Were parts and labor for federally mandated railcar inspections and repairs under railroad car-service agreements exempt from Florida sales tax without a resale certificate?

Plain-English summary

The Florida Department of Revenue concluded that the qualifying railcar repair parts and labor were exempt from sales tax without a resale certificate. The repairs were federally mandated and made under railroad car-service agreements, whose charges were excluded from the statutory definition of a taxable lease or rental.

The taxpayer inspected and repaired railroad rolling stock operating on a common carrier. It automatically tagged railcars that required repairs under Federal Railroad Administration safety rules. The railcar owners did not separately contract for or control those mandated services; two large customers owned fleets leased to third parties under car-service agreements.

Car-service-agreement charges included the repairs

Section 212.02(10)(g) excluded charges made under car-service agreements from the meaning of taxable lease or rental. The ruling used the federal rail-industry definition of "car service," which included the use, control, movement, exchange, interchange, and return of rail equipment.

The Department reasoned that car-service agreements addressed repairs as well as railcar use. Because the statute did not narrowly define "charges," the term covered the parts and labor for the mandated repairs performed under those agreements.

A resale certificate was not the basis for exemption

The audit adjustment had focused on the absence of a resale certificate or direct-pay authority. The Department concluded that the taxpayer did not need to satisfy section 212.07's resale provisions because the charges were exempt directly under section 212.02(10)(g), not as a sale for resale.

That distinction mattered because the ordinary repair rules could make repair parts taxable depending on whether the lessor, lessee, or a third party purchased them. The car-service-agreement exclusion supplied the exemption on these specific facts.

Documentation was still required

The repairer had to retain invoices establishing that the parts and labor related to the federally mandated inspections and qualifying car-service-agreement repairs. The ruling recommended noting that basis directly on the invoices to avoid tax being imposed in an audit.

What this means for you

Railcar repair and inspection companies

Identify which repair charges arise under a qualifying car-service agreement and federal safety inspection. Do not rely on a general rail-industry label; preserve transaction-level proof.

Railcar owners and lessors

The ruling distinguished the car-service exclusion from the ordinary resale exemption for repair parts used on leased property. Contract terms and the reason for the repair determine which rule applies.

Accounting and audit teams

Keep the car-service agreement, FRA inspection record, tagged-car documentation, work order, and annotated invoice together. The exemption may fail in practice if the invoice cannot be connected to the qualifying activity.

Common questions

Q: Did the Department ultimately treat the charges as exempt?
A: Yes. Despite the opening summary's stray "No," the detailed discussion and conclusion repeatedly say the qualifying parts and labor were exempt.

Q: Was a resale certificate required?
A: No. The exemption arose under section 212.02(10)(g), so the ruling did not require resale compliance for these transactions.

Q: Did the owners separately request each repair?
A: No. The taxpayer performed repairs triggered by federal safety requirements when railcars arrived for inspection.

Q: Were invoices still important?
A: Yes. They had to show that the charges were associated with the federally mandated inspections and qualifying repairs.

Q: Does the ruling exempt every railcar repair?
A: No. Its conclusion addressed repairs under the described railroad car-service agreements and facts.

Citations and references

• Fla. Stat. § 212.02(10)(g) — exclusion for specified railcar and car-service-agreement charges
• Fla. Stat. § 212.05(1)(a)-(c) — tax on sales, use, and leases of tangible personal property
• Fla. Stat. § 212.07(1) — resale compliance discussed but found unnecessary here
• 49 U.S.C. § 10102 — definition of car service cited by the Department
• Fla. Admin. Code r. 12A-1.039 — sales-for-resale documentation
• Fla. Admin. Code r. 12A-1.071(8) — repair parts for leased tangible personal property
• Florida State Racing Commission v. McLaughlin, 102 So. 2d 574 (Fla. 1958) — broad meaning of "charges"

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-032

Original ruling text

SUMMARY
Question: Whether parts and labor associated with repairs and inspections mandated by the Federal Railroad
Administration under a "railroad car service agreement" are exempt from tax.
Response - Based on Facts Below: No. Parts and labor associated with repairs under the "railroad car service
agreement" are exempt from tax. Therefore, compliance with the resale provisions in s. 212.07, F.S., is not required to
avoid the imposition of tax on these transactions. However, the taxpayer should maintain copies of the invoices to
establish that the charges for parts and labor are associated with the federally mandated inspections and are exempt
under s. 212.02(10)(g), F.S. The invoices should be noted accordingly to avoid the imposition of tax on these
transactions.

