How did Florida's 1995 sales and gross-receipts taxes apply when tax-exempt colleges provided long-distance telephone service to students?

Plain-English summary

The colleges' nonprofit status did not by itself eliminate tax obligations when they resold telecommunications service.

For full-time students whose campus living quarters were their principal residences, the ruling treated local and long-distance telephone charges billed to those residences as exempt from sales tax. The telecommunications provider still remained liable for the then-current 2.5% gross receipts tax. The ruling also treated separately billed or rented telephone equipment as tangible personal property subject to the then-current 6% sales tax, while separately billed equipment was outside the gross receipts tax.

What this means for you

An organization's exemption certificate covered qualified purchases; it did not excuse the organization from collecting and remitting tax on taxable sales. The ruling also identified possible municipal telecommunications tax and local sales surtax obligations.

Common questions

Q: Was student-residence long-distance service subject to Florida sales tax? A: No, on the ruling's full-time-student campus-housing facts.

Q: Did the provider owe gross receipts tax? A: Yes. The ruling applied the statutory 2.5% rate and said the provider remained liable even if it did not collect the tax from the customer.

Q: Did using a third-party telephone company change the taxes? A: No. The ruling said the same taxes applied to the third-party provider.

Citations and references

• Fla. Stat. ch. 203 and §§ 203.01, 203.012 — gross receipts tax on telecommunications
• Fla. Stat. §§ 212.03(7)(a) and 212.05 — student housing and sales tax
• Fla. Admin. Code r. 12A-1.046(2)(b) and (12) — residential telephone service and local surtax
• I.R.C. § 501(c)(3) — organization status stated in the ruling
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95M-003

Original ruling text

Mar 21, 1995

Re: Technical Assistance Advisement No. 95(M)-003 Gross Receipts Tax and Sales Tax Liability on a 501(c)(3) Non-profit Educational Organization Providing Services to Students XXX (hereinafter "Company")

Dear :

Your letter of XXX, requested a Technical Assistance Advisement on the application of the Gross Receipts Tax to the above referenced matter. This response to your request constitutes a Technical Assistance Advisement under Chapter 12-11, Florida Administrative Code, and is issued to you under the authority of s. 213.22, Florida Statutes.

FACTS

Company is a professional telecommunications consulting corporation specializing in working with colleges and universities. Several of Company's clients are located in Florida. It is the Company's understanding that Company's clients are only responsible for collecting the Florida Gross Receipts Tax from their students when reselling long distance services to the students. As the colleges and universities are 501(C)(3) non-profit educational or religious organizations which are registered with both the state and federal governments, Company does not believe any gross receipts tax is due.

QUESTIONS

Your questions concern the sales tax and gross receipts tax liability on a 501(C)(3) non-profit educational organization providing certain services to students as follows:

Question 1. "Are these colleges responsible for collecting the state sales tax from their students when providing long

distance services? If yes, what is the correct rate?" Question 2. "What is currently the correct rate for the Florida Gross Receipts Tax for long distance service (2.5% or 2.56%)?" Question 3. "Are there any other state taxes that need to be collected by our clients when providing students with long distance services?" Question 4. "Are the same taxes in effect when providing other telecommunication services (i.e., equipment, lines, etc.)?" Question 5. "Would the taxes be any different for the students if a third party (XXX, XXX, XXX, etc.) was providing the long distance service directly to the students rather than our clients providing the service? If yes, which taxes?"

DISCUSSION AND ANALYSIS OF LAW

s. 212.05, F.S., provides:

"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 the business of making mail order sales, or who rents or furnishes any of the things or 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 telegraph messages and long distance telephone calls beginning and terminating in this state, telecommunication service as defined in s. 203.012 and those services described in s. 203.012(2)(a), except that the tax rate for charges for telecommunication service is 7 percent. (Emphasis supplied)

Rule 12A-1.046, F.A.C. provides in part that:

"(2) The following telecommunication charges are exempt from tax: "(a) Charges for local service provided through a pay telephone. "(b) Charges to residential households or owners of residential models in this state for local telephone service, long distance telephone calls, or telegraphic messages when the charges are made by utility companies which pay the gross receipts tax imposed under s. 203.01, F.S." (Emphasis supplied)

s. 203.01, F.S., provides in part:

