Were a city utility's internal electricity transfers to city departments subject to Florida gross receipts tax?

Subject

Inter-Department Sales of Electricity

Plain-English summary

The utility's interdepartmental transfers were not taxable sales or gross receipts simply because city departments used the electricity. Utility revenues belonged to the city, and the transfers were recorded internally rather than arising from a buyer-seller relationship.

The result changed for power or gas bought tax-free with a resale certificate. The purchase-price portion transferred internally was then subject to gross receipts tax. If the supplier had already charged separately stated gross receipts tax, no additional tax applied to the internal transfer. A utility mixing purchased and self-generated service had to prorate the internal amount.

What this means for you

Municipal accounting treatment did not answer every tax question. The utility also had to trace whether the transferred service was self-generated, purchased with tax paid, or purchased tax-free for resale.

Common questions

Q: Were all city-department transfers automatically exempt? No. Tax-free purchased utility service remained taxable when transferred internally.

Q: What was the tax base for tax-free purchased service? The purchase price paid to the supplier.

Q: How did mixed purchased and generated electricity work? The ruling required a proration based on the purchased and generated shares.

Citations and references

• Fla. Stat. § 203.01(1)(a), (b) — utility gross receipts
• Fla. Stat. ch. 203 and Fla. Admin. Code ch. 12B-6 — gross receipts tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93B6-001A

Original ruling text

Feb 10, 1993

Re: Technical Assistance Advisement No. 93(B)6-001A
Gross Receipts Tax; Inter-Department Sales of Electricity

Dear

XXX has requested a technical assistance advisement
pursuant to Section 213.22, Florida Statutes.

Issue

Whether revenues received from electricity sold to the City
by XX are interdepartmental transfers, and are neither
"receipts" subject to Chapter 203,F.S., nor a "sale"
subject to Chapter 203, F.S., or Rule 12B-6, F.A.C.

Background

XXX is a municipally owned utility that provides electric,
gas, water, and sewer utility services to the XXX including
electricity for street lights and for City Hall. Both the City
and XXX operate under the XXX City Charter. Revenues of the XXX
belong to the City and are internal transfers and are recorded
as such for accounting purposes.

An audit was conducted by the Department of Revenue for
gross receipts tax and an assessment was made taxing these
transfers. XXX protested the assessment and a Notice of
Reconsideration was issued on XX, compromising all tax,
interest, and penalty. This advisement is requested to clarify
that the transfers are not subject to the Florida Gross Receipts
Tax.

Discussion and Law

Section 203.01(1)(a) and (b), Florida Statutes, provides
that every person that receives payment for any utility service
shall report to the Department the total amount of gross

receipts derived from business done within this state, or
between points within this state.

Neither Chapter 203, F.S., nor Rule 12B-6, F.A.C., provided
for a definition of a sale or gross receipts. Therefore the
Department must look to the common definitions and to the
records of for guidance.

Black's Law Dictionary provides that a sale is between a
buyer and a seller in consideration of payment and that the
parties must be in a relationship of a buyer and a seller for a
sale to occur.

Department's Position

As you indicated in your request and attachments, the
Department has had the opinion that the interdepartmental
transfers are not considered taxable sales or gross receipts for
gross receipts tax purposes.

Therefore, the interdepartmental transfers are not taxable
for gross receipts tax.

However, if XXX purchases all electric or gas utility
services exempt from gross receipts tax by issuing their
provider of such services a resale certificate, the amount of
purchased utility service which is transferred as
interdepartmental sales is subject to gross receipts tax. The
taxable base of the interdepartmental sales will be the purchase
price paid by the XXX to its supplier.

If XXX purchases all electric or gas utility services from
their provider of such services and remits a separately stated
gross receipts tax to their supplier, the amount of purchased
utility service which is transferred as interdepartmental sales
is exempt from additional gross receipts tax. In addition, a
credit may be taken for the tax paid to the provider on the
utility services resold to their customers as tax is due based
on the total gross receipts received from their customers.

If XXX purchases electric or gas utility services from a

supplier and generates services, a proration of the amount of
utility service purchased and the amount of utility service
generated must be established and applied to the
interdepartmental sales when computing the amount of gross
receipts tax due on interdepartmental sales. For example, if
XXX purchases 60% of its electricity upon which gross receipts
tax has not been paid to the supplier and generates 40% of its
electricity, 60% of the amount of interdepartmental sales of
electricity shall be subject to the gross receipts tax based on
the purchased price.

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.

Sincerely,

James E. Silvey
Tax Law specialist
Technical Assistance

JES/jes