Must a Florida linen-rental company collect sales tax on an automatic recurring inventory-maintenance fee?

Plain-English summary

The Florida Department of Revenue concluded that a linen supplier's automatic recurring “inventory maintenance fee” was subject to sales tax as part of the linen rental price.

The supplier used the fee to guarantee that each customer's linen inventory stayed at an agreed level. The charge appeared automatically based on deliveries and applied even when no particular item was actually replaced. It was therefore part of the supplier's continuous linen service, not the separate exempt charge described in the rule for replacing towels or similar items actually lost by a rental customer.

Calling the charge a maintenance or warranty fee did not change the result. The Department also said non-Florida rulings did not govern Florida transactions, and informal Letters of Technical Assistance based on limited or hypothetical facts were not binding statements of the Department's official position.

What this means for you

Linen and uniform suppliers

An automatic recurring charge that supports the rental inventory is part of the taxable rental price, even when separately itemized or labeled as maintenance.

Hotels, restaurants, and clubs

Distinguish a recurring inventory program from a charge tied to a specifically lost rental item. The Department treated the recurring program as taxable on the facts presented.

Accountants and tax professionals

Analyze what the fee actually buys and when it is imposed. Labels, out-of-state rulings, and nonbinding informal letters did not override the Florida statutes, rules, and contract facts.

Common questions

Q: Why was the inventory-maintenance fee taxable?
A: It was automatic, recurring, and part of the service guaranteeing the agreed linen inventory level.

Q: Was it exempt as a charge for replacing lost towels?
A: No. The fee applied even when no specific linen item was replaced.

Q: Would calling it a maintenance warranty change the result?
A: No. The Department said either label left it within the overall taxable linen rental.

Citations and references

• Fla. Stat. §§ 212.02(16) and (19), 212.05(1)(d), and 213.22
• Fla. Admin. Code rr. 12A-1.023(1) and (3), and 12A-1.105(1)(b) and (2)(e)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14A-003

Original ruling text

Executive Director
Marshall Stranburg

QUESTION 1. ARE LINEN COMPANIES THAT PROVIDE “RENTAL” LINENS UNDER
AN AGREEMENT THAT PROVIDES FOR CONTINUOUS SERVICE TO BE RENDERED
AND FOR THE PERIODIC CLEANING OR LAUNDERING OF SUCH ARTICLES,
REQUIRED TO CHARGE AND COLLECT SALES TAX ON THE “INVENTORY
MAINTENANCE FEES” AS DEFINED IN THE “XXX GLOSSARY OF TERMS”?
ANSWER: THE DEPARTMENT CAN ONLY ANSWER THIS QUESTION AS IT
RELATES TO THE SPECIFIC FACTS OF THIS CASE. THE INVENTORY
MAINTENANCE FEE IN THIS CASE IS AN AUTOMATIC AND RECURRING CHARGE
FOR THE GUARANTEE AND ASSURANCE THAT INVENTORY LEVELS FOR A
DESIRED LINEN ITEM REMAIN CONSTANT. SUCH FEES ARE PART OF THE SALES
PRICE OF THE RENTAL CHARGE OF LINEN ITEMS AND ARE, THEREFORE, SUBJECT
TO SALES TAX.
QUESTION 2. ARE RULINGS THAT ARE ENTERED IN NON-FLORIDA
JURISDICTIONS (E.G., TEXAS), ON SIMILAR ISSUES, RELEVANT TO THE STATE OF
FLORIDA’S INTERPRETATION OF FLORIDA TAX LAWS?
ANSWER: NO. THE TAXATION OF FLORIDA TRANSACTIONS IS GOVERNED BY
CHAPTER 212, F.S., AND CHAPTER 12A-1, F.A.C.
QUESTION 3. ARE THE “INVENTORY MAINTENANCE FEES,” AS DEFINED IN THE
“XXX GLOSSARY OF TERMS,” AKIN TO A REQUIRED CHARGE FOR MAINTENANCE
OF TANGIBLE PROPERTY RENTED TO ANOTHER?
ANSWER: THE INVENTORY MAINTENANCE FEE IS AN AUTOMATIC AND
RECURRING CHARGE AND IS THEREFORE PART OF THE SALES PRICE OF THE
RENTAL CHARGE OF LINEN ITEMS RENTED TO CUSTOMERS. BECAUSE OF THIS, IT
IS SUBJECT TO SALES TAX.
QUESTION 4. ARE THE “INVENTORY MAINTENANCE FEES,” AS DEFINED IN THE
“XXX GLOSSARY OF TERMS,” MORE AKIN TO A “MAINTENANCE WARRANTY FEE”
THAT IS PART OF THE OVERALL TAXABLE RENTAL OF THE NAPKINS AND
LINENS, AS DESCRIBED IN RULE 12A-1.105, F.A.C.?
ANSWER: WHETHER THIS CHARGE IS CONSIDERED AN INVENTORY
MAINTENANCE FEE OR A MAINTENANCE WARRANTY FEE, THE CHARGE WOULD
STILL BE CONSIDERED PART OF THE OVERALL TAXABLE RENTAL OF THE
NAPKINS OR LINENS.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2 of 10
February 13, 2014

