Were inside-wire maintenance and separately stated gross receipts tax taxable to residential customers?

Subject

Inside Wire Maintenance Services and Application of the Residential Exemption

Plain-English summary

The monthly inside-wire maintenance charge was not taxable. Repair and maintenance of inside telephone wiring and jacks was treated as work on real property, so the agreement was not a service warranty for tangible personal property or another taxable service.

Residential telephone service was exempt from sales tax under the ruling. When the provider separately stated gross receipts tax on an exempt residential bill, that separately stated amount was also not subject to sales tax.

What this means for you

The result depended on what the maintenance agreement actually covered and whether the underlying utility service qualified as residential. A separately stated tax followed the sales-tax treatment of the service charge in this analysis.

Common questions

Q: Was LineGuard a taxable service warranty? No.

Q: Why not? It covered repair and maintenance of items treated as part of real property.

Q: Was separately stated gross receipts tax taxed on exempt residential service? No.

Citations and references

• Fla. Stat. § 212.0506(3) — service warranties
• Fla. Stat. § 212.08(7)(j) — residential-utility exemption
• Fla. Stat. §§ 203.01, 203.012 — gross receipts tax and utility service
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-038

Original ruling text

SUMMARY

QUESTION 1: Are charges for Inside Wire Maintenance
services subject to sales and use tax or gross receipts
tax?

ANSWER 1 - Based on Facts Below: No. The monthly charge for
Inside Wire Maintenance Service is not the sale of a
service warranty or any other service subject to tax.

QUESTION 2: Are separately stated charges for gross
receipts tax subject to sales tax for residential telephone
service?

ANSWER 2 - Based on Facts Below: No. When gross receipts
tax is separately stated on a bill for services provided to
residential households, neither the charge for the utility
service nor the separately stated item for gross receipts
tax is subject to sales tax.

Jul 07, 2000

Re: Technical Assistance Advisement 00A-038
XXX [hereinafter "Taxpayer"]
Sales and Use Tax and Gross Receipts Tax - Inside Wire
Maintenance Services and Application of the Residential
Exemption
Sections: 212.0506, 212.06, 212.05, 212.08, 203.01, and
203.012, Florida Statutes (F.S.)

Dear:

This is a response to your letter of April 21, 2000, requesting
a Technical Assistance Advisement (TAA) regarding the abovereferenced matter. This response to your request constitutes a
TAA under Chapter 12-11, Florida Administrative Code (F.A.C.),
and is issued to you under the authority of Section 213.22,
Florida Statutes (F.S.).

FACTS

In your letter you state:

Taxpayer,..., is a local telecommunications company
operating in Florida. [Taxpayer] is hereby requesting the
Florida Department of Revenue issue a technical assistance
advisement regarding the application of Florida sales tax
to the following two services/charges:

1.) LineGuard - LineGuard is a service provided by
[Taxpayer] to their customers whereby [Taxpayer]
agrees to maintain and repair inside wire and
telephone jacks and provide trouble isolation of
customer-owned modular telephone and modular
peripheral customer-owned equipment for residential
and single line business customers who pay a monthly
maintenance charge for each access line and for each
billed telephone number. LineGuard is a deregulated
service.

Inside wire includes the telephone wire within the
home or business and the wire located outside of the
home or business to the point where it connects to the
telephone company line. This point of connection will
be at the Network Interface Device (NID) or a house
protector and is considered the point of demarcation.
The NID and/or house protector equipment is owned by
[Taxpayer].

Trouble isolation includes locating the customer-owned
modular telephone instrument and/or modular peripheral
equipment such as modems, FAX machines, answering
machines or the burglar alarm system that caused the
problem.

LineGuard service covers repair and replacement as a
result of standard wear and tear, faulty jacks, faulty
inside wiring to all jacks, deterioration from
elements, and animal varmint damage to inside wire and

jacks. LineGuard will cover off-premise extensions
located on the same contiguous property. In some
instances, it may be necessary to relocate the inside
wire during repair. For example, if it is determined
that the trouble in your inside wire is in the wire
that runs through your attic, repair of your inside
wire may be handled by rerouting the wire rather than
repairing the defective wire in the attic.

