Under Florida's 1995 rules, how were monthly dial-up Internet access, setup charges, residential use, business use, and homepage advertising taxed?

Plain-English summary

Florida treated the provider's monthly dial-up Internet and email access as telecommunications service under the 1995 statutes. The provider owed 2.5% gross receipts tax on recurring charges from all Florida subscribers.

For sales tax, the result depended on use. Commercial subscribers and anyone buying the service for business purposes owed the stated 7% sales tax plus applicable county surtax, even if billed to a residence. Residential subscribers buying access solely for nonbusiness use were exempt from sales tax and surtax. The provider had to retain electronic subscription forms documenting each subscriber's stated use.

The required one-time setup charge was exempt from both gross receipts tax and sales tax as a connection or service-order charge. Charges for advertising space on the service's homepage were also exempt from both taxes.

The amendment changed the registration guidance from the earlier TAA. For subscribers in multiple Florida counties, the provider was instructed to use billing addresses for location and request consolidated and reporting registration numbers.

What this means for you

This historical ruling separated access charges, setup charges, and advertising charges and required documentation of residential versus business use. It also sourced county surtax by subscriber location rather than only the provider's physical office.

Common questions

Q: Was monthly Internet access subject to gross receipts tax?
A: Yes. The provider owed the stated 2.5% tax on recurring charges from all Florida subscribers.

Q: Was monthly access subject to sales tax?
A: Business use was taxable at the stated 7% rate plus surtax. Solely nonbusiness residential use was exempt if documented.

Q: Was the one-time setup charge taxable?
A: No. The ruling exempted it from both gross receipts and sales tax.

Q: Were homepage advertising charges taxable?
A: No. The Department treated them as nontaxable advertising services and excluded them from gross receipts tax.

Q: How did the provider document residential use?
A: By retaining the electronic subscription form on which the subscriber identified business or nonbusiness use.

Citations and references

• Fla. Stat. §§ 203.01(1), 203.012(2)(b), (5), (6) — gross receipts tax and telecommunications
• Fla. Stat. § 212.05 — sales tax on telecommunications
• Fla. Stat. § 212.08(7)(j) — residential household utility exemption
• Fla. Stat. § 212.054(3)(c) — county sourcing for surtax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-025R

Original ruling text

Title:

Internet Services

Status: This is an amendment to TAA 95A-025, dated June 28,
1995.

Oct 03, 1995

Re: Technical Assistance Advisement 95A-025R
Sales and Use Tax and Gross Receipts Tax
Sections 203.01(1), 203.012(2)(b), (5), (6), 212.05,
212.054(3)(c), and 212.08(7)(j), F.S.
Petitioner: XXX (Herein "Taxpayer")
Gross Receipts Tax/FEI: XXX
Sales Tax Number: XXX
Dear :

This amended Technical Assistance Advisement is being
issued to revise the sales tax registration requirements
contained in the "Registration" section of the determination
issued in Technical Assistance Advisement 95A-025, dated June
28, 1995. The original petition, received April 6, 1995,
requested the Department's issuance of a Technical Assistance
Advisement concerning the above referenced matter. Your letter
dated January 20, 1995, providing information and documentation
regarding the above referenced matter, has also been carefully
examined. This amended response constitutes a Technical
Assistance Advisement under Chapter 12-11, Florida
Administrative Code, issued to you under the authority of s.
213.22, F.S., and replaces Technical Assistance Advisement 95A025, dated June 28, 1995.

Your letter dated January 20, 1995, provides the following
pertinent information on your company's services:

"[Taxpayer] is a new company formed in the fourth quarter
of 1994. [Taxpayer] is a dial-up service which provides
its customers access to the XXX via the customer's own
computer and modem. Customers will be billed on a monthly

basis beginning this month. In addition, certain
commercial interests, such as XXX, local realtors,
restaurants, etc., have purchased ad space on the `home
page' of the service, accessible only by customers'
computers. These commercial customers are charged, in
addition, for access by customers based upon the megabyte
utilization of their space and by the customers'
inquiry..."