Re: Technical Assistance Advisement – TAA 14A-003
Sales and Use Tax: Taxability of Inventory Maintenance Service fees for Linen Rentals
Section: 212.02(16), Florida Statutes (F.S.)
Rule: 12A-1.023, Florida Administrative Code (F.A.C.)
XXX (hereinafter “Taxpayer”)
FEIN: XXX
Dear: XXX:
This letter is a response to your petition dated XXX, 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 12-11, Florida Administrative Code. This response to
your request constitutes a TAA and is issued to you under the authority of s. 213.22, F. S.
Presented Facts
Taxpayer is a XXX consulting company that represents numerous country clubs (“clients”).
Taxpayer is reviewing the agreements its clients entered into with XXX (“Vendors”) to provide
‘rental’ linens under an agreement that provides for continuous linen service to be rendered and
for the periodic cleaning or laundering of such articles.
Taxpayer’s letter provides the following:
[Taxpayer] believes that the vendor is erroneously charging its clients sales tax on an
“inventory maintenance fee.” The Vendor(s) explanation of the term, as detailed in the
Glossary of [Supplier] Charges, states that the “inventory maintenance fee” is an
automatic recurring charge to replenish lost or damaged textiles to maintain the level of
inventory required by the customer. The Vendors have been doing business with a
number of country clubs, hotels and restaurants throughout the State of Florida. The
Vendors provide contract linen services that supply clients with clean and ironed linen
products to rent and use over an extended period of time. Each client has a contract or an
agreement with the Vendors … to continually supply and deliver linens to a specific
location and on specific days of the week. Inventory levels (“pars”) are agreed upon
prior to the first delivery, and are adjusted as needed, or seasonally, as the need and usage
increases or decreases.
When the Vendors deliver clean linens to a client, the driver delivers the quantity needed
to bring the client’s inventory levels back to par and pick up the soiled linens and return
them to the Vendors facilities. It is further agreed that, when specific quantities of an
item are ordered to bring inventory levels to par, the client is charged the cost of one of
that specific item as an “inventory maintenance charge.” For example:

