Was providing a crane with the owner's operator a taxable equipment rental or a nontaxable lifting service?

Plain-English summary

Florida revised its earlier 1995 conclusion about cranes supplied with the owner's operators. The revised advisement held that an operated and maintained crane provided a lifting service, not a taxable lease, because the customer never received physical control of the crane.

The crane operator remained solely responsible for operation and safety, and the customer had no authority to enter the cab. Customer specifications about the work did not transfer control. A contract indemnity clause describing the equipment and operator as under the customer's supervision also did not change the transaction into a lease for sales-tax purposes.

The charge for the lifting service was not subject to sales tax, but the crane company owed use tax on its purchase or lease of the cranes used to perform that service. The revised advisement was not binding for transactions covered by the taxpayer's earlier audit for November 1, 1985 through March 31, 1990.

What this means for you

For equipment supplied with an operator, actual control matters more than contract labels. A customer may specify the work without receiving possession or control of the machine itself.

Common questions

Did the customer rent the crane? No, under the revised ruling's facts.

Could the customer direct what lift was needed? Yes, but that did not give the customer physical control of the crane.

Did the indemnity clause transfer control for tax purposes? No.

Was all tax eliminated? No. The service charge was nontaxable, but the crane company owed use tax on the cranes it used.

Did the revision reopen the earlier audited period? No. The advisement expressly excluded the transactions covered by that audit period from its binding effect.

Citations and references

• Fla. Stat. § 212.02(15)(a) (sale, lease, and rental definition)
• Fla. Stat. § 212.05(1)(d) (tax on tangible personal property rentals)
• Fla. Admin. Code r. 12A-1.071(1), (2), and (9) (equipment rentals, conversion to use, and equipment with operators)
• Warning Safety Lights of Georgia, Inc. v. Department of Revenue, 678 So. 2d 1377 (Fla. 1st DCA 1996)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-022-R

Original ruling text

SUMMARY
TAX: Sales and Use Tax
TAA NUMBER: 95A-022-R
ISSUE: Cranes With Operators
STATUTE CITE(S): . 212.02(15)(a), 212.05(1)(d), F.S.
RULE CITES(S): 12A-1.071, F.A.C.

QUESTION(S): Is the rental of a crane with an operator a taxable lease of tangible
personal property or a non-taxable service?
ANSWER: When Taxpayer provides a crane to a customer on an operated and
maintained basis, a lifting service is being provided and control of the crane is never
transferred to the customer. The customer has no right or authority over the crane and
the operators are solely responsible for the operation and safety of the crane. Therefore,
the rental of a crane with an operator is a non-taxable service.

October 25, 2007

XX
XX
XX
XX
Re:

Technical Assistance Advisement 95A-022-R
Sales and Use Tax-Cranes Services
Revised Conclusion
Statutes: 212.02(15)(a), 212.05(1)(d), F.S.
Rules: 12A-1.071, F.A.C.

Dear XX:
In response to your request of January 19, 1995, and after submitting additional
information on March 7, 1995, the Department issued Technical Assistance Advisement
(TAA) 95A-022 dated June 9, 1995, pursuant to Section 213.22, F.S., and Rule 12-11,
F.A.C. After further consideration, the Department has revised its response to the
question contained in your petition. This response constitutes Revised Technical
Assistance Advisement 95A-022-R.

It has been discovered that Taxpayer was audited for sales, use, and other taxes for the
period of November 1, 1985, through March 31, 1990. The audit resulted in a sales and
use tax assessment. Taxpayer challenged certain portions of the assessment and filed an
action in the XX Judicial Circuit Court in XX. At issue was whether Taxpayer leased
tangible personal property subject to sales and use tax or whether Taxpayer entered into
agreements that represented a service not subject to sales and use tax (except during the
period of July 1, 1987 through December 31, 1987, when many services were subject to
sales and use tax). On February 25, 1984, Taxpayer filed a Notice of Voluntary Dismissal
of the case and a Settlement Agreement with the Circuit Court in which Taxpayer agreed
to pay the Department in satisfaction of all tax, penalty, and interest liability arising from
the audit. A payment schedule was arranged for Taxpayer to pay the liability over a 12month period. Based on these facts, this Technical Assistance Advisement will not be
binding on any transaction for which Taxpayer was audited for the period of November
1, 1985, through March 31, 1990.

