Were an electric utility's monthly charges for utility-owned special facilities subject to Florida sales tax and gross receipts tax?

Plain-English summary

Florida treated this electric utility's monthly facilities charges as charges for providing electricity. The charges were subject to gross receipts tax for residential and nonresidential customers and also subject to sales tax for nonresidential customers. For qualifying residential customers, only gross receipts tax applied because residential electricity was exempt from sales tax under the rule quoted in the advisement.

The utility generated, transmitted, and distributed electricity. It offered required and optional equipment beyond its normal delivery system, including distribution lines, conduits, switches, transformers, fuses, lightning arrestors, and reliability-enhancing automatic transfer switches.

The utility kept ownership and handled design, installation, operation, maintenance, and replacement. Customers had no ownership or maintenance responsibility and did not enter a separate installation contract.

The facilities charge was part of electric service

Customers paid a flat monthly Facility Cost Factor equal to 1.47% of installed cost. The calculation included engineering, materials, labor, vehicles or equipment, contractor expenses, overhead, administration, maintenance, depreciation, and a return on investment.

Section 203.01(7) expressly included monthly customer facility charges in gross receipts from providing electricity. The Department therefore applied gross receipts tax to the charges for every customer class.

For sales tax, section 212.05(1)(e) taxed electrical power or energy. Rule 12A-1.053 exempted qualifying residential household electricity sold by a utility subject to Chapter 203 gross receipts tax, but left nonresidential electricity taxable. That produced the two customer-class results:

• Nonresidential customers: sales tax and gross receipts tax.
• Residential customers: gross receipts tax only.

The customer-premises-equipment exclusion did not apply

Rule 12B-6.001(2)(f) excluded separately itemized receipts for selling, leasing, repairing, or maintaining customer-premises equipment from utility gross receipts. These facilities belonged to the utility, not the customer, so the Department found that exclusion irrelevant.

The utility also cited an earlier TAA involving utility equipment. The Department emphasized that a TAA has no precedential value for a different taxpayer and transaction.

What this means for you

Electric utilities

Equipment charges can remain part of taxable electric service when the utility owns and controls the facilities, even if the equipment is installed for one customer's exclusive use or improves reliability beyond normal delivery.

Commercial customers

A separately listed facilities line on the bill is not necessarily a nontaxable equipment rental. Under these facts, the nonresidential charge carried both sales tax and gross receipts tax treatment.

Residential customers

The advisement applied gross receipts tax to the monthly facility charge but followed the residential-electricity sales-tax exemption for qualifying household use.

Common questions

Q: Did it matter that some equipment was optional rather than required?
A: No different result was stated. Both required facilities and optional reliability equipment remained utility-owned and were provided as part of electric service.

Q: Why was gross receipts tax due?
A: Section 203.01(7) included monthly customer facility charges in gross receipts from providing electricity.

Q: Why did nonresidential customers also pay sales tax?
A: Florida taxed electrical power or energy, and the residential household exemption did not apply to nonresidential use.

Q: Were the facilities treated as customer-premises equipment?
A: No. The utility owned and maintained them, while the customer had no ownership interest or responsibility.

Citations and references

• Fla. Stat. § 203.01(1) and (7) — gross receipts tax on utility services, including monthly facility charges
• Fla. Stat. § 212.05(1)(e)1.c. — sales tax on electrical power or energy
• Fla. Admin. Code r. 12A-1.053(1)(a) — taxable electricity and residential-use exemption
• Fla. Admin. Code r. 12B-6.001(1)(b) — gross receipts tax imposed on the utility provider
• Fla. Admin. Code r. 12B-6.001(2)(f) — exclusion for separately itemized customer-premises equipment charges
• Fla. Stat. § 213.22(1) — a TAA generally has no precedential value beyond its requester and transaction

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04A-059

Original ruling text

SUMMARY
FACTS: Taxpayer is an integrated electric utility providing generation, transmission, and distribution services to
residential and commercial customers. Taxpayer offers its customers additional facilities (hereinafter referred to as
"Facilities"). Facilities remain the property of Taxpayer and are designed, installed, operated, maintained, and
replaced, as needed, by Taxpayer. The customer has no such responsibility or ownership interest in Facilities. The
customer's only influence on Facilities is the amount of energy flowing through them as a result of the customer's
operations on the property. Taxpayer and the customer do not enter into a contract for the installation and payment of
Facilities.
QUESTION: Is Taxpayer's Facilities Charges to its customers subject to sales tax and to gross receipts tax.
ANSWER - Based on Facts Below: Taxpayer provides customers with special equipment and related services,
previously referred to as "Facilities," that is required beyond the normal delivery of electric energy. Charges for the
provision of electricity include receipts from facility charges. Facilities charges imposed by a utility are charges for the
provision of electric energy. Such charges are therefore subject to sales tax and to gross receipts tax. Taxpayer is
correct in charging nonresidential customers sales tax and gross receipts tax on monthly facilities charges. Taxpayer
is also correct in charging residential customers just the gross receipts tax on monthly facilities charges.