Technical Assistance Advisement
Page 3 of 10
‘Client A’ may agree to an inventory level of 500 bone napkins. Further it is
agreed that for every 50 (fifty) bone napkins delivered, the replacement cost of the
1 (one) bone napkin is charged to the client as an “inventory maintenance fee.”
Upon delivery, it is discovered that 500 bone napkins are needed to bring
inventory levels to par, therefore, the client is billed for the cost of 10 bone
napkins or $22.00 (10 bone napkins @ $2.20 each).
‘Client B’ may agree to an inventory level of 500 bone napkins. Further it is
agreed that for every 50 (fifty) bone napkins delivered, the cost of 1 (one) bone
napkin is charged to the client as an “inventory maintenance fee.” Upon delivery
it is discovered that 500 bone napkins are needed to bring inventory levels to par
therefore the client is billed for the cost of 10 bone napkins of $13.50 (10 bone
napkins @ $1.35 each). The same holds true with bar towels and aprons for every
50 bar towels delivered an “inventory maintenance fee” of $1.25 is charged. For
every 25 black bib aprons delivered an “inventory maintenance fee” of $4.15 is
charged. . . .
Although a disparity in pricing exists between ‘Client A’ and ‘Client B’, this is agreed upon
between the vendors and each client. The vendors are charging sales tax on its “inventory
maintenance fee” which [Taxpayer believes] to be unwarranted. Taxpayer discussed the
Vendors’ “inventory maintenance fee” with the Vendor’s local office; wherein Taxpayer was
instructed that Vendors’ “inventory maintenance fee” is used as a ‘replacement linen charge’ for
damaged, lost, or irreparable linens. However Taxpayer states that in conversations and
correspondence with Vendor’s corporate office, he was given a different story, which led to this
request for a legally binding opinion.
The following conditions are stated in the “Terms and Conditions for Textile Rental Service
Agreement” entered into between the Vendor(s) and each country club client:
TERMS AND CONDITIONS FOR TEXTILE RENTAL SERVICE AGREEMENT
The parties hereby agree as follows:

1. Scope of Agreement. During the term of this Agreement [Supplier] shall be the
   exclusive supplier to Customer of the services and goods listed on Schedule A attached
   hereto, as such Schedule A may be amended from time to time. All goods supplied
   hereunder shall be regularly cleaned and maintained by the Supplier. Any goods which
   require replacement during the term of this Agreement because of normal wear and tear
   shall be replaced by Supplier at Supplier’s sole cost and expense.
2. Term. This agreement shall remain in full force and effect for a period of [12] months
   commencing on the date of installation of the goods, and shall be automatically renewed
   for consecutive [12] month periods thereafter unless either party shall give to the other
   party written notice of termination by registered mail at least 90 days prior to the
   expiration of the term then in effect.

Technical Assistance Advisement
Page 4 of 10

3. Charges. In consideration for the services and goods provided hereunder, Customer
   agrees to pay the charges set forth on the Schedule attached hereto and other charges
   which may become applicable. The description of the charges shown on Schedule A and
   other charges that may be applicable is located on the reverse side of this Agreement and
   any updates to that list at XXX. All charges are based on 52 weeks per year whether or
   not service is actually used. The Service Charge will be used to help [Supplier] pay
   various fluctuating costs relating to the environment, energy, service and delivery.
   Revenue from all charges on our invoices is used to offset costs and to provide general
   revenue to [Supplier].

7. Title to Goods and Replacing Lost or Damaged Goods. It is understood by the parties
   that all goods supplied under this Agreement are, and shall remain, the property of
   Supplier, and shall be returned to Supplier at such time as an employee of Customer
   using said goods terminates employment with Customer or at such time as this agreement
   might expire or otherwise be terminated. Customer shall be responsible for all goods
   which are lost, destroyed, stolen or not returned as required herein, and with respect to
   such lost, destroyed, stolen or non-returned goods Customer shall promptly pay to
   Supplier the Replacement Charge (as specified in Schedule A or amended Schedules)
   of such goods, including applicable sales and use taxes. . . .
   The following terms and definitions are set forth in the “Glossary of XXX Charges” provided by
   Supplier:
   Special Charges
   Garment Inventory Maintenance: This is an optional program that offers a weekly
   charge in lieu of being billed for abused or damaged items. This is for garments only.
   This does not include lost garments.
   Inventory Maintenance (Inventory Maint): This automatic recurring charge is to
   replenish lost or damaged textiles to maintain the level of inventory required by the
   customer. The inventory maintenance charge is established with the customer, based
   upon experience, and depending upon the type of textile product provided and its
   particular application. Inventories of napkins, aprons, shop towels, and bar towels
   typically need automatic replenishment.
   Inventory Minimum (Inventory Min): If the customer has agreed to use a minimum
   percentage of the inventory designated for the customer, this is the charge if the usage
   falls below the agreed upon minimum. (See “Unit Price with Minimum Usage.”)
   Loss/Abuse/Damage (Loss/Abuse/Dam): This charge is to replace rental items that
   have been lost, misused or damaged beyond repair by users as identified by our route
   service representatives or check-in procedures at our plant. In order to discourage misuse,
   the charge is the Replacement Charge shown on your contract or the full retail price.