July 21, 2005

Re: Technical Assistance Advisement 05A-032
XXX(Taxpayer)
Sales and Use Tax
Repairs to Railroad Rolling Stock ("rail cars")
Rules 12A-1.039, 12A-1.071, F.A.C.
Sections 212.02(10)(g), 212.05(1)(a), (b), (c), 212.07(1)(a), F.S.
Dear:
This correspondence is in response to your letter of March 23, 2005, requesting that the Florida Department of
Revenue ("Department") issue a Technical Assistance Advisement ("TAA") pursuant to section 213.22, F.S., and Rule
Chapter 12-11, F.A.C., regarding the taxability of certain activities of a cruise line. An examination of your request and
supporting documentation has established compliance with the requirements for the Department's issuance of a TAA.
Therefore, the Department hereby grants your request and issues this TAA under the authority of section 213.22, F.S.
Facts
Your letter of March 23, 2005, states in part:
("Taxpayer") is currently in receipt of a Notice of Intent to Make an Audit Change resulting from a sales tax audit
conducted by your office in ("City"), Florida. The audit report indicates that we did not properly collect and remit sales
tax on all repairs of railroad rolling stock. This determination is based on the absence of a resale certificate, or direct
pay authority. It is our belief that the repairs in question are exempt without this documentation, and this is the basis
for our request for technical advisement.
("Taxpayer") is engaged in the business of inspecting and repairing railroad rolling stock ("rail cars") run on the XXX

railroad (a common carrier). The inspections and repairs performed are mandated by the Federal Railroad
Administration (a division of the United States Department of Transportation), and as such are not directly contracted
for by the owners of the rail cars. We inspect the rail cars as they arrive at their destination in XXX... and automatically
tag any cars that are required to be repaired under the safety requirements of the FRA. The owners of the railcars do
not contract for the repairs, and have no control over the FRA mandated services.
Two of our largest billing clients during the period under audit were ("Customer One") and ("Customer Two"). These
companies own rail car fleets that are leased to third parties under "railroad car service agreements" for use by
common rail carriers and their customers. It is our understanding pursuant to Rule 12A-1.064(3)(c), F.A.C., that
charges under a railroad service agreement are exempt from tax and that Technical Assistance Advisements 00A-022
and 00A-52 have clarified that this exemption extends to non-railroad companies.
Requested Advice

1. Whether a leasing company that does not have offices within the State of Florida is required to register as a dealer.
   If so, is the taxpayer required to obtain a resale, or direct pay certificate, in order to not collect and remit sales tax from
   these entities?
2. If an out-of-state lessor is exempt from assessing and collecting sales tax under a railroad car service agreement,
   and is not required to register as a dealer as a result, then by extension, the taxpayer is asking whether or not
   registration is required for the non-contracted repairs to be exempt also.
   Discussion & Conclusions of Law
   Section 212.05(1) (a), F.S., imposes tax on the sale price of tangible personal property sold in Florida. Section
   212.05(1) (b), F.S., imposes tax on the cost price of tangible personal property used in Florida if sales tax was not
   paid on its purchase. Section 212.05(1) (c), F.S., imposes tax on the gross proceeds from the lease or rental of
   tangible personal property in Florida.
   Section 212.02(10) (g), F.S., provides:
   "Lease," "let," or "rental" also means 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. The term "lease," "let," or "rental" does not mean hourly, daily, or mileage charges, to
   the extent that such charges are subject to the jurisdiction of the United States Interstate Commerce Commission,
   when such charges are paid by reason of the presence of railroad cars owned by another on the tracks of the
   taxpayer, or charges made pursuant to car service agreements....
   The statute first provides that any transaction in which possession and use of tangible personal property is obtained
   for a consideration without transfer of title is a "lease" for purposes of Chapter 212, F.S., "except as expressly
   provided to the contrary herein." The very next sentence provides that certain hourly, daily, or mileage charges paid
   for railcars or payments made pursuant to "car service agreements" are not included in the meaning of the term

