Was a swimming-pool service warranty taxable when it could cover both tangible personal property and improvements to real property?

Plain-English summary

Florida taxed the entire unallocated warranty charge when the contract covered both taxable pool equipment and exempt real-property improvements. The warranty included pumps, motors, filters, lights, transformers, skimmers, drains, valves, leak detection, and leak repair.

Whether a skimmer was tangible personal property or an improvement to real property depended on its type. If a contract covered both categories, the seller needed to separately state the amount attributable to taxable tangible personal property. Without that allocation, the full contract price was taxable.

When every covered item was an improvement to real property, the warranty price was exempt. For that nontaxable real-property service work, the contractor still owed use tax on materials it used or consumed.

What this means for you

Warranty sellers should classify every covered component and expressly allocate the contract price between taxable equipment and exempt real-property work. A single bundled price can make the whole contract taxable.

Common questions

Q: Were all swimming-pool warranties taxable?
A: No. A warranty covering only real-property improvements was exempt under the ruling.

Q: What made a mixed warranty fully taxable?
A: Failure to separately state the taxable portion.

Q: Why did skimmer type matter?
A: Some skimmers were tangible personal property while others were real-property improvements.

Q: Did an exempt warranty eliminate tax on repair materials?
A: No. The contractor owed use tax on materials used in real-property work.

Citations and references

• Fla. Stat. § 212.0506 — service warranties
• Fla. Stat. § 212.06(14) — real property and fixtures
• Fla. Admin. Code r. 12A-1.051 — real-property contractor treatment
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Revised advisement: TAA 03A-025R

Original ruling text

SUMMARY

QUESTION: What is the taxability of sales of service
warranties?

ANSWER - Based on Facts Below: Service warranties that
cover both items that are subject to tax and items that are
exempt from tax must separately state the taxable portion
from the exempt portion. If not, the entire contract is
taxable. Taxpayer's service warranty contract may cover
both improvements to real property and tangible personal
property, depending on the type of skimmer a particular
customer has. If the warranty contract does cover both
tangible personal property and real property improvements,
the contract price is not allocated between the taxable
portions and the exempt portions. In these cases, the
entire contract amount is taxable. Taxpayer may desire to
alter its contract so that the amount attributable to the
tangible personal property (skimmer) is separately stated
from the remainder of the items. In cases where all items
covered are improvements to real property, the contract
price is exempt from tax.

Jul 14, 2003

Re: Technical Assistance Advisement 03A-025R
Sales and Use Tax - Service Warranties
Sections: 212.0506, 212.06, F.S.
Rule: 12A-1.051, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XX

Dear :

In response to your petition dated January 15, 2003, for the
Department's issuance of a Technical Assistance Advisement
("TAA") concerning the above referenced party and matter, the
Department issued to you TAA No. 03A-025, dated May 6, 2003.

After further consideration of the issues at hand, the
Department has revised its response to the questions contained
in your petition. This response constitutes Revised Technical
Assistance Advisement No. 03A-025R and supersedes TAA 03-025.

FACTS

According to the petition, Taxpayer sells service warranty
contracts for the repair and/or replacement of certain swimming
pool equipment and provides certain services. The service
contract identifies the covered equipment as pumps, motors,
filters, underwater light fixtures, transformers, skimmers, main
drains, and valves. The contract identifies the covered
services as leak detection and leak repair. The terms and
conditions of the contract state that the contract will not
apply to above ground pools, among other things.

A customer may enter into a contract for a one-year or a twoyear period.

REQUESTED ADVISEMENT

Advice is requested whether the sale of the service warranty is
subject to tax.

LAW AND DISCUSSION

Section 212.06(14), Florida Statutes, defines certain terms to
help determine whether a person is working with an improvement
to real property. These terms and their definitions are as
follows:

(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:
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 industrial machinery or equipment. For
purposes of this paragraph, industrial machinery or
equipment is not limited to machinery and equipment used to
manufacture, process, compound, or produce tangible
personal property. 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.

Pumps, motors, filters, underwater light fixtures, transformers,
main drains, valves and timer boxes on an in-ground pool are
classed as improvements to real property. Leak detection and
repair of an in-ground pool are also improvements to real
property. However, skimmers may be classed as tangible personal
property or as improvements to real property, depending upon the
type of skimmer.

Section 212.0506, Florida Statutes, 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.

(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.

(8) If a transaction involves both the issuance of a
service warranty that is subject to such tax and the
issuance of a warranty, guaranty, extended warranty or
extended guaranty, contract, agreement, or other written
promise that is not subject to such tax, the consideration
shall be separately identified and stated with respect to
the taxable and nontaxable portions of the transaction. If
the consideration is separately apportioned and identified
in good faith, such tax shall apply to the transaction to
the extent that the consideration received or to be
received in connection with the transaction is payment for
a service warranty subject to such tax. If the
consideration is not apportioned in good faith, the
department may reform the contract; such reformation by the
department is to be considered prima facie correct, and the
burden to show the contrary rests upon the dealer. If the
consideration for such a transaction is not separately
identified and stated, the entire transaction is taxable.

(10) Materials and supplies used in the performance of a
factory or manufacturer's warranty are exempt if the
contract is furnished at no extra charge with the equipment
guaranteed thereunder and such materials and supplies are
paid for by the factory or manufacturer. (Emphasis
Supplied)

Although service warranties covering improvements to real
property are not subject to tax, service warranties covering
tangible personal property are subject to tax. When a single
service warranty covers both, the portion of the contract
covering the taxable items must be separately stated from the
portion covering the exempt items. If the taxable and exempt
portions are not separately identified, then entire service
warranty amount will be subject to tax.

It appears, based on the sample contract provided, that the
contract price is a single lump sum price that does not separate
the portion of the price attributable to the skimmer from the

remainder of the covered items. Section 212.0506(8), Florida
Statutes, requires that, when these amounts are not separately
stated, the entire service warranty contract charge is subject
to tax. As such, in cases where the skimmer is tangible
personal property, the entire amount of Taxpayer's service
warranty contract charge is subject to tax. Taxpayer may desire
to alter its contract so that the amount attributable to the
tangible personal property (skimmer) is separately stated from
the remainder of the items. Conversely, when the skimmer is
property classified as an improvement to real property, the
entire amount of Taxpayer's service warranty contract charge is
exempt from tax.

To the extent that the agreement is a nontaxable service
warranty for improvements to real property, Rule 12A-1.051(3)
and (4), Florida Administrative Code, provide that the
contractor (Taxpayer) owes use tax on its purchase of materials
used or consumed in the improvement of real property.

CONCLUSION

Service warranties that cover both items that are subject to tax
and items that are exempt from tax must separately state the
taxable portion from the exempt portion. If not, the entire
contract is taxable. Taxpayer's service warranty contract may
cover both improvements to real property and tangible personal
property, depending on the type of skimmer a particular customer
has. If the warranty contract does cover both tangible personal
property and real property improvements, the contract price is
not allocated between the taxable portions and the exempt
portions. In these cases, the entire contract amount is
taxable. Taxpayer may desire to alter its contract so that the
amount attributable to the tangible personal property (skimmer)
is separately stated from the remainder of the items. In cases
where all items covered are improvements to real property, the
contract price is exempt from tax.

This response constitutes a Technical Assistance Advisement
under Section 213.22, Florida Statutes, 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,

Florida Statutes. Our response is predicated upon 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 from that which is expressed in this
response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
Florida Statutes, and are subject to disclosure to the public
under the conditions of s. 213.22, Florida Statutes.
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,

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/414-9838

Control #53380