XXXX (Same-as-Cash Option Contract example); Customer 3 XXXX (Same-as-Cash Option Contract example); 

• A blank Same-as-Cash Option Contract, identified by Taxpayer as Credit Card Agreement XXXX 
• Vendor agreements with Vendor 1 XXXX; Vendor 2 XXXX; and Vendor 3 XXXX (hereinafter “Vendor Finance Contract”); 
• a copy of the final order and original order of the Bridgestone Firestone, Inc. v. Florida Department of Revenue case; 
• 14 TAAs, which Taxpayer assert support your position; 
• a copy of the June 5, 2020 Letter of Technical Advice; 
• a copy of a XXXX Agreement; and 
• a copy of a XXXX Credit Card Agreement

Taxpayer Position 

Taxpayer concludes that, based upon Florida law and previous TAAs, its Same-as-Cash Option Contracts and Preapproved Credit Card Finance Contracts related to the XXXX credit cards are conditional-sale type leases and that it is not a dealer subject to registering and collecting sales tax. Further, Taxpayer believes that the sale is between the Vendor and the Customer and that Taxpayer is simply an intermediary financier.

Law and Discussion 

As an initial matter, a TAA has no precedential value and is specific to the facts and circumstances of the person to which the TAA is issued. Accordingly, the TAAs that Taxpayer state supports its argument cannot be used to determine that the Department will also reach the same conclusion in Taxpayer's case. 

Also, this TAA shall be binding only on the Taxpayer, Vendor 1 XXXX and V e n d o r 2 XXXX, and only upon their agreements that are similar in all material respects as the representative agreements provided to the Department for review.

Further, Florida is not a member of the Streamlined Sales Tax Governing Board, Inc. ("SSTGB"). Therefore, this TAA will not address the prevailing standard adopted by most member states for sales tax purposes (formalized within SSUTA)).

True Lease or Conditional Sale Type Lease 

Generally, Florida law imposes a state sales and use tax, at the rate of six percent (6%),1 on the gross proceeds derived from the renting or leasing of tangible personal property in this state. See section 212.05(1)(c), F.S. 

Section 212.02(10)(g), F.S., provides, in part, that the terms “lease,” “let,” or “rental” also mean “the leasing or rental of tangible personal property and the possession or use thereof by the lessee or rentee for a consideration, without transfer of the title of such property, except as expressly provided to the contrary herein....”

Section 212.02(15)(a), F.S., provides that the term “sale” means and includes “any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration.” ^{1 Discretionary county sales surtax, if any, is also owed if the six percent (6%) Florida state sales tax applies. See section 212.054, F.S. The surtax applies only to the first $5,000 of the sales amount on any item of tangible personal property. See section 212.054(2)(b), F.S.} 

Rule 12A-1.071, F.A.C., provides, in part:

(1)(a) For the purpose of this rule, the term “lease” includes any rental or license to use tangible personal property, unless a different meaning is clearly indicated by the context in which it is used. The term refers to all transactions that are not bailments in which there is a transfer of possession of tangible personal property, without regard to limitations upon the use, for a consideration, without a transfer of title to the property. It is not essential for a transfer of possession of tangible personal property to include the right to move the tangible personal property. It includes a transaction under which a person secures for a consideration the temporary use of tangible personal property which, although not on his premises, is operated by or under the direction or control of the person or his employees. All leases of tangible personal property other than conditional-sale type leases as described in paragraph (1)(d) of this rule, are operating leases. Whether a transaction is a “sale” or a “rental, lease, or license to use” shall be determined in accordance with the provisions of the agreement. (Emphasis added)

(b) Transfer of possession with respect to an operating lease means that one of the following attributes of tangible personal property ownership has been transferred: 

1. Custody or possession of the property, actual or constructive; 

2. The right to custody or possession of the property; or, 

3. The right to use and control or direct the use of the property.

*** 

(d) Where a contract designated as a lease transfers substantially all the benefits, including depreciation, and risks inherent in the ownership of tangible personal property to the lessee, and ownership of the property transfers to the lessee at the end of the lease term, or the contract contains a purchase option for a nominal amount, the contract shall be regarded as a sale of tangible personal property under a security agreement (commonly referred to as a conditional-sale type lease, from its inception. The purchase option shall be regarded as a nominal amount if it does not exceed $100 or 1 percent of the total contract price, whichever is the lesser amount. 

