Were hourly equipment-use charges taxable rentals when an environmental consultant's employees retained all possession and operating control?

Subject

Charges for Use of Equipment Designated as Equipment Rentals

Plain-English summary

The consultant's hourly equipment-use charges were part of an exempt professional service, not taxable rentals. Its employees took the analytical equipment to environmental-remediation sites, operated it, retained complete control, and returned it to the office. Clients had no access to or control over the equipment.

The consultant was the consumer of the equipment and therefore had to pay sales tax on its own purchases or rentals used in providing the service.

What this means for you

Calling a line item an equipment rental did not control. The ruling focused on whether the customer received possession or direction and control over physical operation.

Common questions

Did a separately stated hourly charge create a rental? No, not under the described control and possession facts.

Who operated the equipment? The consultant's employees.

Who owed tax on acquiring the equipment? The consultant owed tax on its purchases or rentals.

Citations and references

• Fla. Stat. §§ 212.02(10), 212.02(16), 212.08(7)(v), and 213.22
• Fla. Admin. Code r. 12A-1.071(1), (10)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-014

Original ruling text

Feb 17, 1994

RE: TAA 94A-014
Sales Tax; Environmental Consulting and Engineering
Services -Charges for Use of Equipment Designated as
Equipment Rentals
ss. 212.02(10),(16) and 212.08(7)(v), F.S.
Rule 12A-1.071(1),(10), F.A.C.

Dear:

This is in response to your letter dated December 2, 1993,
in which you request a Technical Assistance Advisement (TAA) on
behalf of XXXX (hereinafter Consultant), regarding the
referenced subject. With your request you have provided a copy
of Consultant's Professional Services Contract (including
exhibits) with XXXX (hereinafter Client). This agreement
represents the standard contract Consultant enters into with its
various clients. In your letter you have provided the following
facts:

"Consultant' performs environmental consulting and engineering for various clients at sites throughout the [S]tate of Florida. The majority of the work is performed for oil companies under contract to clean up losses from underground petroleum storage systems. This work usually involves gasoline service stations that have had leakage from underground storage tanks.Consultant' designs and
installs remediation systems to address these leaks into
soils and waters beneath these stations. This cleanup
process takes several months of monitoring and observation
by our staff of hydrogeologists and geologists.

"At issue is the levying of sales tax on our charges for
use of analytical equipment on these job sites to perform
monitoring and observation. The types of equipment used
include submersible water pumps, photo ionization
detectors, interface probes, electric generators, vapor

analyzers, oxygen/carbon dioxide meters, specific
conductivity meters, Ph meters, and tape measures.
Consultant's' employees operate this equipment on these job sites and maintain complete control of the equipment at all times.Consultant's' employees transport the
equipment to the job site and return it to our offices
usually the same day. In short, our clients have no access
or control over the equipment. We charge clients an hourly
rate for use of this equipment.

"The controlling authority in this matter is Rule 12A1.071(10)(d), Florida Administrative Code, which provides:

"(10)(d) When the owner of equipment furnishes the operator
and all operating supplies, and contracts for their use to
perform certain work under his direction and according to
his customer's specifications, and the customer does not
take possession or have nay direction or control over the
physical operation, the contract constitutes a service
transaction and not the rental of tangible personal
property, and no tax is due on the transaction.

"It should be noted that our equipment is not `well point'
equipment as addressed in Rule 12A-1.071(40) [, F.A.C]."

STATUTORY/REGULATORY AUTHORITY

Section 212.02, F.S., provides in part:

"(10)(g) Lease,'let,' or rental' also means the leasing or rental of tangible personal property and the possession or use thereof by the lessee or rentee for a consideration, without transfer of the title of such property, except as expressly provided to the contrary herein...." "(16)Sale' means and includes:
"(a) Any transfer of title or possession, or both,
exchange, barter, license, lease, or rental, conditional or
otherwise, in any manner or by any means whatsoever, of
tangible personal property for a consideration."

Section 212.08(7)(v), F.S., provides in part:

"1. Also exempted are professional, insurance, or personal
service transactions that involve sales as inconsequential
elements for which no separate charges are made...."

Rule 12A-1.071, F.A.C., provides in part:

"(1)(a) For the purpose of this rule, the term lease' includes any rental or license to use tangible personal property, unless a different meaning is clearly indicated by the context in which it is used. The term refers to all transactions that are not bailments in which there is a transfer of possession of tangible personal property, without regard to limitations upon the use, for a consideration, without a transfer of title to the property. It is not essential for a transfer of possession of tangible personal property to include the right to move the tangible personal property. It includes a transaction under which a person secures for a consideration the temporary use of tangible personal property which, although not on his premises, is operated by or under the direction or control of the person or his employees. All leases of tangible personal property other than conditional-sale type leases as described in paragraph (1)(d) of this Rule, are operating leases. Whether a transaction is asale' or a
`rental, lease, or license to use' shall be determined in
accordance with the provisions of the agreement.
"(b) Transfer of possession with respect to an operating
lease means that one of the following attributes of
tangible personal property ownership has been transferred:
"1. Custody or possession of the property, actual or
constructive;
"2. The right to custody or possession of the property;
or,
"3. The right to use and control or direct the use of the
property....
"(10)(a) A transaction involving the use of equipment with
an operator supplied by the owner of the equipment is a
lease if control or direction over the use of the equipment
passes to the customer.
"(b) When the operator of the equipment is on the payroll

of the lessee, the contract constitutes a rental of
tangible personal property and is subject to the tax.
"(c) A transaction is not a lease if it is for the
performance of a specific job in a manner to be determined
by the owner or his operator.
"(d) When the owner of equipment furnishes the operator and
all operating supplies, and contracts for their use to
perform certain work under his direction and according to
his customer's specifications, and the customer does not
take possession or have any direction or control over the
physical operation, the contract constitutes a service
transaction and not the rental of tangible personal
property, and no tax is due on the transaction."

DETERMINATION

Under the terms of Consultant's contract with Client,
Consultant agrees to perform professional services in the field
of environmental consulting and engineering. The contract terms
provide that Client will pay Consultant for "time, rentals,
reimburseable (sic) expenses and materials according to the
rates, terms and conditions attached as Exhibit B' and incorporated into this Agreement...." Exhibit B provides hourly, daily, and other miscellaneous rates at which Client is billed on a monthly basis for services provided. Exhibit A of the contract provides the cost estimate for Consultant to "perform tank removal and prepare a closure report for the tanks at theClient's' physical location."

It is determined that Consultant has entered into a
contract with Client for the provision of a professional service
which is exempt from sales tax under s. 212.08(7)(v), F.S. The
contract is not viewed as an agreement to lease or rent tangible
personal property based on the facts presented by Consultant
that Consultant's employees operate and maintain complete
control of the operation of the equipment at all times at the
job site and Client does not have access or control over the
equipment. Consultant is required to pay sales tax on its
purchases or rentals of the equipment it uses in providing its
services.

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,

Sharon Gallops
Technical Assistant

/sg
Cont. #12342