Did a vessel charter remain a taxable bareboat lease when the charterer chose the voyage but the separately hired captain controlled navigation and safety?

Plain-English summary

The submitted agreement qualified as a bareboat charter, so the charter charge was a taxable lease of tangible personal property.

The owner granted the charterer possession, custody, and control over where the vessel would go. The separately hired captain retained ultimate authority over safe operation and navigation, but the Department treated that as a permissible limitation on the charterer's use rather than a defeat of possession or control.

A vessel purchased exclusively for these bareboat charters could be acquired without sales or use tax if the purchaser was registered with the Department at purchase and gave the seller a proper resale certificate. If the owner later converted the vessel to another use, use tax became due on its fair market value at conversion.

What this means for you

The written allocation of possession and control mattered. A captain's safety authority did not prevent bareboat treatment where the charterer still directed the voyage and separately hired the captain.

Common questions

Q: Was the charter itself exempt from sales tax? A: No. Bareboat charter charges were taxable rentals. The exemption discussed in the ruling concerned the owner's purchase of a vessel held exclusively for taxable rental.

Q: Did the captain's authority make this a nontaxable crewed transportation service? A: No. The charterer controlled the vessel's destination, and the captain's retained authority concerned navigation and safety.

Q: What happened if the vessel was later used outside the exclusive charter activity? A: The owner became subject to use tax based on the vessel's fair market value when it was converted.

Q: Who could use this TAA?
A: It expressly applied only to association members who were not under audit, investigation, or examination when it was issued.

Citations and references

• Fla. Stat. §§ 212.02(10)(g), 212.02(16), 212.02(20), and 212.05 — leases, sales, tangible personal property, and tax
• Fla. Admin. Code r. 12A-1.071(1), (2), (16), (17), and (19) — leases and vessel charters
• Fla. Admin. Code rr. 12A-1.038 and 12A-1.039 — resale documentation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-034

Original ruling text

Aug 09, 1995

Re: Technical Assistance Advisement 95(A)-034 Sales Tax - Bare Boat Charter Agreement Parties: XXXX (herein the "Association") Sections 212.02(10)(g),(16), and (20); and 212.05, F.S. Rule 12A-1.071(1),(2),(16),(17), and (19), F.A.C.

Dear

This response is in reply to your May 26, 1995, petition for the Department's issuance of a Technical Assistance Advisement ("TAA") pursuant to s. 213.22, F.S., and Rule 12A-11, F.A.C. Your petition regards the referenced matter and parties. The Department has carefully examined your petition and finds it to meet the criteria set forth in Chapter 12-11, F.A.C., requisite to issuance of a TAA. Therefore, the Department is by this response issuing the requested TAA.

DISCUSSION OF FACTS

Your petition and supporting documents impart the following significant information regarding the issues under advisement herein:

"This office represents the [Association]. I am an attorney in good standing as a member of XXX and have been authorized to represent the principal in this issue.

"The [Association] is composed of individual members who are taxpayers having tax identification numbers in Florida, although the Association itself does not hold a Florida tax identification number.

"Due to changes in Federal law by the Passenger Vessel Safety Act of 1993, some vessel charterers have changed their operations from bareboat charter as leisure vessels to time or voyage charter as uninspected passenger vessels.

After review of Florida laws and regulations, and upon receipt of the Department's advisory letter dated June 16, 1994, copy enclosed, a Charter Agreement was drafted which is intended to comply with both the Federal requirements for an uninspected vessel in time charter and Florida requirements for a bareboat charter vessel which may be exempt from Florida sales and use tax if otherwise qualified....

"A Captain's Agreement is also enclosed, as it is an essential but separate part of the charter if the charter party is to hire a professional captain for navigation of the vessel during the charter.

"To the best of the [Association's] knowledge, this identical issue is not involved in a return of the
[Association's], that the [Association or its members] are not under audit, the issue of the Charter Agreement has not been considered by the Department, the issue has not been examined, the issue is not pending in litigation and the issue, or a substantially similar issue, has not been ruled on by the Department for the [Association or its members] or predecessors of the [Association or its members]."

A careful examination has been made of the copy of the Uninspected Passenger Vessel Charter Agreement (herein the "Charter Agreement") and Captain Agreement submitted with your request, and the following portions of each are quoted below for purpose of introduction into this ruling:

"[CHARTER AGREEMENT]... ADDITIONAL CONDITIONS: This is [a Charter Agreement] between Owner and Charter for the charter of the described yacht under the terms of this
[Charter Agreement]. Owner grants possession, custody and control of the yacht to the Charter during the term of the charter subject to the terms of this [Charter Agreement]....