FACTS PRESENTED
The Taxpayer owns and operates an equipment leasing company. The
Taxpayer is in the business of leasing, servicing and transporting heavy
equipment such as cranes, hoists, and lifts which are used by Lessees in
performing real property construction or repair contracts. The cranes can
be rented to Lessees with or without (“bare rentals”) operators provided by
the Taxpayer.
When the Taxpayer purchases cranes for use in “bare” rental contracts,
these cranes are purchased tax exempt pursuant to Rule 12A1.071(2)(a)1.[, F.A.C.]
Occasionally, a crane purchased exclusively for use in “bare” rental
contracts may be used in a rental contract in which the Taxpayer also
provides an operator. In most cases, the crane will be converted back to the
“bare rental” fleet soon thereafter.
Rule 12A-1.071(2)(b)[1. and 2., F.A.C.,] provides that if a conversion of
an asset is made from an exclusively leased asset (bare rental) to “ones
own use”, tax should be paid on the cost price of the asset or “fair market
value” of the asset at the time of the conversion.
The Taxpayer does not interpret Rule 12A-1.071(2)(b)[(1. and 2., F.A.C.,]
as applicable to their situation because the Taxpayer is not converting the

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assets to their “own use” when they use them in a rental contract in which
they also provide an operator. Even though the operator is an employee of
the Taxpayer, the operator works at the direction and control of the Lessee
in performing the Lessee's construction contract. The construction
contracts are not those of the Taxpayer, but are those of the Lessee. Thus,
the Taxpayer has not converted the asset to its “own use” but has merely
given the Lessee the additional option of an operator with the standard
“bare rental” contract. The amounts billed for this option can be easily
separated from the total charge to the Lessee.
The Taxpayer interprets their situation to be more closely related to the
situation in which a dealer has purchased an aircraft exclusively for resale
but may use it for charter, rental, flight training, or demonstration (where a
charge is made). Therefore, the Taxpayer would pay use tax computed on
one percent of the value of the asset each calendar month that the asset is
used in an operated rental contract the same as described in Rule 12A1.007(10)(g)1. and 2., F.A.C.] Value would be the same as described in
Rule 12A-1.007(10)(g) 4., F.A.C.,] or the acquisition cost of the asset plus
reconditioning costs if any, or generally, the value of the asset as reflected
upon the books of the Taxpayer in accordance with generally accepted
accounting principles.
The Taxpayer respectfully requests confirmation regarding the validity of
the above interpretation and confirmation of applying Rule 12A1.007(10)[(g)1., 2., and 4., F.A.C.,] to their operated rental assets....

STATUTORY/REGULATORY AUTHORITY
Section 212.02(15)(a), F.S., provides:
(15) “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 212.05(1)(d), F.S., provides:
(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: ...
(d) At the rate of 6 percent of the lease or rental price paid by a lessee or
rentee, or contracted or agreed to be paid by a lessee or rentee, to the
owner of the tangible personal property.

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Rule 12A-1.071, F.A.C., provides in part:
Rentals, Leases, or License to Use Tangible Personal Property.
(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 conditionalsale type leases as described in paragraph (1)(d) of this Rule, are operating
leases. Whether a transaction is a “sale” or a “rental, 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.
   (c) For an operating lease, tax applies to the gross proceeds derived from
   the lease of tangible personal property for the entire term of the lease...
   (2)(a) Tangible personal property purchased exclusively for leasing
   purposes by a dealer registered with the Department at the time of
   purchase may be purchased tax-exempt. The purchasing dealer is required
   to issue a copy of the dealer's Annual Resale Certificate to the selling
   dealer at the time of purchase in lieu of paying tax, as provided in Rule
   12A-1.039, F.A.C.
   (b)2. The subsequent conversion to one's own use, of tangible personal
   property which has been purchased tax exempt for exclusive lease, will be
   subject to use tax at the time of conversion. The basis of the use tax will be
   “fair market value” at the time of conversion. If the fair market value of

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the tangible personal property cannot be determined, then the use tax due
at the time of conversion should be based on the acquisition cost of the
tangible personal property. Under no circumstances will the aggregate
amount of sales tax, from leasing, and the use tax at the time of
conversion, be less than the total sales tax that would have been due on the
original acquisition cost paid by the lessor...
(9)(a) A transaction involving the use of equipment with an operator
supplied by the owner of the equipment is a lease if control or direction
over the use of the equipment passes to the customer.
(b) When the operator of the equipment is on the payroll of the lessee, the
contract constitutes a rental of tangible personal property and is subject to
the tax.
(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....