"Tax on gross receipts for utility services.-"(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). Such collections shall be certified by the Comptroller upon the request of the State Board of Education. "(b) For the period July 1, 1990, through June 30, 1991, the rate shall be 2 percent; for the period July 1, 1991, through June 30, 1992, the rate shall be 2.25 percent; beginning July 1, 1992, and thereafter, the rate shall be 2.5 percent." (Emphasis supplied)

CONCLUSION

Chapter 203, F.S., provides that the gross receipts tax of 2.5 percent will apply to all telecommunication services including local telephone service, toll telephone service including intrastate state, interstate and international, pay telephone service, pagers and beepers, and voice mail. Chapter 212, F.S., provides that all telecommunication services defined or described in Chapter 203, F.S., are subject to the 7 percent sales tax.

Further, Chapter 212, F.S., provides that the sale or rental of tangible personal property is subject to the 6 percent sales tax.

The gross receipts tax of 2.5 percent is imposed on the person selling the telecommunication service and is an item of cost to the seller or vendor. The telecommunications provider remains fully and completely liable for the tax even if the tax is not collected from the customer. The tax is based on the total amount of gross receipts derived from business done within Florida. However, the provider may separately state the gross receipts tax on the total amount of any customer's bill and may add the tax as a component part of the total charge. The tax is assessed on total charges for telecommunication services, including any separately stated gross receipts tax.

Below are a few examples of the different methods a utility service provider may use in billing for his services.

EXAMPLE #1:

TELECOMMUNICATION SERVICES:

$100.00 (Taxable Receipts)

(NO SEPARATE ITEMIZATION OF TAX)

GROSS RECEIPTS TAX DUE STATE ON
THIS METHOD OF BILLING:$2.50 ($100.00 x .0250)

NET RECEIPTS AFTER PAYMENT OF GROSS RECEIPTS TAX:

$97.50

EXAMPLE #2:

TELECOMMUNICATION SERVICES:

$100.00

GROSS RECEIPTS TAX
(100.00 X .0250) 2.50 (.0250 X 100.00) TOTAL GROSS RECEIPTS

$102.50 (Taxable Receipts)

GROSS RECEIPTS TAX DUE STATE ON
THIS METHOD OF BILLING:$2.57 (102.50 x .0250)

NET RECEIPTS AFTER PAYMENT OF GROSS RECEIPTS TAX:

$99.93

EXAMPLE #3:

TELECOMMUNICATION SERVICES:

$100.00

GROSS RECEIPTS TAX
.0250(100.00 x 1.0257)

2.57

TOTAL GROSS RECEIPTS

$102.57

GROSS RECEIPTS TAX DUE STATE ON
THIS METHOD OF BILLING $2.57 (102.57 X .0250)

NET RECEIPTS AFTER PAYMENT OF GROSS RECEIPTS TAX: $100.00

Based on the previous examples, the method of billing used in Example #3 keeps the service provider whole for pre-tax charges for the services, while the methods in Example #1 and Example #2 do not. Also, method #3 nets the State an effective tax rate of 2.57%, a rate higher that the statutory rate of 2.5%. However, as noted by Example #3, the utility company definitely may not just send the State $2.50 for the transaction. If it identifies a line item amount on the bill as "Florida Gross Receipts Tax", it must send that exact amount of money to the State. No person is allowed to "keep any excess profit" by using this method.

Further, Chapter 212, F.S., imposes the sales tax on the sales price that would include the total gross receipts. As this amount includes the gross receipts tax, it would be subject to the sales tax.