LineGuard service excludes repair of customer-owned
telephone instruments, telecommunication peripheral
equipment (e.g.[,] external bells, answering machines)
or telephone cords between the telephone instrument,
equipment, jack or other connections on the premises.

[Taxpayer] is currently applying Florida sales tax to
the LineGuard service charge as a service warranty
under Fla. Stat. [Section] 212.0506. This application
has recently been questioned by a newspaper reporter
who was comparing sales tax application between
[Taxpayer] and another local telecommunications
service provider. Therefore, [Taxpayer] requests a
determination from the Florida Department of Revenue
regarding whether the monthly recurring charge
[Taxpayer] bills customers for LineGuard service is
subject to Florida sales tax.

2.) Gross Receipts Tax - [Taxpayer] is required, by Fla.
Stat. [Section] 203.01, to pay a tax on the gross
receipts derived from providing telecommunications
service. Fla. Stat. [Section] 203.01(5) authorizes
[Taxpayer] to separately state the gross receipts tax
on the "total amount of any bill, invoice, or other
tangible evidence of the provision of such taxable
services" and the gross receipts tax "may be added as
a component part of the total charge."

Florida Reg. [Rule] 12A-1.046 specifically provides
that gross receipts taxes are part of the charges
subject to Florida sales tax. However, a question
recently arose regarding whether the gross receipts

tax amounts associated with revenue that is exempt
from sales tax under the residential exemption (Reg.
[Rule] 12A-1.046(2)(b)) is also excluded from Florida
sales tax under the residential exemption. [Taxpayer]
is currently applying Florida sales tax to the entire
amount of Florida gross receipts tax billed to each
customer. Therefore, [Taxpayer] requests a
determination from the Florida Department of Revenue
regarding whether the entire amount of gross receipts
tax is subject to Florida sales tax or whether the
gross receipts tax associated with revenue that is
exempt from sales tax under the "residential
exemption" is also exempt.

[Taxpayer] is currently under audit by the Florida
Department of Revenue. However, the questions
presented arose as a result of a newspaper reporter's
questions and not as a result of this audit.

Further, your letter indicates that Mr. [XXX], the Department of
Revenue auditor performing the above-referenced audit, has been
provided a copy of your TAA request as required by Rule 1211.003(7), F.A.C.

REQUESTED ADVISEMENT

Whether charges for the "LineGuard" service are subject to
taxation in Florida and whether separately stated charges for
gross receipts tax are subject to sales tax when the charges
(upon which gross receipts tax is imposed) are for residential
households that are exempt from sales tax?

APPLICABLE LAW

The following statutory provisions are relevant to the issues at
hand:

Section 212.0506, F.S., provides, in pertinent part:

(1) It is the intent of the Legislature that every person
is exercising a taxable privilege who engages in this state

in the business of soliciting, offering, providing,
entering into, issuing, or delivering any service warranty.

(2) For exercising such privilege, a tax is levied on each
taxable transaction or incident, which tax is due and
payable at the rate of 6 percent on the total consideration
received or to be received by any person for issuing and
delivering any service warranty.

(3) For purposes of this section, "service warranty" means
any contract or agreement which indemnifies the holder of
the contract or agreement for the cost of maintaining,
repairing, or replacing tangible personal property. The
term "service warranty" does not include contracts or
agreements to repair, maintain, or replace tangible
personal property if such property when sold at retail in
this state would not be subject to the tax imposed by this
chapter, nor does it include such contracts or agreements
covering tangible personal property which becomes a part of
real property....

Section 212.06(14), F.S., provides:

(14) For the purpose of determining whether a person is
improving real property, the term:

(a) "Real property" means the land and improvements thereto
and fixtures and is synonymous with the terms "realty" and
"real estate."

(b) "Fixtures" means 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. However, the term
does not include the following items, whether or not such
items are attached to real property in a permanent manner:
trade fixtures; property of a type that is required to be
registered, licensed, titled, or documented by this state
or by the United States Government, including, but not
limited to, mobile homes, except mobile homes assessed as
real property; or machinery or equipment. For an item to be

considered a fixture, it is not necessary that the owner of
the item also own the real property to which it is
attached.

(c) "Improvements to real property" includes the activities
of building, erecting, constructing, altering, improving,
repairing, or maintaining real property.

