Was the monthly bacterial grease-control and wastewater-maintenance service taxable?

Subject

Grease Eradication System Services

Plain-English summary

The company's monthly grease-control and wastewater-maintenance charge was not subject to Florida sales tax. The Department treated the work as a personal service and lump-sum maintenance of a building's wastewater system, which it considered real property.

The installed pumps remained the company's property, and the company controlled their operation and repair. Customers did not rent the equipment. The company, however, had to pay sales tax to vendors on equipment, materials, supplies, and bacteria purchased or rented for the service.

What this means for you

The result depended on the provider retaining the equipment and controlling the work. Giving the customer possession or operational control, separately charging for tangible products, or structuring the arrangement as an equipment rental could change the analysis.

Common questions

Was the monthly service fee taxable? No, on the described service arrangement.

Did customers rent the electric pumps? No. The company retained ownership, operation, and repair responsibility.

Who paid tax on the bacteria and equipment? The service provider had to pay its vendors sales tax on those inputs.

Citations and references

• Fla. Stat. §§ 212.08(7)(v)1. and 213.22
• Fla. Admin. Code rr. 12A-1.051(1), (2) and 12A-1.071(1), (10)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-051

Original ruling text

Sep 07, 1994

Re: TAA 94A-051
Sales Tax; Grease Eradication System Services s. 212.08(7)(v)1., F.S. Rules 12A-1.051(1), (2); 12A-1.071(1), (10), F.A.C.

Dear :

This is in response to your letter dated May 24, 1994, in which you request a Technical Assistance Advisement regarding the applicability of sales tax to the services provided by XXXXX
[hereinafter Company]. With your request you have provided copies of Company's Service Agreements.

FACTS PRESENTED

In your letter dated May 24, 1994, you provided the following facts:

"[Company] is an environmental engineering company. We have developed a service of `Bioremediation' which helps all establishments that process and cook food solve their Drainline, Grease Trap, Lift Station and Drainfield problems.

"This `Bioremediation' process is conducted with... live
... bacteria.... [The] harmless bacteria which, when injected directly into the drainline, [eat] any present Grease, Oil, Sugar and Starch and [turn] these food byproducts into WATER AND CARBON DIOXIDE.

"Our bacteria will significantly reduce the Grease build-up in the grease trap....

"Our bacteria will also treat and keep clean any lift stations that might be on line. In addition, our bacteria will extend the life and keep open drainfields by keeping

the hydrophobic mat unclogged.

"Our customers are serviced every 14 days with a fresh 5gallon supply of bacteria. The bacteria is injected, by an electric pump, directly into the drainline....

"Our customers pay a service fee of $105.00 per month. We are currently charging the appropriate Sales Tax on this monthly fee....

"Please find enclosed copies of our service agreements and brochure. We do not require our customers to sign a contract. We work with them on a month to month basis. If at any time the customer wishes to discontinue our service, we simpl[y] disconnect our equipment."

In response to our letter dated June 22, 1994, you provided additional facts on the installation, operation, and control of the electric pumps which Company installs at its customers locations.

"[Company] DOES NOT rent the electric pumps, or any other equipment to our customers. All of the equipment we install remains our property and we are fully responsible for [its] operation and repair.

"The main installation point is usually located under the triple sink. The service [technician] drills into the drainline and taps into it with a back-flow prevention feeder valve. This valve is attached by tubing to the pump unit. Another tube then attaches from the pump unit to the 5-gallon bucket of bacteria. [T]he pump timer is then set to inject 3.3 oz. of bacteria over a 15-minute period, 12times per day for 14-days. At the end of 14-days a new 5gallon bucket of bacteria is brought in and changed by the service technician.

REGULATORY AUTHORITY

Section 212.08(7)(v)1., F.S., provides:

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

Rule 12A-1.051, F.A.C., provides in part:

"(1) This rule shall govern the taxability of purchases or use of tangible personal property by contractors who purchase or manufacture materials and supplies for use in the performance of non public works contracts.... The method by which contractors or subcontractors arrive at the total contract price charged for repair, alteration, improvement and construction of real property... must be determined for the purpose of ascertaining whether the receipts from sales made to or by them are taxable. "(2) Such contractors may include, among others,... building,... plumbing,... contractors and they may use one of the following methods in arriving at the total contract price: "(a) Contracts in which the contractor or subcontractor agrees to furnish materials and supplies and necessary services for a lump sum.... "(e) When a contractor or subcontractor uses materials and supplies in fulfilling a... lump sum... contract... he becomes the ultimate consumer thereof. The person or dealer who sells such materials and supplies to such contractor or subcontractor is making sales at retail and is required to collect the tax from him based upon the receipts from such sales."

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 a sale' or arental, 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)(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

Based on the description of services provided by Company and the terms of Company's service agreements, it is determined that Company does not lease or rent tangible personal property; rather, Company provides a periodic service for a set fee for the maintenance of a building's wastewater system. A building's wastewater system is considered real property and maintenance of real property under a lump sum contract or agreement is not a taxable transaction.

Based on these observations and facts, it is the position of the Department that Company provides a personal service which is not subject to sales tax. Company is required to pay sales tax to its vendors on all purchases or rentals of equipment, materials and supplies, including bacteria, that it uses in providing its service.

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. #16459