In Example #3, the sales tax would apply to the $102.57. Since the sales tax rate on telecommunications is 7%, the sales tax would be figured as follows:

EXAMPLE #3:

TELECOMMUNICATION SERVICES:

GROSS RECEIPTS TAX
.0250($100.00 X 1.0257)

2.57

$100.00

TOTAL GROSS RECEIPTS

$102.57

GROSS RECEIPTS TAX DUE STATE ON
THIS METHOD OF BILLING $2.57 (102.57 x .0250)

NET RECEIPTS AFTER PAYMENT OF GROSS RECEIPTS TAX: $100.00

SALES TAX
(.07 x $102.57)

$7.18

Educational organizations which qualify under section 501(c)(3), Internal Revenue Code, must apply for and receive a Consumer's Certificate of Exemption from this Department in order to exempt their qualified purchases from Florida's sales tax. Educational organizations should extend an exemption certificate when purchasing supplies, equipment, furniture and so forth. However, the possession of a Consumer's Certificate of Exemption does not release the organization from its obligation to collect and remit sales tax when taxable sales occur. For example, sales of supplies to students through a campus bookstore, sales of meals at a campus cafeteria, sales of soft drinks through vending machines, and so forth, are taxable transactions.

In addition, both Chapter 203, F.S., and Chapter 212, F.S., provide that all taxable telecommunication services may be purchased without paying the taxes to the provider, if they are being resold and a separate resale certificate is given to the provider for the gross receipts tax and sales tax. The appropriate taxes are due and must be remitted on their resale.

Therefore, your clients should be registered for both the sales tax and gross receipts tax, utilizing Form DR-1 and Form DR-1GR for registration. A resale certificate should be given to the local telephone company or telephone service provider that will allow them to sell to your client tax exempt. Each client would then collect and remit the sales tax at 7 percent and the gross receipts tax at 2.5 percent for the total charge for each service.

The questions will be answered in the order in which they were presented:

Question 1. "Are these colleges responsible for collecting the state sales tax from their students when providing long distance services? If yes, what is the correct rate?"

Answer: Rule 12A-1.046(2)(b), F.A.C., provides that charges to residential households for local and long distance telephone service are exempt from sales tax. However, the sale or rental of equipment used in providing the service is taxable (e.g., rental of phone), whether billed to a residential household or not.

Pursuant to section 212.03(7)(a), F.S., sales tax is not imposed upon rent paid for living quarters by full-time students enrolled in an institution offering postsecondary education. Since the living quarters are deemed to be the students' principal place of residence, any charges for local or long distance telephone service billed to the student's residence are exempt from sales tax.

Question 2. "What is currently the correct rate for the Florida Gross Receipts Tax for long distance service (2.5% or 2.56%)?"

Answer: Chapter 203, F.S., provides that the gross receipts tax of 2.5 percent will apply to all telecommunications services including local telephone service, toll telephone service including intrastate, interstate and international, pay telephone service, pagers and beepers, and voice mail. The gross receipts tax is a tax on the privilege of doing business and is an item of cost to the seller or telecommunications provider. The telecommunications provider remains fully and completely liable for the tax even if the tax is not collected from the customer. Please note that s. 203.012(2)(b)5., F.S., provides that the sale or rental of equipment which is separately billed or itemized is exempt from the gross receipts tax.

Question 3. "Are there any other state taxes that need to be collected by our clients when providing students with long

distance services?"

Answer: A municipality may impose a tax for telecommunications service provided within the municipality, which would include long distance service. Each city enforces its tax and should be contacted to determine the imposition.

Rule 12A-1.046(12), F.A.C., provides the local sales surtax will apply to all local telephone charges made to or by an establishment located in a surtax county. It should be established whether each client is located in a surtax county.

Question 4. "Are the same taxes in effect when providing other telecommunication services (i.e., equipment, lines, etc.)?"

Answer: Chapter 203, F.S., provides that the gross receipts tax of 2.5 percent will apply to all telecommunications services including local telephone service, toll telephone service including intrastate, interstate and international, pay telephone service, pagers and beepers, and voice mail. Chapter 212, F.S., provides that all telecommunication services defined or described in Chapter 203, F.S., are subject to the 7 percent sales tax.

Chapter 212, F.S., provides that the sale or rental of tangible personal property is subject to the 6 percent sales tax.

Question 5. "Would the taxes be any different for the students if a third party (XXX, XXX, XXX, etc.) was providing the long distance service directly to the students rather than our clients providing the service? If yes, which taxes?"

Answer: The same taxes would apply to the provider of the long distance service even if the service was performed by a third party source.

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

based 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,

Bruce H. Williams
Technical Assistant

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