"5. Captain and Crew. Charter agrees to hire the Captain and crew provided by Owner, who shall be licensed, qualified, knowledgeable and familiar with the yacht and

waters of the charter area. The Captain and crew shall be hired by a separate Captain Agreement with Charterer. Owner shall provide insurance coverage for the Captain and crew including that required by the Jones Act....

"6. Captain's Authority. Charterer is in command of the movements and destinations of the yacht under the terms of the charter, but Captain has authority over the safe navigation of the yacht, including issues of wind, weather, routes, anchorages, and the like. Captain shall likewise have authority over the safe use of the equipment, furnishings and appurtenances of the yacht, and may prohibit unsafe activities or use of same...."

"CAPTAIN AGREEMENT ...

"1. This is an Agreement for the Captain to be hired by the Charterer to command, manage and navigate the described yacht during the charter set forth. It is understood and agreed that the charter yacht is an uninspected passenger vessel within the requirements of Florida revenue laws for sales tax exemption as a vessel exclusively for bareboat charter.... "10. The Charterer shall direct the voyage, but the Captain shall have ultimate authority regarding the operation and navigation of the vessel, and the safety of the vessel and persons aboard..."

REQUESTED ADVISEMENT

You endeavor to receive the Department's advice regarding the following specific issue:

"A technical assistance advisement is hereby requested on behalf of Florida taxpayers who are members of the Association as to whether the enclosed Charter Agreement is in compliance with Florida requirements for operation as a bareboat charter for the purpose of exemption from sales and use tax on the purchase of the vessel, if the taxpayer is otherwise qualified."

DISCUSSION OF LAW

We consult the following statutory law relevant to the issue under advisement herein:

Section 212.02(16), F.S.: "(16) `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 212.02(10)(g), F.S.: "(g) Lease,'let,' or
`rental' also means the leasing or rental of tangible personal property and the possession or use thereof by the lessee or rentee for a consideration, without transfer of the title of such property, except as expressly provided to the contrary herein.

Section 212.05, F.S.: "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 the business of making mail order sales, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this state any item or article of tangible personal property as defined herein and who leases or rents such property within the state. "(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:.... "(c) At the rate of 6 percent of the gross proceeds derived from the lease or rental of tangible personal property, as defined herein, except the lease or rental of a commercial motor vehicle as defined in s. 316.003(66)(a) to one lessee or rentee for a period of not less than 12 months when tax was paid on the acquisition of such vehicle by the lessor, when the lease or rental of such property is an established business or part of an established business or the same is incidental or germane to such business. "(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.

Section 212.02(20), F.S.: "(20) `Tangible personal property' means and includes personal property which may be seen, weighed, measured, or touched or is in any manner perceptible to the senses, including electric power or energy, boats, motor vehicles and mobile homes as defined in s. 320.01(1) and (2), aircraft as defined in s. 330.27, and all other types of vehicles...."

Rule 12A-1.071(1), F.A.C.: "(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 asale' 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...." (Emphasis Supplied)

The provisions of Rule 12A-1.071(1), F.A.C., above, serve to furnish administrative interpretation to the above quoted statutory provisions as they relate to the lease or rental of tangible personal property. With this noted, we point out that an agency's administrative interpretation of a statute by rule has been accorded great deference by the courts, and will not be overturned unless the agency's interpretation of the statutes is clearly erroneous; reviewing court will defer to any interpretation within the range of possible interpretation. See Pershing Industries v. Department of Banking, 591 So.2d 991, 993 (Fla. 1 DCA 1991); Eager v. Florida Keys Aqueduct Authority, 580 So.2d 771 (Fla. 3 DCA 1991); Natelson v. Department of Ins., 454 So.2d 31 (Fla. 1 DCA 1984); State ex rel. Szabo Food Serv., Inc. of N.C. v. Dickinson, 286 So.2d 529 (Fla. 1973), reh. den. Jan. 9, 1974.

It is necessary and proper to employ the following rules of construction in ascertaining the intended meaning of the terms "custody" and "possession" as used in subparagraphs 1. and 2. of Rule 12A-1.071(1)(b), F.A.C., above:

It is a fundamental principle of statutory construction that legislative intent and policy concerns must control our construction of statutes and that the determination as to the intent of the legislature is based upon the plain and ordinary meaning of the language in the statute itself. See Holly v. Auld, 450 So.2d 217 (Fla. 1984).

In the matter of St. Petersburg Bank & Trust Co. v. Hamm, 414 So.2d 1071 (Fla. 1982), the Florida Supreme Court held that while legislative intent controls construction of statutes, that intent is determined primarily from language of the statute; plain meaning of statutory language is first consideration.

In the matter of S.R.G. Corp. v. Department of Revenue, 365 So.2d 687 (Fla. 1978), the Florida Supreme Court held that legislative intent must be determined primarily from language of statute, as the legislature must be assumed to know the meaning of the words and to have expressed its

intent by the use of the words found in the statute.