The copy of the advertisement placed in the XXX describes
Taxpayer's "E-Mail" and "XXX" services as follows:

"E-Mail:

• Personal mailbox
• Simple e-mail address: `XXX'
• Send e-mail worldwide
  ...

"XXX:

• Full access to all sites
• Local business services: real estate, restaurants,
  movies & many more coming soon...
• Personalized user home pages
• Image & sound archives
• Online help & hypertext manuals"

The brochure supplied with your letter, dated April 6,
1995, provides that Taxpayer offers "Personal Terminal Accounts"
with unlimited usage for XXX per month; "XXX" with unlimited
usage at a price of XXX per month plus a XXX one-time setup
charge; and "Dedicated Line Accounts and Groups Accounts" at
customized prices.

The brochure also provides the following concerning the
charge for ad space on the "home page" of the service:

"... If you are a business or a user with a large amount of
information you would like to advertise locally to all
computer users, and in fact, to the world, we can handle as
much information as you can give us for a very reasonable
production cost, and a low monthly fee based on the size

and Internet usage of your document...."

Your letter, dated April 6, 1995, provides the following
response as to whether each subscriber is purchasing the network
access at a residence solely for non-business use:

"We are including a `check-box' on our dial-up electronic
subscription form to allow users to indicate the type of
use. We have no independent knowledge of this."

STATUTORY AND ADMINISTRATIVE AUTHORITY

A review of pertinent statutory and administrative
authority would be helpful in our discussion of the taxability
of the services provided by Taxpayer. Chapter 203, Florida
Statutes (F.S.), imposes the Florida gross receipts tax and
Chapter 212, F.S., imposes the Florida sales and use tax.

Gross Receipts Tax

Section 203.01(1), F.S., provides in part:

"(1)(a) Every person that receives payment for any utility
service shall report by the last day of each month to the
Department of Revenue, under oath of the secretary or some
other officer of such person, the total amount of gross
receipts derived from business done within this state, or
between points within this state, for the preceding month
and, at the same time, shall pay into the State Treasury an
amount equal to a percentage of such gross receipts at the
rate set forth in paragraph (b)....
"(b) ... [B]eginning July 1, 1992, and thereafter, the rate
shall be 2.5 percent."

Section 203.012(2)(b), F.S., provides in part:

"(b) Gross receipts for telecommunication services do not
include:
...
"4. Connection and disconnection charges; move or change
charges; suspension of service charges; and service order,

number change, and restoration charges; or..."

Section 203.012(5) and (6), F.S., provides in part:

"(5) The term `telecommunication service' means:
"(a) Local telephone service, toll telephone service,
telegram or telegraph service, teletypewriter or computer
exchange service, or private communication service,...

"(6) The term teletypewriter or computer exchange service' means the access from a teletypewriter, telephone, computer or other data station of which such station is a part, and the privilege of intercommunication by such station and with substantially all persons having teletypewriter, telephone, computer, or other data stations constituting a part of the same teletypewriter or computer exchange system, to which the subscriber or user is entitled upon payment of a charge or charges, whether such charge or charges are determined as a flat periodic amount, on the basis of distance and elapsed transmission time, or some other method. The termteletypewriter or computer
exchange service' does not include local telephone service
or toll telephone service." (Emphasis Supplied)

Sales and Use Tax

Section 212.05, F.S., provides in part:

"Sales, storage, use tax. - It is hereby declared to be the
legislative intent that every person is exercising a
taxable privilege who engages in the business of selling
tangible personal property at retail in this state,
including... services taxable under this chapter....
"(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:...
"(e)1. At the rate of 6 percent on charges for:
"a. All... telecommunication service[s] as defined in s.
203.012... except that the tax rate for telecommunication
service is 7 percent....
"3. Telegraph messages and telecommunication services which

originate or terminate in this state, other than interstate
private communication services, and are billed to a
customer, telephone number, or device located within this
state are taxable under this paragraph...." (Emphasis
added)

Section 212.08(7)(j), F.S., provides in part:

"(j) Household fuels. - Also exempt from payment of the tax
imposed by this chapter are sales of utilities to
residential households or owners of residential models in
this state by utility companies who pay the gross receipts
tax imposed under s. 203.01,..."

