Did member, employee-member, training, maintenance, refueling, relocation, and demonstration use preserve a boat club's exclusive-rental treatment?

Plain-English summary

The taxpayer operated a prepaid membership boat club. Members—including employees who joined under membership agreements—received custody and control of specific boats without a captain for reserved periods and paid initiation fees, dues, and sales tax.

Staff also operated boats for member assistance, refueling, safety training, engine break-in, relocation, repair testing, and demonstrations to prospective members. Florida found those activities reasonably necessary to and in furtherance of the leasing business.

The boats therefore remained used exclusively for bareboat leasing, and the owner-use provision did not apply. The TAA warned that any use unrelated to leasing, or removal and capitalization outside rental inventory, could trigger tax on the boat's cost or value.

What this means for you

Exclusive rental use can include operational activities essential to placing and keeping property in rental service. The business should document why each noncustomer movement directly serves leasing and prevent personal or unrelated use.

Common questions

Did employee-member use break exclusive rental treatment? No, when employees used boats under membership agreements on the stated terms.

Did training and maintenance trips break it? No, because they furthered the rental business.

What could trigger use tax? A deviation to unrelated use or removal from rental inventory.

Citations and references

• Fla. Stat. § 212.05(1)(b) and Fla. Admin. Code r. 12A-1.071(18), as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-044

Original ruling text

SUMMARY
QUESTION: Whether boats purchased by Taxpayer are exclusively used for rentals.
ANSWER: Yes. All use of the boats are either completely necessary for renting
business or pursuant to membership agreement for bare boat leasing.
October 20, 2010
XXX
Subject: Technical Assistance Advisement 10A-044
XXX(“Taxpayer”)(“Petitioner”)
Sales and Use Tax
Rentals, Leases-Membership Boat Clubs
FEI#: XXX
Section 212.05, Florida Statutes (F.S.)
Dear XXX:
This letter is a response to your firm’s petition dated July 27, 2010, for the Department’s
issuance of a Technical Assistance Advisement (“TAA”) concerning the above
referenced party and matter. Your petition has been carefully examined, and the
Department finds it to be in compliance with the requisite criteria set forth in Chapter 1211, 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
Taxpayer is engaged in the business of operating a recreational boat (watercraft) rental
program whereby customers (i.e., members) pay a fee on a prepaid basis for the right to
be able to use various makes and models of recreational boats (including boat motors)
owned by the Taxpayer as part of its boat fleet. The Taxpayer has XXX locations
throughout the State of Florida in various Florida counties.
The Taxpayer has several different levels of membership that vary based on usage of
boats, term, and pricing. Taxpayer makes its boats available to members on an asavailable basis. Members typically call the Taxpayer, or access the online reservation
system, in advance of the day of desired boat use to check availability and make a
reservation for the type of boat they would like to use. Scheduling is handled on a firstcome, first-served basis. When the member arrives at a Taxpayer location to use a boat,
the member is given custody and possession of a specifically identified boat to be used
for a specified period of time. The Taxpayer’s boats are exclusively leased to, and used
by, its members.

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Each member must execute an agreement detailing the specific membership level and
payment terms ("Membership Agreement"). Examples of Membership Agreements are
included with the request. Each membership level is for a certain period of time and
requires the payment of a nonrefundable initiation fee plus dues, including sales taxes.
A member is not allowed to use a boat unless the member is current on his or her dues.
The initiation fees, annual dues, and related charges, such as late fees, are the Taxpayer's
only source of revenue.
The members operate the boats themselves and acknowledge and agree that he or
she is obligated to be in complete custody and control of the watercraft at all
times. The Taxpayer does not provide any boats with a boat captain or other
operator. A member may only operate a boat between sunrise and sunset.
However, special arrangements may be with the Taxpayer in advance. The
Taxpayer imposes late fees for boats that are not timely returned.
The Taxpayer permits employees to become full-fledged members (“EmployeeMembers”). These employees execute Membership Agreements and all other agreements
and pay dues, based upon their level of membership, in the exact same manner and on
identical terms and conditions as nonemployee members.
The employees that are not full-fledged members are permitted to obtain a limited
membership (“Limited Employee-Members”) that entitles them to utilize the Taxpayer’s
boats on a same-day, boat-available basis only Monday through Friday. Unlike normal
memberships, employees with these limited memberships cannot make any advance
reservations for the use of a boat. The Taxpayer charges these limited members $99.00
plus tax per month and The Limited Employee-Members are required to execute a
[Taxpayer] Boating Plan Agreement. A copy of the Boating Plan Agreement was
provided with the request. An employee is not eligible to become a Limited EmployeeMember unless and until that person has been employed by Taxpayer for 30 days and has
completed the new member orientation. The Taxpayer may permit employees to become
Limited Employee-Members by paying $25.00 plus tax per use of one of the Taxpayer’s
boats. Such employees must execute the Boating plan Agreement rather than the other
agreements.
In addition, the Taxpayer’s employees perform ancillary activities related to the
Taxpayer’s business of leasing of the boats. The Taxpayer’s boats are used by its dock
staff, trainers, mechanics, and sales staff in the normal course of their employment duties
rendered on behalf of the Taxpayer. For example, dock personnel move boats from their
storage slips or racks to the loading and unloading area for safety and convenience
purposes. On occasions, dock personnel provide water assistance to a member that is
having difficulty or otherwise needs assistance. At some of the Taxpayer’s locations,
dock staff must drive the boats to a nearby fuel facility to refuel the boats. The
Taxpayer’s training personnel use the boats to instruct and educate new members on
safety and orientation issues. The training personnel also provide offshore training to
existing members to enhance the safe usage of the boats. Training personnel also assist