***

As discussed above, all leases of tangible personal property other than conditional-sale type leases are operating leases. Conditional-sale type leases are regarded as sales of tangible personal property from their inception. The contract transfers substantially all of the benefits and risks of ownership of the tangible personal property to the lessee, and ownership of the property transfers to the lessee at the end of the lease term, or the contract contains a purchase option for a nominal amount. See Rule 12A-1.071(1)(f), F.A.C. Operating leases are contracts in which the lessee has the option to purchase the equipment or return it at the end of the lease. See Rule 12A-1.071(1)(d), F.A.C. Sales tax “applies to the gross proceeds derived from the lease of tangible personal property for the entire term of the lease when the lessor of such property is an established business ….” See Rule 12A-1.071(1)(c), F.A.C. The tax is “due and payable … when the lessee’s obligation arises to pay… each agreed payment….” See Rule 12A-1.071(1)(c)1., F.A.C.

If a purchaser exercises the option to purchase the tangible personal property, Florida law requires that the person selling the tangible personal property charge, collect, and remit sales tax on the sales price of each retail sale at the rate of 6%, plus any county-imposed surtax. See sections 212.05(1)(a)1.a., F.S., and 212.054, F.S.

The Same-as-Cash Option Contracts (e.g., Customer 1 XXXX, Customer 2 XXXX, Customer 3 XXXX) and the blank Same-as-Cash Option Contract, identified by Taxpayer as a Credit Card Agreement XXXX for making XXXX credit card purchases, presented indicate that a customer, the lessee, enters into a contract for the sale or lease of tangible personal property. These contracts transfer substantially all the benefits, including depreciation, and risks inherent in the ownership of tangible personal property to the lessee. Title to the property transfers to the lessee at the end of the lease term, or the contract contains a purchase option for a nominal amount.

Based upon a review of both the Same-as-Cash Option Contracts (e.g., Customer 1 XXXX, Customer 2 XXXX, Customer 3 XXXX) and the blank Same-as-Cash Option Contract, identified by Taxpayer as a Credit Card Agreement XXXX for making XXXX credit card purchases, the Department concludes that all elements of a contract that is regarded as a sale of tangible personal property under a conditional-sale type lease are present. Therefore, these contracts are conditional-sale type leases. 

Who is the Dealer?

Section 212.06(2), F.S., provides that a dealer is defined as “every person … who sells at retail or who offers for sale at retail, or who has in his or her possession for sale at retail; or for use, consumption, or distribution; or for storage to be used or consumed in this state, tangible personal property as defined herein, including a retailer who transacts a substantial number of remote sales …who has sold at retail; or used, or consumed, or distributed; or stored for use or consumption in this state, tangible personal property … [and] who leases or rents tangible personal property … for a consideration, permitting the use or possession of such property without transferring title thereto … .” 

Pursuant to the Vendor Finance Contracts that were provided, “the Vendor is established as a dealer of Taxpayer with the non-exclusive right to offer lease-purchase products …” Goods are purchased from the Vendor. Pursuant to the Same-as-Cash Option Finance Contracts, Taxpayer is the Lessor, but the customer “agrees to obtain from the Vendor only new goods …”

Based upon Taxpayer’s representations, Vendor is a retail store open to the public. The use of the Same-as-Cash Option Finance Contracts and the Preapproved Credit Card Finance Contract for making XXXX credit card purchases are limited to Vendors within the range of Taxpayer’s targeted product industry verticals—tires, mattresses, jewelry and furniture. Vendor sells the merchandise to Customer. If Customer applies for Taxpayer financing through Vendor, Vendor executes an approved Same-as-Cash Option Finance application. Upon making a purchase, Customer receives the itemized sales invoice from Vendor showing the retail price and sales tax. If Customer uses the XXXX credit card, Vendor executes an invoice to Customer that includes the product cost, any discounts and sales tax for a total invoice price.

According to the facts as presented, Vendor invoices and reports the retail sales tax to the State. Here, the Vendor is the entity who sells tangible personal property at retail or offers tangible personal property for sale at retail. Based upon the above, the Department concludes that Taxpayer is not the dealer. The Vendor is the dealer. 

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 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 ten (10) days of the date of this letter.

Felicia S.W. Thomas, Esq. 

Senior Attorney 

Technical Assistance & Dispute Resolution