October 26, 2004

Re: Technical Assistance Advisement 04A-059
Sales Tax
Gross Receipts Tax
Facilities Charges Included with the Sale of Electric Energy by a Utility
Section: 212.05(1)(e)1.c., F.S.
Section: 203.01(a)1., (b) and (7), F.S
Section: 213.22(1), F.S.
Rule:

12A-1.053(1)(a), F.A.C.

Rule:

12B-6.001(1)(b) and (2)(f), F.A.C.

Dear:
This response is in reply to your petition dated XX, requesting the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S., and Chapter 12-11, F.A.C., regarding the above referenced matter
and party. An examination of your petition has established that you have complied with the statutory and regulatory
requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for issuance of a TAA.

Facts

The XXX (hereinafter collectively referred to as "City"), is an integrated electric utility providing generation,
transmission, and distribution services to residential and commercial customers in and around the XXX area. City
offers its customers additional facilities (hereinafter referred to as "Facilities") beyond those required for the normal
delivery of electricity. Although the metering point is typically the dividing line between the customer's system and
City's system, Facilities may be implemented on either side of the customer’s metering point.
Facilities take on two distinctive characteristics as follows:
Required Facilities: Required Facilities are those which are required for delivery of electric energy from the City to
the customer, and are either in place due to the arrangements of a prior customer, or not in place and required for the
customer[']s proposed operations. These types of facilities would include electric distribution lines (overhead and
underground), conduits, switches, transformers, fuses, lightening arrestors and any other equipment necessary for the
proper operation, reliability, and protection of the facilities installed.
Optional Equipment: Optional equipment includes facilities which enhance the customer's service but are not
necessary for the proper and safe delivery of electric energy from the City's system to the customer's system. This
includes items such as auto-transfer switches which automatically change a customer's electrical connection from a
primary distribution circuit to a secondary distribution circuit in case of an outage on the primary circuit. This increases
the customer's reliability by drastically reducing the amount of down time the [customer] incurs during a distribution
circuit outage. This enhances the customer's reliability but is in no way necessary for the delivery of electric energy
from [City's] system to the customer.
Facilities remain the property of City and are designed, installed, operated, maintained, and replaced, as needed, by
City. The customer has no such responsibility or ownership interest in Facilities. The customer's only influence on
Facilities is the amount of energy flowing through them as a result of the customer's operations on the property. The
City and the customer do not enter into a contract for the installation and payment of Facilities.
City charges its customers a flat monthly fee (Facility Cost Factor) that is 1.47 percent of the installed cost of Facilities,
which includes engineering, materials, labor, vehicle/equipment cost, and any outside contractor expenses plus any
overhead for fringe benefits on labor and stocking costs for materials. This flat monthly fee also allows City to recover
its administrative and general costs, operation and maintenance costs, depreciation of Facilities, and a return to City
for its investment in Facilities. The Facility Cost Factor is used for all customers who require Facilities regardless of
customer rate class, size, or the amount of energy required or consumed.
The Department has reviewed City's Electric Rate Tariff (hereinafter "Tariff") filed with the Florida Public Service
Commission relative to the issue in this TAA. The effective date of Tariff is XX. The term "Facilities Charge" is
provided in several rate schedules and is consistently defined as follows:
Facilities Charge: When the customer requires the utility to furnish and install special facilities for the exclusive use of
the customer, such customer will be required to pay a facilities charge in addition to the above demand and energy
rate. The facilities charge will be based upon the cost of such excess facilities.

