Was a personalized home-mortgage analysis and accelerated-payment report a taxable information service or an exempt personal service?

Plain-English summary

The mortgage-payoff report was an exempt personal service, not a taxable information service.

The company collected each client's mortgage balance, term, interest rate, due date, and prepayment terms. It then prepared an individualized analysis, lender notices, and an amortization schedule designed to help the client prepay principal and retire the mortgage early.

The report was furnished only to that client, and its client-specific information was not substantially incorporated into reports sold to other people. Although the report used standard printed “shell” documents, the shell cost was $2.48 out of a $200 service fee and was not separately charged.

Because the printed item was only an inconsequential part of the individualized service, the client charge was not subject to Florida sales tax. The provider still had to pay tax on tangible personal property used to furnish the service.

What this means for you

Report and analysis providers

Client-specific work can qualify as a personal service when the information is not reused or sold to others.

Standard templates

Using a common shell or format did not make the service taxable where the substantive analysis remained individualized and the document was inconsequential.

Materials and inputs

The service provider, rather than the client, bore tax on the paper and other tangible property used in performing the exempt service.

Common questions

Was each report personalized? Yes.

Could the client-specific information be reused in reports for others? No, on the described facts.

Was the $200 client fee taxable? No.

Were the provider's tangible inputs taxable? Yes.

Citations and references

• Section 212.05(1)(a)1.a., Florida Statutes — retail sales of tangible personal property.
• Section 212.08(7)(v), Florida Statutes — professional and personal service transactions.
• Rule 12A-1.001(17), Florida Administrative Code — individualized information as a personal service.
• Rule 12A-1.062, Florida Administrative Code — taxable information services.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 92A-008

Original ruling text

Feb 05, 1992

Re: TAA 92A-008
Sales Tax Mortgage Analysis and Payment Service Sections 212.05(1)(a)1.a., 212.08(7)(v), F.S. Rules 12A-1.001(17), 12A-1.062, F.S.

Dear :

This is in response to your letter of October 3, 1991, in which you requested the issuance of a Technical Assistance Advisement (TAA) regarding the Florida sales and use tax status of reports furnished under the name XXX (hereinafter "Report") by XXX (hereinafter "Taxpayer") to various individuals. As "Exhibit A," you attached to your request a representative copy of "Report." With your request, you have provided the following descriptions of "Taxpayer's" operations:

"Taxpayer is a Florida Corporation which will prepare reports for clients which analyze their home mortgages and provide them with individualized documents which assist and motivate them to pay off their home mortgages ahead of schedule. Inherent in the services Taxpayer provides to clients is a report designed in such a way that clients are motivated to make principal prepayments and retire their mortgage balance years in advance of the scheduled amortization. Taxpayer's clients also benefit from significant savings in interest charges. Some of Taxpayer's clients include mortgage lenders, as well, who contract with Taxpayer to furnish this service to their borrowers as a means of encouraging early recapture of capital for reinvestment purposes. It is the goal of taxpayer to assist and motivate its clients to become debt-free. Taxpayer engages independent agents to engage clients for the service, gather the necessary data concerning each client's mortgage (mortgagor, principal balance, term, interest rate, due date, and prepayment terms) and send the collected information to Taxpayer for

analysis and preparation of the individualized reports. Taxpayer (i) collects a fee for the service, (ii) performs analysis on the submitted information, (iii) prepares an individualized report, (iv) prepares individualized lender notices for prepayment of principal, (v) prepares an amortization schedule that accommodates principal prepayments and regular monthly payments, and (vi) sends the completed report to the client. The reports are printed on `shell' documentation which does not vary from client to client. Taxpayer collects payment in a lump-sum amount and does not separately state the costs of the materials to clients. A majority of Taxpayer's clients are non-Florida residents."

After a discussion of relevant sections of Florida Statutes and Florida Administrative Code, you provide the following "Analysis":

"It is Taxpayer's position that the [Report] is an individualized report and, as such, is an exempt personal service, pursuant to s.212.08(7)(v), Florida Statutes, and Rule 12A-1.001(17)(a) and (b), Florida Administrative Code.

