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