The above definition was specifically provided in the "XXX," sheet numbers XX, XX, and XX.
Requested Advisement
For nonresidential customers, City currently collects both sales tax and gross receipts tax on facilities charges. For
residential customers, City collects gross receipts tax. Recently, City became aware of Technical Assistance
Advisement 97A-032, dated May 5, 1997 (hereinafter "TAA-032"), that addresses the taxability of certain equipment
furnished by a utility. City is concerned that the facts in TAA-032 are similar to the facts in the instant case and that it
may be collecting tax on charges for Facilities, in error. City has asked for a TAA relative to the issue of whether or not
it should continue collecting and remitting sales tax and gross receipts tax on facilities charges.
Applicable Authority and Discussion
To summarize the issue at hand, City will provide customers with special equipment and related services, previously
referred to as "Facilities," that is required beyond the normal delivery of electric energy. City imposes a flat monthly
facilities charge that is 1.47 percent of the cost to provide such Facilities. The question that has been posed is
whether City's facilities charge to its customers is subject to sales tax and to gross receipts tax.
The charge for electricity is subject to sales tax pursuant to section 212.05(1)(e), F.S. Here, section 212.05(1)(e)1.c.,
F.S., states in pertinent part:
212.05 Sales, storage, use tax.-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 of 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.c. Electrical power or energy, except that the tax rate for charges for electrical power or energy is 7 percent.
Rule 12A-1.053, F.A.C., provides additional guidance on the sale of electricity. Here, paragraph (1)(a) of this rule
provides:
The sale of electric power or energy by an electric utility is taxable. The sale of electric power or energy for use in
residential households, to owners of residential models, or to licensed family day care homes by utilities who are
required to pay the gross receipts tax imposed by Chapter 203, F.S., is exempt. Also exempt is electric power or
energy sold by such utilities and used in the common areas of apartment houses, cooperatives, and condominiums, in
residential facilities enumerated in Chapter 400, F.S., and in other residential facilities. However, if any part of the
electric power or energy is used for a non-exempt purpose, the entire sale is subject to tax.

The charge for electricity is also subject to gross receipts tax, under section 203.01, F.S. Here, the law provides:
(1)(a)1. 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)....
(b) The rate applied to utility services shall be 2.5 percent....
Rule Chapter 12B-6, F.A.C., provides regulatory guidance for the gross receipts tax. Rule 12B-6.001, F.A.C., provides
in part, the following:
(1) A tax is imposed on every person receiving payment for any utility service at the rate of 2.5 percent on the total
amount of gross receipts derived from business done within this state or between points within this state. Gross
receipts means total payments received in money, goods, services, or other valuable consideration by every person
for "utility services." For purposes of this rule chapter, the term "utility service" means electricity for light, heat, or
power and natural or manufactured gas for light, heat, or power.

(b) The gross receipts tax is levied upon the provider of utility services. The tax may be wholly or partially separately
itemized at the option of the utility provider on a customer's bill, invoice, statement, or other evidence of sale. When
wholly or partially separately itemized, every person, including governmental units and charitable and religious
organizations, is liable for the payment of the tax to the service provider. The gross receipts tax is a tax imposed on
the privilege of doing business and is an item of cost to the service provider. The service provider remains fully and
completely liable for the payment of the tax, even when the tax is wholly or partially separately itemized on the
customer's bill, invoice, statement, or other evidence of sale.
Charges for the provision of electricity include receipts from facility charges. Section 203.01(7), F.S., provides:
Gross receipts subject to the tax imposed by this section for the provision of electricity shall include receipts from
monthly customer charges or monthly customer facility charges. (Emphasis Supplied)
Rule 12B-6.001(2)(f), F.A.C., states that gross receipts from the sale of a utility do not include "[r]eceipts from
customers for separately itemized charges for the sale, lease, rental, repair, or maintenance of customer premises
equipment." In the instant case, however, Facilities are the property of City and are not customer premises equipment.
Therefore, this rule is not relevant to this issue.
With reference to TAA-032, section 213.22(1), F.S., provides in pertinent part:
... Technical assistance advisements shall have not precedential value except to the taxpayer who requests the
advisement and then only for the specific transaction addressed in the technical assistance advisement, unless
specifically stated otherwise in the advisement....

Facilities charges imposed by a utility are charges for the provision of electric energy. Such charges are therefore
subject to sales tax and to gross receipts tax. Based on the above cited statutory and regulatory provisions, City is
correct in charging nonresidential customers sales tax and gross receipts tax on monthly facilities charges. City is also
correct in charging residential customers just the gross receipts tax on monthly facilities charges. TAA-032 has no
precedential value in the instant case.
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., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your request
for specific deletions of confidential information has been received. These deletions will be made prior to public
disclosure.
If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at
(850)922-4729.
Sincerely,
Gary L. Gray
Tax Law Specialist
Technical Assistance & Dispute Resolution