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with breaking-in new boat engines and relocating boats between the Taxpayer’s locations
at various marinas.
The Taxpayer’s mechanics have to “splash test” boats once certain types of repairs are
completed. The mechanics are also called upon to put engine hours on new boats as part
of a prescribed break-in period. Sometimes, the Taxpayer’s sales staff provides demo
boat rides to prospective members. These demo boat rides are provided during the
normal course of the sales presentation process.
TAXPAYER POSITION
The Taxpayer’s boats are used exclusively for leasing purposes, including use of the
boats by the members, Employee-Members, Limited Employee-Members, and by the
Taxpayer’s personnel in carrying-out and performing the ancillary activities related to the
Taxpayer’s leasing business.
Florida sales tax is not imposed on sales for resale. The purchase of tangible personal
property, and parts for such tangible personal property, is exempt from sales tax as a sale
for resale if the tangible personal property is purchased by a dealer exclusively for
leasing, such as a bare boat rental provided for by Rule 12A-1.071(18), F.A.C. This
exemption also expressly applies to boats and boat parts.
As discussed above, the Taxpayer leases or rents boats exclusively to its members,
including Employee Members and Limited Employee Members. The Taxpayer is a
registered dealer for purposes of collecting and remitting Florida sales and use tax in
connection with its boat rental business. Consequently, the use of the Taxpayer’s boats
by the Employee Members and the Limited Employee Members does not constitute a
taxable use of the boats by the Taxpayer.
The Taxpayer’s ancillary activities are closely connected to its boat rental business.
There is only one case that has determined whether a boat was used exclusively for rental
purposes for Florida sales and use tax purposes. You cite B.W. Marine, Inc., v.
Department of Revenue, No. 00-0012 (Fla. DOAH 10/26/01) and TMW Yacht Sales, Inc.
v. Department of Revenue, Case Number 00-0846 (Fla. DOAH 12/23/2003). Your
request letter provides that the order in TMW Yacht Sales provided that not only the
actual rental of the boat on a bare boat basis but also those reasonably necessary, directly
related activities undertaken in connection with and in furtherance of such rental are
considered as to whether activities are exclusively for leasing of the boats. These
activities include (1) the captain and crew lived on the boat (with free room and board) to
take care of the maintenance and upkeep of the boat; (2) the captain and crew entertained
prospective customers on the boat; (3) to market the availability of the boat for rental
purposes, the boat was promoted and marketed by being used in boat shows, used to host
luncheons, used to take charter brokers and their guests on cruises, and the boat was
shown to prospective customers; (4) the boat was moved from one location to another to,
for example, attend boat shows or pickup charter brokers or prospective customers; (5)