Technical Assistance Advisement
Page 5 of 10
Replacement Charge (Replace Chg): This is the agreed upon unit price charge (less
depreciation ) which the customer must pay to purchase the inventory designated for the
customer’s use if the customer discontinues service before the end of the contract.
Taxpayer provided a copy of Schedule A for several country club clients which are titled
“Service Agreement Schedule A.” Supplier and the country club client use the schedule to
itemize a textile item, the unit price of the item along with the replacement charge and inventory
maintenance fee.
Taxpayer also provided a copy of an invoice for services provided by Supplier and one of the
country club clients. The invoice provides the following detail relevant to the issue at hand as
follows:
Item Description
Qty
25
1

Amount

Bib Apron, Navy
Bib Apron, Navy – Invty Maint

Invt
30
$0.70

Price
0.4850
4.50

12.13
4.50

The inventory maintenance fee in this example is for one navy bib apron in the amount of $4.50.
The country club client is charged the Inventory Maintenance fee regardless of whether or not
there is a replacement of one or more Navy Bib Aprons.
Issues
The central issue in this case is whether the inventory maintenance fee is part of the taxable
charge for the rental of linen supplies. However, Taxpayer has also asked the following specific
questions be addressed:

1. Are linen companies that provide “rental” linens under an agreement that provides for
   continuous service to be rendered and for the periodic cleaning or laundering of such
   articles, required to collect sales tax on the “inventory maintenance fees” as defined in
   the “XXX Glossary of Terms”?
2. Are rulings that are entered in non-Florida jurisdictions, (e.g., Texas), on similar
   issues, relevant to the state of Florida’s interpretation of Florida tax laws?
3. Are “inventory maintenance fees,” as defined in the “XXX Glossary of Terms,” akin
   to a required charge for maintenance of tangible property rented to another?
4. Are the “inventory maintenance fees,” as defined in the “XXX Glossary of Terms,”
   more akin to a maintenance warranty fee” that is part of the overall taxable rental of the
   napkins and linens as described in [Rule] 12A-1.105, F.A.C.?

Technical Assistance Advisement
Page 6 of 10
Law
Section 212.05, F.S., provides in part:
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,
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:

(d) At the rate of 6 percent of the lease or rental price by a lessee or rentee, or contracted
or agreed to be paid by a lessee or rentee, to the owner of tangible personal property.
Section 212.02(16), F.S., states in part:
“Sales price” means the total amount paid for tangible personal property, including any
services that are a part of the sale…and includes any amount for which credit is given to
the purchaser by the seller, without any deduction therefrom on account of the cost of the
property sold, the cost of materials used, labor or service cost, interest charged, losses, or
any other expense whatsoever…
Section 212.02(19), F.S., defines “tangible personal property” as follows:
means and includes personal property which may be seen, weighed, measured, or touched
or is in any manner perceptible to the senses…
Rule 12A-1.023(1), (3), F.A.C., states as follows:
(1) Persons engaged in the business of renting tangible personal property such
as…aprons, towels, linens and articles of a similar nature…under an agreement which
provides for a continuous service to be rendered in the periodic cleaning or laundering of
such articles are required to collect the tax upon the rentals therefrom. Such items are
exempt upon purchases when used exclusively for rental purposes. All other purchases
of tangible personal property for use in connection with such rentals are taxable.