The denotative meaning of a word is representative of its plain and ordinary meaning. As such, Black's Law Dictionary, Sixth Edition, provides the following definitions of the terms "custody" and "possession":

"Custody. The care and control of a thing or person. The keeping, guarding, care, watch, inspection, preservation or security of a thing, carrying with it the idea of the thing being within the immediate personal care and control of the person to whose custody it is subjected. Immediate charge and control, and not the final, absolute control of ownership, implying responsibility for the protection and preservation of the thing in custody...."

"Possession. Having control over a thing with the intent to have and to exercise such control. Oswald v. Weigel, 219 Kan. 616, 549 P.2d 568, 569. The detention and control, or the manual or ideal custody, of anything which may be the subject of property, for one's use and enjoyment, either as owner or as the proprietor of a qualified right in it, and either held personally or by another who exercises it in one's place and name. That condition of facts under which one can exercise his power over a corporeal thing at his pleasure to the exclusion of all other persons....

Rule 12A-1.071(2),(16),(17),(19), and (20), F.A.C.: "(2)(a)1. Tangible personal property purchased exclusively for leasing purposes may be purchased tax exempt, providing the lessor is registered with the Department as a dealer at the time of purchase and issues the vendor a valid resale certificate in lieu of tax. Any purchases made prior to the time of registration as a dealer are subject to tax....

"(b)1. Any person who purchases tangible personal property for the dual purpose of leasing it to others and also for his own use, or who purchases tangible personal property with the intention only of leasing it but in fact also uses the property itself, shall pay the tax on the cost price of such property and shall also collect and remit the tax on

all leases of such property.
"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 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.... "(16) When a boat or vessel is chartered with crew furnished, for the carriage or transportation of persons or property from one point to another and the charterer does not have any direction or control over its operation, the contract constitutes a service transaction and not the rental of tangible personal property and is exempt. See subsection (18)(c) for charter fishing vessels. "(17) When a boat or vessel is leased or rented on abare boat' basis, the sales tax applies to the gross proceeds derived from the lease or rental. The lease or rental is considered to be on a "bare boat" basis when: "(a) The lessor does not provide a crew; "(b) The lessor does provide a crew but it is hired by the lessee under a separate employment contract. (Under such circumstances the employment contract cost is not a part of the gross proceeds derived from the lease or rental and is not taxable.)... "(19) Unless a boat or vessel is purchased exclusively for rental on a bare boat basis as described in paragraph (17), the purchase of the boat or vessel and parts thereof is taxable. See Rule 12A-1.064, F.A.C., for vessels engaged in interstate and foreign commerce. "(20) The rental charges on water recreation or transportation devices, including but not limited to boats, sailboats, sailboards, surfboards, pedal boats, skis, jet skis, and canoes are taxable as rentals of tangible personal property." (Emphasis Supplied)

CONCLUSIONS OF LAW

Based on the foregoing, an agreement must transfer "possession" in exchange for a consideration to constitute a lease. Moreover, the above definitions of the terms "custody" or "possession", specify "control" as an essential element of both. The Charter Agreement does expressly vest control over where the vessel is going to Charterer, albeit true that control with respect to the safe and proper navigation of the vessel resides with the Captain. The provisions of Rule 12A-1.071(1), F.A.C., above, contemplate and specifically address the circumstance under which a lease or rental of tangible personal property places limitations upon the use of the tangible personal property. Under the rule, presence of such circumstances does not of itself place an agreement outside the intended scope of a lease or rental agreement. Therefore, the fact that the Owner of the vessel specifically grants possession, custody, and control over where the vessel is going to the Charterer subject to safe operation of the vessel by the Captain supports an affirmative finding that the Charter Agreement does in fact constitute a bareboat charter (dry lease) as described in Rule 12A-1.071(17), F.A.C.

Consequently, vessels which are purchased for exclusive use under the Charter Agreement may be purchased exempt of sales or use tax under the provisions of Rule 12A-1.071(2)(a)1. and (19), F.A.C., above, provided the purchaser is register with the Department at the time of purchase and properly executes a resale certificate in compliance the provisions of Rules 12A1.038 and 1.039, F.A.C., for the seller's records. However, you are hereby alerted to the fact that where any such vessel is later converted from exclusive bare boat chartering under the Charter Agreement, the Owner will become immediately subject to use tax on the fair market value of the vessel at the time of such conversion pursuant to Rule 12A-1.071(2)(b)2., above, assuming the Owner purchased the vessel tax exempt for the exclusive activity of bare boat rentals.

This TAA applies only to members of the Association who are not under audit, investigation, or examination by the Department at

the time of issuance of the TAA.

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 confidential 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,

Daniel M. Wagner, Jr.
Tax Law Specialist

DW/
Control No. 21637