Were optional computer-server service plans taxable when sold with the server and related warranties?

Plain-English summary

The taxpayer sold computer servers together with optional annual service plans combining hardware coverage, telephone and online support, and software updates. The plans were separately stated and were not required to complete the equipment purchase.

Florida nevertheless ruled that the plans were part of the taxable sale of the server. The sales-price definition included services that were part of a tangible-personal-property sale, and separate pricing or optional purchase did not automatically create a separate professional-service transaction.

The taxpayer therefore had to collect sales tax on all service-plan charges included in the server transaction.

What this means for you

Bundled or companion support services can be taxable even when separately invoiced and optional. The key question is whether the service is functionally part of the equipment transaction rather than a truly independent professional service.

Common questions

Were the service plans optional? Yes.

Did separate billing make them nontaxable? No.

What made them taxable? They were sold in conjunction with and treated as part of the computer-server sale.

Citations and references

• Fla. Stat. §§ 212.02, 212.05, 212.08, and 212.21, as quoted or discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-035

Original ruling text

SUMMARY
QUESTION: Are the Service Plans purchased at the same time as the equipment and
related warranties taxable as a sale of tangible personal property, or do they constitute a
professional service exempt from sales tax?
ANSWER – Based on the Facts Below:
Based on the information reviewed from the audit file and the information provided from the
Taxpayer, it is the Department’s position that when the Taxpayer provides Service Plans in
conjunction with the sale of a computer server, it is selling tangible personal property and should
collect sales tax on all charges that would be part of the “sales price,” as defined in Section
212.02(16), F.S.
July 22, 2010
XX
Re:

Subject: Technical Assistance Advisement (TAA) 10A-035
Sales and Use Tax – Service Plans
Sections 212.02, 212.05, 212.08, and 212.21, Florida Statutes (F.S.)
XX (Taxpayer)
FEI # XX

Dear XX:
This is in response to your letter dated January 7, 2010, 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., concerning the taxability of a service plan (Service Plan) offered by your client.
An examination of your letter has established 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
The Department conducted an audit of the Taxpayer’s books and records for the period
November 1, 2003, through October 31, 2006, audit #XX. The Department determined that the
Service Plan offered by the taxpayer was taxable and assessed additional tax due for sales of the
Service Plan. The Taxpayer is requesting a TAA regarding the taxability of the Service Plan.
Along with the request for a TAA, the Taxpayer provided a general description of the Service
Plan. The general description included with the request for a TAA, which is available from
“XX.com,” provided the following in part:
. . . System Service Plans for the [Software] provide fully-integrated hardware and
[software] service coverage to help keep your systems running smoothly and meet your
demands for availability. . . . [A] combination of hardware service coverage, telephone

Technical Assistance Advisement
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and online technical support, and [software] updates, . . . can help you resolve technical
issues quickly and effectively. . . .
Key Benefits:
•

The value and ease of integrated hardware and OS support, for one price per
product per year . . . .

The following documents were included in the referenced audit file and were reviewed in
providing the Department’s response:
•

Invoice #XX, dated September 20, 2005, billing the Taxpayer’s customer and detailing
the purchase of, among other things, “XX Server,” and “XX Support . . .[Server].”

•

Purchase order # XX, dated August 31, 2005, issued by the customer which lists
“Warranty Upgrade to 3 Years of XX & 7x24 On-Site Support for XX Server” in the
amount of $11,372.00 each.

•

Information regarding the “XX Server,” obtained from “XX.com.” This information
provides the following regarding a “warranty upgrade” for the XX Server:
[Our] support program provides various levels of support . . . from proactive,
mission-critical service to basic self-maintenance support. You receive support
for all . . . system components including hardware, the . . . Operating
Environment, and . . . supported software that comes bundled with or embedded
in your system. A minimum of XX level support is recommended for this
product. . . .

•

Information regarding the “Warranty vs. [Service Plan] Support,” obtained from
“XX.com.” This information provides the following regarding “What level of Support is
Right For Your Products?”:

systems

. . . Ensuring your coverage provides you with the continuity and essential
support you need often means selecting support which extends beyond the
traditional product warranty.
. . .1.Q. If my product comes with a warranty, why should I purchase
[Service Plan] Support?
A. While [our] products are among the most reliable in the world, and [our]
warranties are very competitive, the standard warranty is limited in its ability to
properly support customers. Warranties provide a basic assurance of product
quality for a finite amount of time, but don’t include many of the essential support
services you need. Unlike . . . Service Plans, warranty is limited in
terms of type of response, response times and coverage hours.

Technical Assistance Advisement
Page 3 of 6
. . . 4. Q. What types of Service Plans are available for my products?
A. Our comprehensive Service Plan options provide you with everything you
could possibly need – integrated hardware and OS support for your systems,
hardware and firmware support for your data storage, OS-specific coverage, and
options for your production systems software.