(3) The charge made by a linen supply company for the replacement of towels and
similar items lost by a customer to whom it has rented them is exempt. (Emphasis
Supplied)

Technical Assistance Advisement
Page 7 of 10
Rule 12A-1.105(1)(b)1., F.A.C. states in part:
The term “service warranty” means any contract or agreement which indemnifies the
holder of the contract or agreement for the cost of maintaining, repairing, or replacing
tangible personal property, whether or not the contract provides for the furnishing of
parts.
Discussion
Taxpayer’s request presents multiple questions pertaining to the taxability of an “inventory
maintenance fee” being charged by its clients linen supply vendors. Taxpayer’s first issue is
whether linen companies that provide “rental” linens under an agreement that provides for
continuous service to be rendered and for the periodic cleaning or laundering of such articles, are
required to collect sales tax on the “inventory maintenance fees” as defined in the Vendor’s
glossary of terms? The Vendor’s definition of an “inventory maintenance fee” is the automatic
recurring charge to replenish lost or damaged textiles to maintain the level of inventory
required by the customer. The Vendor asserts that the inventory maintenance charge is
established with the customer, based upon experience, and depending upon the type of textile
product provided and its particular application. Inventories of napkins, aprons, shop towels, and
bar towels typically need automatic replenishment.
Section 212.02(19), F.S. defines tangible personal property to mean and include personal
property which may be seen, weighed, measured, or touched or is in any manner perceptible to
the senses… In addition, Rule 12A-1.023, F.A.C., states that persons engaged in the business of
renting tangible personal property and requires that persons who furnish items such as towels,
linens, coats, etc. to establishments or individuals under an agreement to provide continuous
service must collect tax on their rentals. Items purchased exclusively for rental purposes are
exempt. In this case, the Vendor is in the business of providing rental, leasing, and laundry for
linens and uniforms under contract with Taxpayer’s clients to provide linen services. Therefore,
the Rule would be applicable to the Vendor since it is in the linen supply business. Therefore, the
Vendor would be required to collect tax on the linen rentals.
Taxpayer also argues that the inventory maintenance fees that Vendor charges its clients for lost
or damaged linens would be exempt from sales tax in Florida. Taxpayer relies on Rule 12A1.023(3), F.A.C., which states that the charge made by a linen supply company for the
replacement of towels and similar items lost by a customer to whom it has rented them is
exempt. In addition, Taxpayer asserts that regardless of the label or value attached to the item
(“inventory maintenance fee,” “unrepairable linen fee,” or “lost linen fee”) the charges are made
to a customer for replacing linens that are beyond repair, and are separately itemized on the
invoice and therefore should be exempt from sales tax.
Section 212.05, F.S., states that every person 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, is exercising a taxable privilege, subject to tax … In this case, the
Vendor charges its customers an inventory maintenance fee for the guarantee and assurance that