Section 212.05(1)(e), F.S., provides, in pertinent part:

It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who engages
in the business of selling tangible personal property at
retail in this state, including the business of making mail
order sales, or who rents or furnishes any of the things or
services taxable under this chapter, or who stores for use
or consumption in this state any item or article of
tangible personal property as defined herein and who leases
or rents such property within the state.

(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:

(e)1. At the rate of 6 percent on charges for:
a. All telegraph messages and long-distance telephone calls
beginning and terminating in this state, telecommunication
service as defined in s. 203.012, and those services
described in s. 203.012(2)(a), except that the tax rate for
charges for telecommunication service is 7 percent....

Section 212.08(7)(j), F.S., provides, in pertinent part:

(7) MISCELLANEOUS EXEMPTIONS.(j) Household fuels.-Also exempt from payment of the tax
imposed by this chapter are sales of utilities to
residential households or owners of residential models in
this state by utility companies who pay the gross receipts
tax imposed under s. 203.01....

Section 203.01, F.S., provides, in pertinent part:

(1)(a) Every person that receives payment for any utility
service shall report by the last day of each month to the
Department of Revenue, under oath of the secretary or some
other officer of such person, the total amount of gross
receipts derived from business done within this state, or
between points within this state, for the preceding month
and, at the same time, shall pay into the State Treasury an
amount equal to a percentage of such gross receipts at the
rate set forth in paragraph (b). Such collections shall be
certified by the Comptroller upon the request of the State
Board of Education.

(b) Beginning July 1, 1992, and thereafter, the rate shall
be 2.5 percent.

(5) The tax imposed pursuant to this part relating to the
provision of any utility services at the option of the
person supplying the taxable services may be separately
stated as Florida gross receipts tax on the total amount of
any bill, invoice, or other tangible evidence of the
provision of such taxable services and may be added as a
component part of the total charge. Whenever a provider of
taxable services elects to separately state such tax as a
component of the charge for the provision of such taxable
services, every person, including all governmental units,
shall remit the tax to the person who provides such taxable
services as a part of the total bill, and the tax is a
component part of the debt of the purchaser to the person
who provides such taxable services until paid and, if
unpaid, is recoverable at law in the same manner as any
other part of the charge for such taxable services. For a
utility, the decision to separately state any increase in
the rate of tax imposed by this part which is effective
after December 31, 1989, and the ability to recover the
increased charge from the customer shall not be subject to
regulatory approval....

Section 203.012(9), F.S., provides:

(9) The term "utility service" means electricity for light,

heat, or power; natural or manufactured gas for light,
heat, or power; or telecommunication services.

DETERMINATION

I. Inside wire maintenance (LineGuard) services.

Monthly service charges for repair and maintenance of telephone
line inside wiring and telephone jacks are considered to be
charges for the repair and maintenance of real property.
Section 212.0506(3), F.S., defines a "service warranty" as an
"... agreement which indemnifies the holder of the... agreement
for the cost of maintaining, repairing, or replacing tangible
personal property." Further, the definition excludes agreements
that pertain to items of tangible personal property that become
a part of real property. Therefore, the monthly charge for
LineGuard services is not the sale of a service warranty or any
other service subject to tax.

II. Residential exemption.

Section 212.08(7)(j), F.S., provides an exemption from sales tax
for sales of utilities to residential households by utility
companies that pay the gross receipts tax imposed by Section
203.01, F.S. Thus, charges for residential telephone service
are not subject to sales tax.

Section 203.01(5), F.S., authorizes utility providers to
exercise the option of separately stating Florida gross receipts
tax on their customers' bills. If the utility provider elects
to separately state the gross receipts tax, then the gross
receipts tax becomes a component part of the charge for the
services that are subject to gross receipts tax. As a component
part of the charge for services, the separately stated gross
receipts tax is subject to sales tax when the charges for
services are subject to sales tax. However, when charges for
utility services are not subject to sales tax, then the
separately stated charge for gross receipts tax is likewise not
subject to sales tax. Therefore, when gross receipts tax is
separately stated on a bill for services provided to residential
households, neither the charge for the utility service nor the

separately stated item for gross receipts tax is 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 requests
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 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.

Sincerely,

Jennifer J. Silvey
Senior Attorney
Technical Assistance & Dispute Resolution

Control #: 41180
JJS/