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the boat was taken out on "quite a few" sea trials; and, (6) the boat was moved around
frequently to help it stay in good working order.
The decision reached in TMW Yacht Sales is consistent with the definition of
"exclusively" in Black's Law Dictionary. The leading legal dictionary defines
"exclusively" to mean "Apart from all others; only; solely; substantially all or for the
greater part." BLACK’S LAW DICTIONARY, pg. 565 (6th ed. 1990).
Based on TMW Yacht Sales, the ancillary activities should not constitute a taxable use of
the Taxpayer's boats, and the Taxpayer should be considered as using its boats
exclusively for leasing purposes.
Taxpayer requests that the Department rule (1) that the use of the Taxpayer’s boats by the
Employee-Members and Limited Employee-Members pursuant to their membership
agreements do not constitute a taxable use by the Taxpayer for purposes of section
212.05(1)(b), F.S., of the boats, and (2) that the other ancillary activities do not constitute
a taxable use of the boats by the Taxpayer because the ancillary activities are reasonably
designed to further the Taxpayer’s boat leasing business.
APPLICABLE LAW AND DISCUSSION
Section 212.05(1)(b), F.S., provides that tax is due and payable:
(b) At the rate of 6 percent of the cost price of each item or article of
tangible personal property when the same is not sold but is used,
consumed, distributed, or stored for use or consumption in this state;
however, for tangible property originally purchased exempt from tax for
use exclusively for lease and which is converted to the owner's own use,
tax may be paid on the fair market value of the property at the time of
conversion. If the fair market value of the property cannot be determined,
use tax at the time of conversion shall be based on the owner's acquisition
cost….
Rule 12A-1.071(18), F.A.C., provides, in part, the following:
(18) Unless a boat or vessel is purchased exclusively for rental on a bare
boat basis as described in subsection (16), the purchase of the boat or
vessel and parts thereof is taxable…. (Emphasis added)
For a boat owner to qualify for an exemption from Florida use tax pursuant to section
212.05(1)(b), F.S., the boat must be purchased exclusively for rental on a bare boat basis.
The term “exclusively” is not defined by statute. Paragraph 60 of the recommended
order in TMW Yacht Sales, Inc. v. Department of Revenue, Case Number 00-0846 (Fla.
DOAH 12/23/2003), citing to paragraph 132 of the recommended order in B.W. Marine,
Inc., v. Department of Revenue, No. 00-0012 (Fla. DOAH 10/26/01), provides the
following regarding the term “exclusively” used in the statute:

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132. The term "exclusively," as used in Rule 12A-1.071(19), Florida
     Administrative Code, is defined in neither Rule Chapter 12A-1, Florida
     Administrative Code, nor Chapter 212, Florida Statutes. Absent such a
     definition, the term should be given its plain and ordinary meaning: solely,
     entirely, wholly, or only, there being no indication that a contrary meaning
     was intended. See Seagrave v. State, 2001 WL 776269 (Fla. 2001)[(EN
     21)] ("'One of the most fundamental tenets of statutory construction
     requires that we give statutory language its plain and ordinary meaning,
     unless words are defined in the statute or by the clear intent of the
     legislature.' When necessary, the plain and ordinary meaning of words can
     be ascertained by reference to a dictionary."); Dade County v. Pan
     American World Airways, Inc., 275 So.2d 505, 512 (Fla. 1973) ("By this
     analysis we have not changed the ordinary meaning of 'exclusive' from its
     dictionary definition of 'single', 'sole' and 'entirely.'"); Rast v. Hulvey, 80
     So. 750 (Fla. 1919) ("It will be observed that under this section of the
     statute, which is the only one applicable, the property of 'educational
     institutions' within this state actually occupied and used solely for
     educational purposes is exempt from taxation. It was not the intention of
     the Legislature to exempt from taxation property used for educational
     purposes and other purposes jointly. The word 'solely', according to
     Webster's New International Dictionary, means 'without another; singly;
     alone; entirely; wholly.' The word 'solely' was not used idly in the statute,
     but was written therein to express the legislative will, as to what class of
     property shall be exempted, and under a proper construction of this act, no
     property used for educational purposes is exempt from taxation, unless
     there is a total absence of usage for other purposes unconnected with
     educational purposes."); and Speers v. C.I.R., 1994 WL 126680 (U.S. Tax
     Ct. 1994) ("The exclusive use requirement of section 280A(c)(1) is an 'allor-nothing standard' . . . . Combined personal and business use precludes
     deductibility of the cost of the residence."); Cf. Section 196.012(2),
     Florida Statutes ("'Exclusive use of property' means use of property solely
     for exempt purposes. Such purposes may include more than one class of
     exempt use.").
     Therefore, based on the above analysis, the term “exclusively” must be solely for
     bare boat leasing. Any deviation as to the use will result in the application of the
     tax on the cost price of the boat as provided by section 212.05(1)(b), F.S.
     All uses of the boats must be use in a manner reasonably designed to further the
     boat’s use for leasing and no other purpose. Where a boat has been removed from
     inventory and capitalized for federal income tax purposes, the intent cannot be
     that of exclusive leasing of the boat. HMY New Yacht Sales, Inc. v. Department
     of Revenue, 676 So.2d 1385 (Fla. 1st DCA 1996).

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RESPONSE
Here, based on the information provided, the boats will be used exclusively for leasing
purposes, and the provisions of section 212.05(1)(b), F.S., are not triggered by the uses
identified by the request and other information provided to date.
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 10 days of the date of this letter.
Sincerely,

Charles Wallace
Technical Assistance and Dispute Resolution
(850) 922-4734
CW/
Record ID: 86890