Technical Assistance Advisement
Page 8 of 10
the customer’s inventory for a particular linen item will remain at a desired inventory level. In
addition, the inventory maintenance fee was agreed to as a condition of the contract between
Vendor and its customers. This fee is part of the entire linen service charge, which includes
supplying, laundering and replacing linens in order to guarantee that inventory levels for
customers’ linen items remain constant. As such, the inventory maintenance fee is a charge
associated with the rental of linen items and is subject to tax as part of the sales price.
Taxpayer has provided numerous attachments to support its contention that the Vendor is
erroneously charging its clients sales tax on the inventory maintenance fee. Taxpayer also alludes
to two Letters of Technical Assistance (LTAs) issued by DOR employees regarding whether
inventory maintenance fees are subject to sales tax and requesting that the Department’s define
the term “lost” as it pertains to linens damaged beyond repair. Both TAAs are favorable to
Taxpayer’s position. However, the conclusions drawn in those LTAs were based on limited
and/or hypothetical facts and circumstances, therefore, the writer could only give his/her opinion.
LTAs are not official binding statements and do not constitute the official position of the
Department.
The second issue is whether rulings that are entered in non-Florida jurisdictions, on similar
issues, are relevant to the state of Florida’s interpretation of tangible personal property rented to
another? The taxation of Florida transactions are governed by Chapter 212, F.S. and Chapter
12A-1, F.A.C., therefore, rulings entered in non-Florida jurisdictions, on similar issues, are not
binding on the State of Florida.
The third issue is whether the “inventory maintenance fees” as defined in the Vendor’s Glossary
of Terms is akin to a required charge for the maintenance of tangible property rented to another?
As stated earlier, the inventory maintenance fee is part of the entire linen service charge
associated with the rental of linen items and is part of the sales price subject to sales tax.
The final issue is whether the inventory maintenance fees as defined in the Vendor’s Glossary of
Terms is more akin to a “maintenance warranty fee” that is part of the overall taxable rental of
the napkins and linens as described in Rule 12A-1.105, F.A.C.? As stated earlier, the Vendor’s
definition of an “inventory maintenance fee” is the automatic recurring charge to replenish
lost or damaged textiles to maintain the level of inventory required by the customer. Rule 12A1.105(1)(b)1., F.A.C. defines the term “service warranty” means any contract or agreement
which indemnifies the holder of the contract or agreement for the cost of maintaining, repairing,
or replacing tangible personal property, whether or not the contract provides for the furnishing of
parts. However, the definition of service warranty does not include contracts or agreements to
repair, maintain, or replace tangible personal property sold at retail tax exempt… 1 Furthermore,
when a service agreement is sold in conjunction with the lease of tangible personal property…tax
is due at the time of the sale of the service agreement . 2 Service warranties usually involve

1
2

Rule 12A-1.105(1)(b)2., F.A.C.
Rule 12A-1.105(2)(e), F.A.C.

Technical Assistance Advisement
Page 9 of 10
businesses that repair tangible personal property such as motor vehicles, televisions,
refrigerators, etc. In this case, whether the fees charged by the Vendor are called “inventory
maintenance fees” or “maintenance warranty fees” they would still be taxable as part of the
overall rental of the napkins and linens.
Conclusion
Question 1. Are linen companies that provide “rental” linens under an agreement that provides
for continuous service to be rendered and for the periodic cleaning or laundering of such articles,
required to charge and collect sales tax on the “inventory maintenance fees” as defined in the
“XXX Glossary of Terms”?
Answer: The Department can only answer this question as it relates to the specific facts
of this case. The inventory maintenance fee in this case is an automatic and recurring
charge for the guarantee and assurance that inventory levels for a desired linen item
remains constant. Such fees are part of the sales price of the rental charge of linen items
and are, therefore, subject to sales tax.
Question 2. Are rulings that are entered in non-Florida jurisdictions, (e.g., XXX), on similar
issues, relevant to the state of Florida’s interpretation of Florida tax laws?
Answer: No. The taxation of Florida transactions are governed by Chapter 212, F.S. and
Chapter 12A-1-1, F.A.C.
Question 3. Are the “inventory maintenance fees” as defined in the “XXX Glossary of Terms”
akin to a required charge for maintenance of tangible property rented to another?
Answer: The inventory maintenance fee is an automatic and recurring charge and is
therefore part of the sales price of the rental charge of linen items rented to customers.
Because of this, it is subject to sales tax.
Question 4. Are the “inventory maintenance fees’‘ as defined in the “XXX Glossary of Terms”
more akin to a maintenance warranty fee” that is part of the overall taxable rental of the napkins
and linens as described in Rule 12A-1 .105, F.A.C.?
Answer: Whether this charge is considered an inventory maintenance fee or a
maintenance warranty fee, the charge would still be considered part of the overall taxable
rental of the napkins or linens.
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 upon those facts and the

Technical Assistance Advisement
Page 10 of 10
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 from that which is
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 Supplier. Your
response should be received by the Department within 15 days of the date of this letter.

Sincerely,

Joseph D. Franklin III
Tax Law Specialist
Technical Assistance and Dispute Resolution
Control #126493