"What Taxpayer is substantially doing is preparing a `minifinancial plan' for each of its clients. This is akin to services which may be performed by a C.P.A. or financial planning firm. The plan, instead of covering the whole range of each client's financial being, focuses only on what is probably their largest financial obligation, their mortgage.

"The reports furnished by Taxpayer are of an individualized and personal nature in that they analyze the terms of each client's mortgage. They are prepared individually for each client and furnished only to that client. As required by Rule 12A-1.001(17), Florida Administrative Code, no parts of the reports are incorporated in reports furnished to other persons, only the instructions for use which are contained in the `shell.'

"Further, as required by Rule 12A-1.001(17), the `sale' of

the shell' is an inconsequential element (cost of $2.48 out of the total fee for the [Report] of $200.00) for which no separate charge is being made. (See Exhibit A.) Further, Taxpayer is paying the sales tax on theshell' as required by this Rule."

In closing, you state your conclusion that "it is Taxpayer's belief that the transactions which are the subject of this request for advisement are exempt personal services."

Rule 12A-1.062, F.A.C., provides in part:

"12A-1.062 information Services. The sale of information services involving the furnishing of printed, mimeographed, multigraphed matter, or matter duplicating written or printed matter in any manner, other than professional services and services of employees, agents or other persons acting in a fiduciary capacity, are taxable.

"`Information Services' means and includes the services of collecting, compiling or analyzing information of any kind or nature, or furnishing reports thereof to other persons.

This rule should be read in conjunction with Rule 12A-1.001(17)(b), F.A.C., which provides:

"The furnishing of information, including a written report to a person of a personal or individual nature and which is not or may not be substantially incorporated in reports furnished to other persons, is not an information service within the meaning of the law and is exempt. In such cases the person furnishing the information is required to pay the tax on purchases of tangible personal property used by him in connection therewith."

The distinction made in the two rules quoted above is based on the exemption for "professional services," provided by Section 212.08(7)(v), F.S., which states in pertinent part:

"(v) Professional services. -"1. Also exempted are professional, insurance, or personal

service transactions that involve sales as inconsequential elements for which no separate charges are made. "2. The personal service transactions exempted pursuant to subparagraph 1. do not exempt the sale of information services involving the furnishing of printed, mimeographed, or multigraphed matter, or matter duplicating written or printed matter in any other manner, other than professional services and services of employees, agents, or other persons acting in a representative or fiduciary capacity or information services furnished to newspapers and radio and television stations. As used in this subparagraph, the term `information services' includes the services of collecting, compiling, or analyzing information of any kind or nature and furnishing reports thereof to other persons..."

Section 212.05(1)(a)1.a., F.S., further provides:

"212.05 Sales, storage, use tax. -- 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... "(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: "(a)1.a. At the rate of 6 percent of the sales price of each item or article of tangible personal property when sold at retail in this state, computed on each taxable sale for the purpose of remitting the amount of tax due the state, and including each and every retail sale."

The Department taxes "information services" as the sale of tangible personal property under the provisions of Section 212.05(1)(a)1.a., F.S. Rule 12A-1.062, F.A.C., defines "information services" to mean and include the services of collecting, compiling, or analyzing information of any kind or nature and furnishing reports thereof to other persons. Rule 12A-1.001(17)(a), F.A.C., on the other hand, provides that the furnishing of information, including a written report to a person of a personal or individual nature and which is not or

may not be substantially incorporated in reports furnished to other persons, is not an information service, but rather is considered to be a personal service. The charge for such a personal service is exempt, but any tangible personal property used in connection with the provision of the service is subject to tax. The determination whether the furnishing of certain information is the exempt sale of a personal service or an information service (taxable as a sale of tangible personal property) hinges on whether the information or report is available only to a specific person or it is also available for purchase by other persons.

In the instant case, after a thorough examination of the representative copy you supplied of the "Report" which is furnished to each of your clients, and based upon the information in your letter, we are in agreement with your analysis of the transactions which are the subject of your request for advisement. In the production and provision of "Report," as described in your letter, "Taxpayer" is providing to each of its clients a personal service, the charge for which is not subject to Florida sales tax. We would emphasize that the cost of any tangible personal property used in connection with the provision of this service is subject to tax.

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 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 and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality

of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or the response.

Yours sincerely,

Malcolm A. Craig
Technical Assistant

MAC/c