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