Could a boat club buy boats tax-free for rental when each membership assigned one boat and a limited number of nonconsecutive use days?

Plain-English summary

Florida treated the boat club's membership agreement as a lease, allowing the club to buy its boats tax-free for exclusive rental use. Each member selected a particular boat and a full-year or prime-time term, received a fixed number of use days, and paid initiation and membership fees for that right.

Nonconsecutive days still formed a lease

Members reserved allotted days on a first-come basis. The Department said a lease does not stop being a lease merely because its permitted use days are spread across the term rather than consecutive.

The agreement transferred possession of a specifically identified boat to a specifically identified member for a stated period and consideration. Members received no benefits other than boat use and services directly connected with it.

The club's purchase qualified for resale treatment

The club represented that it made no personal use and used every boat solely through member agreements. As a registered dealer buying boats exclusively for rental, it could give the seller a resale certificate instead of paying sales tax at purchase. The cited rule required the lessor to collect tax from customers on the total rental charge.

What this means for you

Boat clubs should make the assigned property, term, allowed days, consideration, and lack of unrelated membership benefits explicit. They should also document exclusive rental use and collect tax on the full rental consideration.

Common questions

Q: Did members need consecutive possession?
A: No. Nonconsecutive allotted days could still constitute a lease.

Q: Could a member use any boat?
A: Generally no. Each agreement identified one boat, absent prior written authorization.

Q: Were initiation and membership fees part of the rental consideration?
A: Yes. The ruling treated both as payment for use of the boats.

Q: Could the club pay no tax anywhere?
A: No. It could buy for resale without tax, but the quoted rule required tax collection on customer rental charges.

Citations and references

• Fla. Stat. § 212.05 — rentals of tangible personal property
• Fla. Admin. Code r. 12A-1.007(13)(b) — boats purchased exclusively for rental
• Fla. Admin. Code r. 12A-1.071(1)(a) — lease, rental, or license to use
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-047

Original ruling text

SUMMARY

QUESTION: Can Taxpayer purchase its boats exempt from tax
exclusively for rental, under the terms and conditions of
its membership agreement?

ANSWER - Based on Facts Below: The Department finds that
under the terms and conditions of the Taxpayer's Membership
and Leasing Agreement, the Taxpayer is leasing, or renting,
each of its specifically identified boats, to a
specifically identified member, for a specific period of
time, for a consideration. A transaction does not fail
classification as a rental or lease simply because a lease
term does not provide for consecutive use. Thus, the
Taxpayer, as a registered dealer, may purchase its boats
exclusively for rental exempt of sales tax.

Oct 06, 2003

Re: Technical Assistance Advisement 03A-047
Sales and Use Tax
XXX (Taxpayer)
Membership and Leasing Agreement
Rules 12A-1.007 and 12A-1.071, F.A.C.

Dear :

This letter is in response to your petition dated September 2,
2003, for the Department's issuance of a Technical Assistance
Advisement (TAA) concerning the above referenced matter. Your
petition 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.

FACTS

Your petition provided the following information:

Description of the Transaction:

The taxpayer operates a boat club in which approved members pay
a fee (a one-time initiation fee and a membership fee based on
the boat and type of membership chosen) for the use of one
specific boat, for specified times during the membership period.
The Taxpayer has three boats for membership use. Each member is
required to designate the particular boat (Boat) desired and the
type (Term) of membership, full year or prime time (i.e.,
November to April) in the Leasing Agreement. Each member only
has access to the boat chosen, unless prior authorization is
given and agreed to in writing. Under the Leasing Agreement,
each member is entitled to use the selected boat for a number of
days, to be established upon membership, in the aggregate,
during each year of the Term (the "Allotted Days"), with a cap
on the number of members that may be assigned to each boat.

At any time during the Term, the member is entitled to select,
in advance, the specific date or dates when the member desires
to use the Boat; and, provided that the Boat has not already
been reserved by another member, the member is entitled to
utilize the Boat on the date or dates so selected. The Boat
shall be available for reserving the dates for use thereof, on
a first come, first reserved basis. Under terms of the Leasing
Agreement, a member under a full year membership is prohibited
from using more than sixty percent (60%) of the member's Allotted
Days during the prime time of each full year membership.

In our telephone conversation regarding this issue, you asserted
that the Taxpayer makes no personal use of any of the boats, and
that all of its boats are utilized solely by its members, under
the terms of the respective Leasing Agreement.

The Purpose of Membership, as stated in the Membership and
Leasing Agreement, Terms and Conditions, is:

This Membership and Leasing Agreement is intended to be a
lease agreement between the [Taxpayer] and the Leasing
Member. Leasing Members pay a Membership Fee in exchange

for the use of the Boat. As more fully explained in this
Membership and Leasing Agreement, Leasing Members are
entitled to use the Boat, at certain specified times. Each
Membership and Leasing Agreement shall last for a specific
period of time. The Membership Fee does not correlate to
the Membership and Leasing Agreement Term, rather it is
determined based upon the use of the Boat (i.e., type of
boat chosen and length of time boat is available for use).
Leasing Members do not receive any benefits of membership
other than the use of the Boat, and certain services
directly associated with use of the boat.

REQUESTED ADVISEMENT

The Taxpayer is seeking advice whether the purchases of its
boats are exempt from sales tax, pursuant to Rule 12A-1.007,
Florida Administrative Code (F.A.C.).

STATUTORY AND REGULATORY AUTHORITY

Section 212.05, F.S., provides, in 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... or who rents or furnishes any of
the things or services taxable under this chapter... and
who leases or rents such property within the state.

Rule 12A-1.007(13)(b)1., F.A.C., provides, in part:

The purchase of... [a] boat... exclusively for rental
purposes may be made tax exempt when the purchaser/lessor
issues a resale certificate to the dealer at the time of
purchase in lieu of paying tax. The lessor shall collect
tax from his customers on the total rental charge. (E.S.)

Rule 12A-1.071(1)(a), F.A.C., provides, in part:

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.... 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.

Applying the above rule provisions to the Membership and Leasing
Agreement and its intent, payment of the boat club membership
fees, including the one time initiation fee, are payments for
the use of the Taxpayer's boats, for a specified period of time.
The member takes possession of the boat, and only has the right
to the use of one designated boat. The number of days, and the
specific dates, that a member can use the boat is specified in
the agreement. The days do not have to be used consecutively;
they can be used at any time during the specified term, in
accordance with the agreement.

CONCLUSION

Under the terms and conditions of the Taxpayer's Membership and
Leasing Agreement, the Taxpayer is leasing, or renting, each of
its specifically identified boats, to a specifically identified
member, for a specific period of time, for a consideration. A
transaction does not fail classification as a rental or lease
simply because a lease term does not provide for consecutive
use. Thus, the Taxpayer, as a registered dealer, may purchase
its boats exclusively for rental exempt of sales tax.

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.

Sincerely,

Horace Royals
Tax Law Specialist
Technical Assistance and Dispute Resolution

Control No. 56668