Discretionary Sales Surtax

Section 212.054(3)(c), F.S., provides:

"(3) For the purpose of this section, a transaction shall
be deemed to have occurred in a county imposing the surtax
when:

"(c) The consumer of utility or television system program
services is located in the county, or the telecommunication
services are provided to a location within the county."

DETERMINATION

Recurring and Set-up Charges

Taxpayer's services provide subscribers the ability to
intercommunicate with other users, through "E-Mail" and "XXX,"
in exchange for a monthly fee. Under the provisions of s.
203.012, F.S., Taxpayer is providing a telecommunication service
to its subscribers. Taxpayer, as a telecommunication service
provider, is required to pay to the Department a gross receipts
tax at the rate of 2.5 percent of the total receipts received
from recurring charges to all its Florida subscribers and is
required to collect sales tax from its Florida subscribers,
unless the charges are specifically exempt, as discussed below.

The required XXX one-time setup charge for "XXX" is exempt
from gross receipts tax under the provisions of s.
203.012(2)(b)4., F.S., as a connection or service order charge,
and is exempt from sales tax. Taxpayer is not required to remit
gross receipts tax and is not required to collect sales tax from
its subscribers on such startup charges.

Taxpayer is required to collect sales tax at the rate of 7
percent, plus any applicable discretionary sales surtax, on
monthly charges for its services to commercial subscribers which
are billed to a customer, telephone number, or device located in
Florida. Taxpayer's monthly charges for its services include
recurring charges for "XXX" (XXX per month) and "XXX" (XXX per
month), and any agreed monthly recurring charges for "Dedicated
Line Accounts and Groups Accounts." Taxpayer is also required
to collect the discretionary sales surtax levied by the county
where commercial subscribers are located.

Taxpayer is not required to collect sales tax nor
discretionary sales surtax from residential subscribers who
purchase the service only for non-business purposes. Taxpayer
must collect the 7 percent sales tax, plus any applicable
discretionary sales surtax, from subscribers who purchase the
service for business purposes, even if billed to a residential
address. Taxpayer is required to remit the gross receipts tax
whether the subscribers are commercial or are residential
customers purchasing the service only for non-business purposes.

Taxpayer is currently requiring subscribers to indicate the
type of use, business versus non-business use, on its electronic
subscription form. Taxpayer must maintain the electronic
subscription forms to document that the subscriber has indicated
to Taxpayer that the network access is being subscribed to for
either business or non-business use, even when network access is
initiated from a residence.

Charges for Ad Space

Taxpayer also sells certain commercial interests ad space
on the "home page" of the service. Taxpayer bases the charge
for the ad space upon the megabyte utilization of their space

and the number of customers' inquiries. Such charges are for
advertising services which are not subject to sales tax.
Taxpayer is not required to collect tax on charges to certain
commercial interests for the purchase of ad space on the "home
page" of the service. Gross receipts tax does not apply to these
charges for ad space.

Sales Tax/Discretionary Sales Surtax Registration Requirements

Taxpayer is currently registered with the Department as a
sales tax dealer in XXX where it has a physical business
location. Should Taxpayer provide access to Internet services to
its subscribers located in Florida, but outside XXX, additional
reporting requirements are imposed. Section 212.054(3)(c),
F.S., treats the transaction as occurring in those other
counties, and the dealer is therefore required to clearly
indicate the amounts collected within each county of the State.
Taxpayer should use the billing address of each subscriber to
determine the county in which its subscribers are located and
the applicable rate of sales tax to be collected.

To facilitate reporting sales tax and surtax in more than
one Florida county, Taxpayer should write a letter to the
Department to request a consolidated sales tax registration
number and to request a reporting sales tax number for all
counties, other than XXX, in which its commercial subscribers
are located. The letter should include Taxpayer's Federal
Identification Number and its XXX location's Sales Tax
Registration Number. This written request should be mailed to:

David Young, Tax Specialist
General Registration
Florida Department of Revenue
5050 West Tennessee, Building F-4
Tallahassee, Florida 32399-0100

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 upon 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 from that
which is 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 that 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 this response.

Sincerely,

Janet L. Young
Tax Law Specialist

JLY/pb
Control #23320