Were hourly charges for customer-operated aircraft simulators taxable equipment rent or nontaxable services?

Plain-English summary

Florida ruled that hourly charges for aircraft simulators were taxable equipment rent, not nontaxable service or flight-instruction charges.

The agreement expressly made the simulators available on a dry-lease basis. The owner supplied no instructors or trainers and promised not to train the customer's personnel. The customer supplied its own instructors, placed personnel inside the simulators, set flight parameters, and prudently operated equipment to which it had access.

Although the owner retained certain system and safety controls and could stop use, Florida found that the customer received possession, direction, and control over simulator operation and training. The owner therefore was not furnishing equipment with its own operator as a service. The flight-instruction exemption also failed because the owner provided no instruction.

What this means for you

Equipment access can be a taxable lease even when the owner keeps technical safeguards. Analyze who supplies operators or instructors and who possesses, directs, and controls the equipment during the session.

Common questions

Did the owner provide simulator operators? No.

Did the owner provide flight instruction? No.

Were the hourly rates taxable? Yes, as lease payments.

Citations and references

• Fla. Stat. § 212.05 and Fla. Admin. Code r. 12A-1.071, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-001

Original ruling text

SUMMARY
QUESTION:
Is the Agreement a taxable lease of tangible personal property, or a nontaxable service
transaction?
ANSWER:
Under the facts provided, the hourly rate charged under the Agreement is subject to sales tax as a
lease of Taxpayer’s simulators.
1) Taxpayer is not providing operators without the Customers receiving possession, direction, or
control, and
2) Taxpayer is not providing flight instruction to Customer’s personnel.
January 12, 2010
XXX
Re:

Technical Assistance Advisement 10A-001
Flight Simulator Lease
Sales and Use Tax
Section 212.05, Florida Statutes (F.S.)
Rule 12A-1.071, Florida Administrative Code (F.A.C.)
XXX (“Taxpayer”)
FEIN: XXX

Dear XXX:
This is in response to your letter dated April 3, 2009, requesting this Department’s issuance of a
Technical Assistance Advisement (TAA) pursuant to Section 213.22, F.S., and Rule Chapter 12-11,
F.A.C., regarding the above referenced matter and party. An examination of your letter 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 a TAA.
FACTS
Your letter provides in part:
[Taxpayer] enters into training device use agreements with [Customer] for the use of
the aircraft simulators. These agreements require the [Customer] to pay an hourly
rate for the use of the aircraft simulator.
These aircraft simulators are located at [Taxpayer’s] XXX XXX in XXX, Florida. . .
.

Technical Assistance Advisement
Page 2 of 5

Taxpayer provided an “XXX XXX XXX XXX XXX XXX Agreement” (“Agreement”) that
provides in part:
AGREEMENT
X. Use of Simulators
(X) [Taxpayer] shall make the Simulators available to [Customer] on a dry lease
basis from time to time as requested by [Customer], subject to availability and
subject to the terms and conditions contained herein.

(X) [Taxpayer] will not conduct any training of [Customer] personnel on
[Customer]’s behalf.
X. Payment Terms
(X) As consideration for its use of the Simulators, [Customer] shall pay an hourly
rate of $XXX for Flight Training Device usage and $XXX for Full Flight Simulator
usage. This hourly rate is for dry lease training only and does not include instructors,
[or] trainers XXX XXX XXX. . . . (e.s.)
(X) XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX
XXX XXX.
X. [Customer] Responsibilities
(X) [Customer] agrees to prudently operate all equipment to which it has access
hereunder . . . .
X. [Taxpayer] Responsibilities
(X) It is the sole responsibility of [Taxpayer] to make the Simulator, under the terms
of this Agreement, available to [Customer] . . . .
Ownership of the Simulator
X.
The parties agree that neither [Customer] nor any of its Trainees shall have any
ownership interest in the Simulators at any time. . . .
ISSUE
Is the Agreement a taxable lease of tangible personal property, or a nontaxable service
transaction?
ADVISEMENT REQUESTED
Your letter provides in part:
During the training session, [Taxpayer] maintains control of the simulator operation,
with the [Customer] supplying an instructor to observe the training session for the

Technical Assistance Advisement
Page 3 of 5
pilots and set the flight parameters in the simulator cockpit (e.g., the weather
conditions, the airport, simulated aircraft malfunctions). The [Customer] is not
permitted to enter the control room or to modify or control the profiles/systems of the
simulator at any time. At any time during the training session, [Taxpayer] is
authorized to stop or deny use of the training device. At the end of the training
session, the [Customer] is required to complete the following items on the time log:
actual time in and out, and discrepancies/malfunctions.

Therefore, at all times prior to, during, and after the training session, control of the
training device/simulator is maintained by [Taxpayer]. . . . The charges under
contract for the use of the simulator are for nontaxable services and are therefore not
subject to Florida sales tax. . . .
Applicable Authority
Section 212.05, F.S., provides:
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
....
Rule 12A-1.071, F.A.C., provides in part:
(9)(a) A transaction involving the use of equipment with an operator supplied by the
owner of the equipment is a lease if control or direction over the use of the
equipment passes to the customer.

(d) When the owner of equipment furnishes the operator and all operating supplies,
and contracts for their use to perform certain work under his direction and according
to his customer's specifications, and the customer does not take possession or have
any direction or control over the physical operation, the contract constitutes a service
transaction and not the rental of tangible personal property, and no tax is due on the
transaction. (e.s.)

(22) A charge for flight instruction, which includes supervised solo flights, is
exempt. The purchase of an aircraft for this use is taxable.
Response
In Florida, the sale of tangible personal property is subject to tax. See Section 212.05, F.S. The
term “sale” includes a lease or license to use tangible personal property. Service only
transactions, except those authorized for taxation by Chapter 212, F.S., are generally not subject

Technical Assistance Advisement
Page 4 of 5
to tax.
Rule 12A-1.071(9), F.A.C., provides that when an owner of an item furnishes the operator, and
the operator’s customer does not take possession or have any direction or control over the
physical operation of the item, then the transaction is viewed as a service and not the rental of

tangible personal property. Under the Agreement, Taxpayer agrees to make the simulator
available on a dry lease basis; Taxpayer does not include instructors, [or] training XXX XXX
XXX. See Agreement, XXX and XXX. Here, the Customer’s instructors and members are in
the simulators and have possession, direction, and control over the operation of the training and
the physical simulator. Taxpayer, as the owner, does not furnish all operations, and the customer
does take possession and has direction or control over the simulators operation and training of
the customer’s personnel. Therefore, the Agreement is not a service transaction.
Rule 12A-1.071(22), F.A.C., further provides that a charge for flight instruction is exempt.
Taxpayer expressly contracts that it will not provide training to the Customer, and that Customer
will provide all needed training personnel themselves. See Agreement, XXX and XXX.
Therefore, the Agreement is not exempt from sales tax under subsection (22).
Under the facts provided, the hourly rate charged under the Agreement is subject to sales tax as a
lease of Taxpayer’s simulators. Taxpayer is not providing operators without the Customers
receiving possession, direction, or control, and Taxpayer is not providing flight instruction to
Customer’s personnel.
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 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,

Technical Assistance Advisement
Page 5 of 5
H. French Brown, IV
Deputy Director
Technical Assistance and Dispute Resolution
(850) 922-4746
Record ID: 63284