Did Florida reverse its conclusion that steam purchased for a citrus-processing operation was taxable tangible personal property?

Plain-English summary

Florida upheld its earlier conclusion that purchased steam was taxable tangible personal property.

The requester argued that steam was a nontaxable service or intangible form of energy. The Department pointed to section 212.06(1)(b), which exempted certain steam energy manufactured or produced for the producer's own qualifying use. It read that express exception as evidence that the Legislature recognized steam as tangible personal property and kept the charge for steam supplied to the citrus processor taxable.

What this means for you

Calling an arrangement a heating service did not control when the Department viewed the transaction as a sale of steam.

Common questions

Q: Did the Department reverse TAA 94A-055? A: No. This revised advisement upheld it.

Q: Was steam treated as tangible personal property? A: Yes.

Q: Was the charge for steam supplied to the processor taxable? A: Yes.

Citations and references

• Fla. Stat. § 212.06(1)(b) — self-produced tangible personal property and qualifying energy use
• Fla. Stat. § 212.02(20) — tangible personal property definition discussed by the requester
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-055R

Original ruling text

tatus: Revises TAA 94A-055, issued 10/31/94

Feb 07, 1995

Re: TAA 94A-055R
Request for Reconsideration
Application of Sales Tax to the Purchase of Steam Section 212.06(1)(b), F.S.

Dear :

This is in response to your letter dated November 15, 1994, in which you request, on behalf of your client, XXXXX, a reconsideration of the conclusions reached in the Department's Technical Assistance Advisement (TAA) 94A-055 dated October 31, 1994. It was determined in that TAA that the charge for steam provided for use in a citrus processing operation is subject to sales tax as the sale of tangible personal property.

In your request for reconsideration you state:

"The conclusion reached in your letter is premised on two assumptions which we believe to be erroneous. These are (1) that steam' istangible personal property' (TPP) as defined in section 212.02(20), Florida Statutes (1993), and (2) that which is sought by the taxpayer is an exemption from taxation and, since exemptions are strictly construed against the taxpayer, the taxpayer must bring himself clearly within the parameters of a specific exemption and failure to pinpoint a specific exemption for providing
`steam' renders the transaction taxable. Reconsideration of this conclusion is respectfully urged.

"I. Steam' is nottangible personal property'; and II. Ambiguity and doubt as to language in statutes imposing taxes are resolved against the state and in favor of the taxpayer."

You provided further arguments for this stated position as summarized below:

1. Attorney General Opinion 068-62 in which it was opined
   that taxing statutes must be strictly construed against the taxing power and in favor of the taxpayer;

2. A 1968 amendment to ss. 212.02 and 212.05, F.S., to
   include electric power or energy under the definition of tangible personal property and impose a tax rate of 4 percent on the sale of electrical power or energy. You argue that "Prior to the 1968 amendment, the sale of electrical power as energy was not taxable, although it could be argued that electrical power or energy could be `felt' and was perceptible to the senses. At no time prior to the 1968 amendment did the state attempt to collect sales tax on sales of electrical power.";

3. You argue that steam, like electrical power can be
   "felt" and is "perceptible to the senses" but is not within the definition of tangible personal property because there is not a clear legislative intent to include it. You attempt to substantiate this argument with the case of Department of Revenue v. Quotron Systems, Inc., 615 So.2d 774 (Fla. 3d DCA 1993) in which the court found that the plain and common meaning of tangible personal property does not include images displayed on video screens in that the images are not capable of being touched or possessed. The court also found that Quotron's use of certain video display terminals and other equipment in connection with the provision of its services was not the rental of tangible personal property. It further found that the Department had failed to show that the Florida Legislature intended the term "tangible personal property" to encompass electronic images appearing on video screens.

In closing, you state:

"Applying these principles to the facts in the situation encompassed by the TAA request, the first point of entry is to review the definition of TPP to see if the situation and transaction involved fall clearly and unambiguously within the definition of TPP. If doubt exists, it must be

resolved against DOR. Neither steam nor the service of providing steam fall within the definition and any doubts would have to be resolved against DOR.

"When heat is removed steam dissipates and cannot be possessed, in the same manner as electrical power and images on a video screen cannot be possessed. Like images on a video screen, it may be observed similar to observing electric current in the dark or on proper equipment. Cogeneration of electricity with the attendant use of the byproduct of steam for commercial citrus processing purposes certainly was not contemplated in 1949 when the law was enacted. For steam or the providing of steam to be taxable at the present time, it would have had to be taxable since 1949, and this clearly is not the case because the DOR never considered it taxable then or for any time during the next 30 plus years.

"Properly viewed, the substance of the arrangement between taxpayer and the corporation is one in which the corporation heats water to produce steam which is then provided to the taxpayer. The taxpayer owns the water use permit, the water well, and the physical site upon which the well is located. The service of heating the water to produce steam is the essence of the agreement between the parties. As in Quotron, that which is involved is a service transaction with the assistance of equipment. Such service would not be taxable."

ADVISEMENT

Under the provisions of Chapter 84-548, Laws of Florida, Section 212.06(1)(b), F.S., was amended, in part, to read:

"Except as otherwise provided, any person who manufactures, produces, compounds, processes, or fabricates in any manner tangible personal property for his own use shall pay a tax upon the cost of the product manufactured, produced, compounded, processed, or fabricated without any deduction therefrom on account of the cost of material used, labor or service costs, or transportation charges, notwithstanding

the provisions of s. 212.02 defining `cost price.' However, the tax levied under this paragraph shall not be imposed upon any person who manufactures or produces electrical power or energy, steam energy, or other energy at a single location, when such power or energy is used directly and exclusively at such location, or at other locations if the energy is transferred through facilities of the owner in the operation of machinery or equipment that is used to manufacture, process, compound, produce, fabricate, or prepare for shipment tangible personal property for sale or to operate pollution control equipment, maintenance equipment, or monitoring or control equipment used in such operations...." (Emphasis Supplied)

It is evident that the Florida Legislature recognizes steam as tangible personal property in that an exemption from use tax is provided on the production of steam under certain circumstances. Therefore, the Department upholds its position held in TAA 94A-055 that (1) steam is tangible personal property and (2) the charge for the steam provided by "Corporation" to "Taxpayer" is subject to sales 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,

Sharon Gallops
Technical Assistant

/sg
Cont. #18469