The Taxpayer’s letter dated January 7, 2010, provides the following in part:
. . . The taxpayer is primarily engaged in the information technology business. The
taxpayer provides consulting services, sale of hardware, software, software support, and
related warranties on the products sold. The taxpayer does not provide the actual
warranty services. The taxpayer sells the products and services which are provided by
the manufacturer.
The single issue relates to the treatment of a Service Plan sold by the taxpayer on behalf
of XX. Anytime the taxpayer sells a computer server, a warranty is included from the
manufacturer. The warranty covers the parts, repairs, maintenance, and service time
related to any repairs needed for the repair of that server. In addition to this warranty, a
separate service plan can be purchased.
The Service Plan when purchased with a warranty provides that the customer of the
taxpayer will receive service on-site within two or four hours depending on the type of
plan purchased. The Service Plan is an upgrade to the timing of the service provided to a
customer but does not provide any additional tangible parts or other items that are not
covered by the existing warranty.
The warranty and Service Plan referenced above expire at the same time. The customer
can then renew the Service Plan going forward and it will be bundled into a single
product which includes parts, repairs, and maintenance warranty contract (See Exhibit
A). Exhibit A provides a detail of the various levels of Service Plans as sold by the
taxpayer on behalf of XX.
The Sale of the Service Plan is separately stated on the customer invoice and is
considered a non taxable sale of services by the taxpayer on the original sale of the plan.
The renewal of the Service Plan is considered a sale of a taxable warranty.

The taxpayer agrees that any service plan that meets the definition as provided in section
212.0506 of the Florida Statutes is a taxable transaction. In the fact pattern listed above
the taxpayer agrees that the renewals constitute a taxable transaction because the plan
meets the definition . . . of a service warranty. The taxpayer disagrees that the original
sale of time of service plans constitutes a service warranty.

Technical Assistance Advisement
Page 4 of 6
The taxpayer believes that the sales constitute nothing more tha[n] a non taxable service.
The Service Plan is a separate and discrete transaction that is separately stated on the
customer invoice. The purchase of the plan is optional and is not required in any way to
complete the customer’s purchase of the tangible property. The plans as sold provide a
promise to show up at the customer’s office within a prescribed period of time. There are
no tangible goods exchanged and the transaction does not qualify as a service warranty
transaction as part of this transaction there it should be exempt under [section
212.08(7)(v), F.S.] . . . .
Requested Advisement
Are the Service Plans purchased at the same time as the equipment and related warranties
taxable as a sale of tangible personal property, or do they constitute a professional service
exempt from sales tax?
Applicable Authority and Discussion
Section 212.21(2), F.S., provides the legislative intent to tax “each and every sale, admission,
use, storage, consumption, or rental levied and set forth in this chapter, except as to such sale,
admission, use, storage, consumption, or rental as shall be specifically exempted therefrom by
this chapter subject to the conditions appertaining to such exemption . . . .”
Section 212.08(13), F.S., further states that “No transactions shall be exempt from the tax
imposed by this chapter except those expressly exempted herein . . . .” Florida courts have
consistently held that exemptions must not be expanded beyond their express terms and must be
strictly and narrowly construed against the taxpayer. Under Florida law, the burden is upon the
taxpayer, as the party claiming an exemption, to establish from its actual books and records that
it is clearly entitled to the exemption.
Section 212.05(1)(a)1.a., F.S., imposes a tax on the “. . . sales price of each item or article of
tangible personal property when sold at retail in this state . . . .” Section 212.02(15)(a), F.S.,
defines the term “sale” to mean and include “[a]ny transfer of title or possession, or both,
exchange, barter, license, lease, or rental, conditional or otherwise, of tangible personal property
for a consideration.” “Tangible personal property” is defined under section 212.02(19), F.S., to
mean and include “. . . personal property which may be seen, weighed, measured, or touched or
is in any manner perceptible to the senses . . . .”
Under section 212.02(16), F.S., “sales price” means “the total amount paid for tangible personal
property, including any services that are a part of the sale, [and as] consideration for a
transaction which requires both labor and material to alter, remodel, maintain, adjust, or repair
tangible personal property.” Accordingly, services sold with a computer server, as part of that
transaction, would be part of the sale and would be subject to tax.
The Taxpayer cites the exemption provided in section 212.08(7)(v), F.S., and claims the
transaction should be exempt as a professional service. The exemption cited applies to
“professional, insurance, or personal service transactions that involve sales as inconsequential
elements for which no separate charges are made.”

Technical Assistance Advisement
Page 5 of 6
However, the Service Plans are sold with computer servers, which are items of tangible personal
property subject to sales tax. Therefore, the Service Plans are considered “services” subject to
sales tax when sold as “part of the sale,” of tangible personal property. The identity of a service
that is “part of the sale” as required under section 212.02(16), F.S., has been clarified in
American Telephone and Telegraph Company v. Department of Revenue, 25 F.L.W. D1216, 764
So.2d 665 (Fla. 1DCA 2000).
In that case, the court of appeal affirmed the conclusion of the trial court that certain engineering
services were “inextricably intertwined" with the sales of the telecommunication equipment.
American Telephone and Telegraph, Id., at page 3. Also, the court found that there is no
requirement that the purchases of services must be linked with tangible personal property. The
court, referring to section 212.02(16), F.S., which defines the term “sales price,” said that “. . .
the Legislature chose not to limit the sales tax to services that must be purchased with tangible
personal property. . . .” American Telephone and Telegraph, Id., at page 3. The court concluded
that the intent of the statute did not limit the services in such a manner and that the court would
“. . . have no authority to do so.”
Further, the appeals court held that services were not separate or discrete transactions but were
“a part of the sale” even when the sales prices of the services and of the tangible personal
property were separately stated and separately billed. American Telephone and Telegraph, Id., at
page 4.
Conclusion
Based on the information reviewed from the audit file and the information provided from the
Taxpayer, it is the Department’s position that when the Taxpayer provides Service Plans in
conjunction with the sale of a computer server, it is selling tangible personal property and should
collect sales tax on all charges that would be part of the “sales price,” as defined in Section
212.02(16), F.S.
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 that 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

Technical Assistance Advisement
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letter.
Sincerely,

Brinton Hevey
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/488-7157
Record ID: 76648