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