"lease."
"Car service" is a term with a particular meaning in the rail transport industry. It includes "the use, control, supply,
movement, distribution, exchange, interchange, and return of locomotives, cars, other vehicles, and special types of
equipment used in the transportation of property by a rail carrier." See 49 U.S.C. section 10102. Car services
agreements are agreements, generally between railroads or other owners of cars and shippers with cargo to be
transported, that deal with those matters.
In the situation at hand, the taxpayer has performed inspections and repairs to railcars mandated by the Federal
Railroad Administration. These repairs were not contracted for by the owners of the railcars, but rather were the
repairs required under the safety requirements of the FRA. The taxpayer maintains that the repairs are a part of the
railroad car service agreement and are therefore not taxable, as provided in s. 212.02(10)(g), F.S. Therefore, the
question here is whether a resale certificate is necessary to exempt the sale of the repairs, as provided in Rule 12A1.039, F.A.C. (FOOTNOTE #1), and Rule 12A-1.071, F.A.C. (FOOTNOTE #2), or whether the charges for the repairs
are exempt as part of the “railroad car service agreement.”
In construing the resale exemption in s. 212.07, F.S. (FOOTNOTE #3), the Department must adhere to and be guided
by the long-standing and fundamental precept of statutory construction, established by the Florida Supreme Court,
which mandates that exemptions from or exceptions to taxing statutes must be strictly construed against the taxpayer.
See Asphalt Pavers v. Department of Revenue, 584 So.2d 57 (Fla. 1st DCA 1991); Dade Cty. Taxing Auth. V. Cedars
of Lebanon, 355 So.2d 1205 (Fla. 1978), reh. den. April 5, 1978; Williams v. Jones, 326 So.2d 425 (Fla. 1975), reh.
den. March 4, 1976; Straughn v. Camp, 293 So.2d 689 (Fla. 1974); United States Gypsum Company v. Green, 110
So.2d 409 (Fla. 1959).
It is a fundamental principle of statutory construction that legislative intent and policy concerns must control our
construction of the statutes and that the determination as to the intent of the legislature is based upon the plain and
ordinary meaning of the language in the statute itself. See Holly v. Auld, 450 So.2d 217 (Fla. 1984). In the matter of
St. Petersburg Bank & Trust v. Hamm, 414 So.2d 1071 (Fla. 1982), the Florida Supreme Court held that while the
legislative intent is determined primarily from language of the statute, plain meaning of statutory language is the first
consideration.
Since the "railroad car service agreements" entered into by numerous railway companies, addresses not only leases
but repairs, repair charges made pursuant to these agreements are exempt from tax. Section 212.02(10)(g), F.S.,
does not define "charges" and because "charges" is a comprehensive term, it should include everything embraced
within the term. See Florida State Racing Comm'n v. McLaughlin, 102 So.2d 574, 575-76 (Fla. 1958). Accordingly,
parts and labor associated with repair under the "railroad car service agreements" are exempt from tax. Therefore,
compliance with the resale provisions of s. 212.07, F.S., is not required to avoid the imposition of tax on these
transactions. However, the taxpayer should maintain copies of the invoices for these repairs to establish that the
charges for parts and labor are associated with the federally mandated inspections and are exempt under s.
212.02(10)(g), F.S. The invoices should be noted accordingly to avoid the imposition of tax on these transactions.
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 15 days of the date of this letter.
Sincerely,
Vicki Allen
Tax Law Specialist
Technical Assistance & Dispute Resolution
Control No: 13515
Cc: Steve Remmert
Daytona Beach Service Center

FOOTNOTE #1 - Rule 12A-1.039(1)(b), F.A.C., provides: "A sale for resale is exempt from the tax imposed by
Chapter 212, F.S., only when the sale for resale is in strict compliance with the provisions of this rule. For purposes of
this rule, a sale for resale includes the following sales, leases, rentals when made to a person who is an active
registered dealer...."
FOOTNOTE #2 - Rule 12A-1.071(8), F.A.C., provides that repairs parts purchased for use in the maintenance of
tangible personal property used exclusively for leasing purposes are exempt when purchased by the lessor. When
purchased by the lessee, they are taxable. Charges by the lessor to a lessee for repairing property which is not part of
the lease contract are taxable. Charges to the lessee by a third party for repairing the leased property are taxable.
FOOTNOTE #3 - Section 212.07(1)(b), F.S., provides that a resale must be in strict compliance with the rules and any
dealer not in compliance is liable for the tax.