PREVIOUS ADVISEMENT
[Note: Rule references have been updated.]
The provisions of Rule 12A-1.071, F.A.C., are controlling in the application of sales and
use tax to the lease transactions of Taxpayer. The provisions under Rule 12A1.007(10)(g)1., 2., and 4., F.A.C., are applicable exclusively to aircraft dealers, not
lessors of heavy equipment, such as cranes, hoists, and lifts.
In the transactions you have described, Taxpayer enters into an agreement to lease a
crane to a lessee and provide an employee of Taxpayer to operate the crane. Taxpayer's
employee operates the crane under the exclusive direction and control of the lessee.
PARAGRAPH 6. of the conditions of Taxpayer's standard agreement for the lease of a
crane or other equipment specifically provides:
INDEMNIFICATION: Lessee agrees that the equipment and all persons
operating such equipment, including Lessor's employees, are under
Lessee's exclusive jurisdiction, supervision and control and agrees to
indemnify and save Lessor, its employees and agents harmless from all
claims for death or injury to persons, including Lessor's employees, and

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from all loss, damage or injury to property, including the equipment,
arising in any manner out of Lessee's operation.
Rule 12A-1.071(10)(a), F.A.C., provides that a lease transaction occurs when a lessor
provides equipment with an operator and the lessee maintains control or direction over
the operation of the equipment. It is the Department's position that, under the transactions
described and based on the indemnification language in PARAGRAPH 6. of the
AGREEMENT conditions, a taxable lease transaction has occurred. Sales tax must be
collected on the total charge for the lease of the equipment, including the charge for the
operator. Taxpayer has not converted the equipment to "[its] own use" and is not required
to accrue use tax on the fair market value or cost of the equipment in the manner
described above.

REVISED ADVISEMENT
The proper taxation of the cranes at issue in this case depends on whether Taxpayer is
renting them to the customer, or providing a nontaxable service. If the transactions
constitute rentals of the cranes, the supplier should collect sales tax from customer and remit
it to the State. If Taxpayer is operating the cranes in performing a nontaxable service, the
transaction is not taxable.
Warning Safety Lights of Georgia, Inc. v. Department of Revenue, 678 So. 2d 1377 (1996),
addressed the taxability of DOT subcontracts for temporary traffic control devices and
permanent signs and road markings. In that case, Warnings Safety Lights of Georgia, Inc.
(“WSL”) had asked the Department for a declaratory statement that its subcontracts were
service transactions rather than rentals. The Department concluded WSL was renting the
temporary traffic control devices and must collect and remit tax on the proceeds from that
portion of the contract. WSL appealed that determination. The court agreed with WSL’s
characterization of the transaction as the providing of a service. The court described WSL’s
obligations under the contract as construction of the temporary traffic control pattern,
continuous maintenance and adjustment of the pattern, and then installation of permanent
road striping, signs, and traffic control devices. All equipment provided by WSL remained
under WSL’s “continuous control and supervision.” WSL asserted that its entire business,
including construction and maintenance of temporary traffic control patterns, was a
nontaxable service, and that the Department could not classify the provision of temporary
traffic control devices as a taxable rental.
The cranes in this case are similar to the devices in the WSL case. The contracts provide that
only the lessor’s employees would operate the cranes at the direction of the lessee.
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The operation of a crane is an inherently dangerous activity and an operator/employee
cannot shift the control or operation to its customers. When Taxpayer provides a crane to
a customer on an operated and maintained basis, a lifting service is being provided and
control of the crane is never transferred to the customer. The customer has no right or
authority to even enter the crane cab and Taxpayers’ operators are solely responsible for
the operation and safety of the crane.
Rule 12A-1.071(9)(d), F.A.C., states that “[w]hen the owner of equipment furnishes the
operator and all operation 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 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….” According to this Rule, the lessee is allowed to give
direction to the crane operator according to the customer’s specifications to perform the
required work. This does not change the character of the contract from a service to a
lease.
By inserting an indemnity clause, that states the equipment and operator are under
“lessee’s exclusive supervision and control,” the crane company is attempting to avoid
liability for property damage or personal injury claims. This standard clause does not
change the character of the contract from a service to a lease or transfer control of the
crane to the lessee for sales and use tax purposes. The crane is always under the control
of the crane operator. The contracts for the lease of cranes with operators are clearly a
service for which sales tax does not apply.
Since the crane company is using the cranes to perform a non-taxable service, a
use tax would be due from Taxpayer on its purchase or lease of the cranes.
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 will be deleted by the Department before disclosure in keeping with your
request dated January 19, 1995, for deletion of private or confidential information.

Sincerely,

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Michel T. Cavanaugh
Tax Law Specialist
Technical Assistance & Dispute Resolution
850-922-9411

Record ID: 19224

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