Were a car-rental company's no-show and late-cancellation fees subject to Florida sales tax before any rental contract existed?

Subject

No-Show and Late Cancellation Fees

Plain-English summary

The no-show and late-cancellation fees were not subject to sales tax. A reservation did not create a rental contract, guarantee a particular vehicle, transfer possession, or entitle the customer to use a car. The company recorded the fees as other income rather than rental income, so the Department treated them as damages.

The ruling distinguished those fees from a payment to cancel an existing lease, which the cited rule treated as taxable consideration arising from the lease.

What this means for you

The timing and legal effect of the fee controlled. A pre-contract reservation charge with no property rights was treated differently from a fee that modifies or ends an existing taxable rental.

Common questions

Did taking a credit-card number create a car rental? No.

Did the customer receive a right to use a vehicle? No.

Would a fee for canceling an existing rental be treated the same way? No. The ruling says an existing lease must be analyzed under the taxable cancellation-payment rule.

Citations and references

• Fla. Stat. §§ 212.02(10)(g), 212.02(16)(a), 212.05(1)(a)1.a., and 213.22
• Fla. Admin. Code r. 12A-1.071(15)(c)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-043

Original ruling text

Jul 15, 1994

Re: TAA 94A-043
No-Show and Late Cancellation Fees
Sections 212.02(10)(g), 212.02(16)(a), 212.05(1)(a)1.a., F.S. Rule 12A-1.071(15)(c), F.A.C.

Dear :

This is in response to your letter of May 9, 1994, and our telephone conversation of May 13, 1994. In your letter you requested the issuance of a technical assistance advisement on behalf of your firm, XXXXX (hereinafter, Company), concerning the taxability of certain service fees charged by your company to its customers.

Your letter provides in part:

"Company is in the business of renting cars on a short-term basis throughout the United States. All rental contracts are entered into for 30 days or less. Company has a reservation center in Florida. At the reservation center employees accept reservations from customers who call from points both inside and outside Florida. Reservations are accepted for parties who plan to pick up cars both within and without Florida. The reservation center in Florida also houses the computer system on which the reservation is recorded.

"At the time a reservation is accepted, the terms and conditions regarding the rental of a car are not concluded. The Company reserves the right to deny the party the possession or use of a car if the party cannot provide proper identification including a valid drivers license. Additionally, the party will be denied a car if they appear to be intoxicated. When the party arrives at the rental station, a more luxurious car will be offered as well as

various complimentary products. Eventually, at the counter of the rental station, the contract to a rent a car will be entered into after proper screening of the party and the agreement of the final terms and conditions by the customer and the Company.

"When a reservation is made customers are told that a service fee will be charged for a No-Show' or forLate Cancellation,' A No-Show' occurs when the party who made the reservation does not show up at the time of the reservation and fails to notify the Company. ALate Cancellation' occurs when the party who made the reservation cancels within 24 hours of the reservation date.

"The service fee is computed as follows:

No-Show - The lesser of $100.00, or the Time and Mileage charge (T&M) that would have been earned had the vehicle been rented. Late Cancellation - $25.00.

"The T&M charge is the daily, weekly, or hourly rate that is generally charged by the Company for a rental. The T&M charge is used as an upper limit for determining the fee, so as not to penalize the party who made the reservation to a greater expense than if they would have actually rented the car.

"The reservation does not guarantee a specific vehicle for the party who made the reservation. Further, the imposition of the service fee does not restrict the Company from renting a specific vehicle to another party.

"The imposition of the service fee does not entitle the customer to the use of any vehicle. No lease or rental contract exists on the date that such fees are imposed. Further there has not been any transfer of possession or use.

"The revenue received as a result of the service fee will

not be recorded as rental income in the accounting records of the Company. Rather the revenue will be recorded under
`Other Income' as non-vehicle revenue.

"Since reservations are taken over the telephone, there is no sample contract which presents the terms and conditions of the transaction. However, we have attempted to state all relevant facts in the description above.

"Is the service fee for a No-Show or for a Late Cancellation subject to the Florida Sales Tax under Section 212.05 of the Florida Statutes (F.S.)?"

In our telephone conversation you stated that when the customer calls and makes a reservation, your company obtains the customer's credit card number for purposes of charging a No-Show or Late Cancellation fee if the situation requires it. At this point, your company does not deem the making of a reservation by a customer and obtaining the customer's credit card number by your company for purposes of charging a No-Show or Late Cancellation fee, to be a lease or rental of tangible personal property. A lease or rental of a vehicle occurs when a contract is entered into by both parties.

APPLICABLE AUTHORITY

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

"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 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...."

Section 212.02(16)(a), F.S., provides:

"(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 212.02(10)(g), F.S., provides in part:

"(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...."

Rule 12A-1.071(15)(c), F.A.C., provides:

"(c) Tax is due and payable on the payment by a lessee to a lessor for the cancellation of a lease of tangible personal property. The payment shall be deemed consideration arising from the original lease since it effectively decreases the term of the lease and thereby increases the rental payments for the actual period the tangible personal property was used."

DEPARTMENT RESPONSE

Sections 212.05, and 212.02(16)(a), F.S., provide for the levy of tax on the lease or rental of tangible personal property in this state.

As quoted above, section 212.02(10)(g), F.S., states that "lease," "let," or "rental" means the leasing or rental of tangible personal property and the possession or use thereof by the lessee or rentee for a consideration. Rule 12A1.071(15)(c), F.A.C., provides that when tangible personal property is leased or rented, tax is due on the payment made by the lessee to the lessor for the cancellation of the lease.

In order for the cancellation fee to be subject to tax,

there must first be a lease of tangible personal property as defined in section 212.02(10)(g), F.S. Prior to the execution of a lease agreement, any No-Show or Late Cancellation fee charged by a company to a person which fee is not in connection with the lease of tangible personal property, is not subject to tax under Chapter 212, F.S., when such fees are recorded in the books of the company as "other income" and not or rental income. In such cases these revenues would be viewed as damage fees and not 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.

Sincerely,

Richard S. Harrod
Technical Assistant

RSH/h
Control No. 15598