How did Florida calculate sales or use tax on no-charge loaner vehicles provided while customers' cars were repaired?

Plain-English summary

Florida taxed no-charge loaner vehicles using the greater of the normal daily rental amount or the dealership's recorded internal charge.

The lessor bought vehicles tax-free for rental and executed lease agreements when customers received loaners while their own vehicles were being repaired. Customers paid no direct fee, but the rental division recorded an internal charge to the repair division.

The Department treated both customer-paid rentals and these internally charged loaners as rental activity, as long as the vehicles were not committed to any other use. For a no-charge lease, tax was calculated on the greater of the usual daily rental rate multiplied by the loaner days or the business-expense amount recorded in the dealer's books. The dealer also had to provide resale certificates when acquiring the vehicles.

What this means for you

• Calling a loaner free did not produce a zero tax base.
• The comparison used the normal daily rate and the recorded internal charge.
• Exclusive rental use preserved the purchase-for-rental treatment.
• Any nonrental use could change the analysis.

Common questions

Q: Was tax based on the vehicle's full acquisition cost?
A: No, under the ruling's stated method.

Q: What amount was taxable?
A: The greater of the normal daily rental amount for the loaner period or the recorded internal business charge.

Q: Could the vehicles still be purchased tax-free for rental?
A: Yes, if they were used exclusively in the two described rental forms and not committed to other uses.

Citations and references

• Fla. Stat. § 212.05(1)(c), (d) — tax on tangible-property rentals
• Fla. Admin. Code r. 12A-1.007(14)(b)1. — vehicles purchased for rental
• Fla. Admin. Code rr. 12A-1.038, 12A-1.039 — resale certificates
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-013

Original ruling text

Feb 02, 1996

Re: Technical Assistance Advisement 96(A)-013
Computation of Dealer Use Tax On No Charge Rentals of Motor
Vehicles As Loaner Vehicles
Taxpayer: XXXX (the "Taxpayer" or "Lessor")
Address: XXXX
Sales Tax Number: XXXX

Dear :

This response is in reply to your November 14, 1994, petition
for the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S. Your petition
regards the referenced matter and party. 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 imparts the following significant information
regarding the issues under advisement herein:

"The [Lessor] purchases vehicles tax exempt for use in
leasing under the provisions of Rule 12A-1.007(14)(b) which
states `the purchase of an aircraft, boat, mobile home, or
motor vehicle exclusively for rental purposes may be made
tax exempt when the purchaser/lessor issues a resale
certificate to the dealer at the time of purchase in lieu
of paying tax. The lessor shall collect tax from his
customers on the total rental charge.'

"An audit by the Department of Revenue resulted in tax
being charged to the [Lessor] on such vehicles used as a no
charge rental based upon the acquisition cost.

"The identity was possible through the use of rental
invoices on each rental whether it was a charge' orno
charge.' The basis for the use of these invoices was
control and proper recordation of insurance information to
those individuals operating the vehicles.

"Since the `no charge' invoices did not contain any cost
figures, the auditor advised the [Lessor] to create an
internal charge based upon cost and further to accrue
proper taxes on such charge. The [Lessor] immediately set
up controls to insure compliance plus remitting such
accruals each month with the tax return.

"An informal hearing was requested at the local audit
office and a protest lodged on this treatment.

"At the hearing, the auditor stated that she, in fact, had
advised the [Lessor] to commence recording internal charges
and accrue applicable taxes thereon. However, she further
stated that upon `further research' it was determined that
tax should be charged upon the acquisition cost since the
use of the rental vehicles in this manner constituted a use
other than a leasing function."

The [Lessor] lodged a protest against the assessment of tax on
the full acquisition cost of the "no charge" rental (loaner)
vehicles and the protest was resolve by settlement.

A subsequent conversation with the Taxpayer and the auditor
revealed that the taxpayer enters into lease agreements with
customers when it "loans vehicles" to the customers while the
customers' cars are being serviced by the Taxpayer's repair
division. While you indicated that the customer is not charged
a fee for the lease, an internal charge is recorded to reflect
the cost to the Taxpayer's other operating division for
providing such service. The requirement to provide such a
vehicle to the customer under the specified conditions was
initiated by the other operating division.

REQUESTED ADVISEMENT

You endeavor to receive a ruling by the Department regarding the
following:

"The issue is whether the subject [Lessor] is entitled to
exemption under Rule 12A-1.007(14)(b) when vehicles
purchased for use in daily rental are furnished vehicle
purchasers at no charge when the customer leaves his
vehicle for warranty (or other) repairs when such repairs
require more than one (1) working day to complete and; the
[Lessor] records an internal charge based upon his cost and
accrues the proper state taxes on such internal charge for
remittance to the Department of Revenue."

DISCUSSION OF LAW AND POLICY

We consult the following, statutory, administrative, and case
law in addressing the issue under advisement herein:

STATUTORY LAW

Section 212.05, F.S., provides in relevant part the following:

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,... 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....
(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. (Emphasis Supplied)

ADMINISTRATIVE LAW

Rule 12A-1.007(14)(b)l., F.A.C., provides the following:

The purchase of an aircraft, boat, mobile home, or motor
vehicle exclusively for rental purposes may be made tax
exempt when the purchaser/lessor issues a resale
certificate to the dealer at the time of purchase in lieu
of paying tax. The lessor shall collect tax from his
customers on the total rental charge. (Emphasis Supplied)

Based on the facts and circumstances as presented, it appears
that the taxpayer is purchasing motor vehicles exclusively for
rental purposes in either of two forms. One, the Taxpayer
enters into leases with customers where the Taxpayer charges a
fee directly to the customer. Two, the Taxpayer enters into
leases with customers where no direct charge is made to the
customer, but instead the Taxpayer makes an internal charge to
the separate operating division (the separate operating division
being liable for the provision of such vehicle to the customer
whose car is being serviced). Where the Taxpayer leases the
vehicles by either of the two above methods and does not commit
the vehicles to any other uses, the Department considers such
vehicles to be engaged exclusively in rental activities.

CONCLUSIONS OF LAW

Sales tax on the "no charge" rentals should be based on the
greater of the usual daily rental amount (multiplied by the
number of days the customer has the vehicle) or the amount
actually charged as a business expense on the Dealer's books and
records in connection with the lease of the vehicle.
Accordingly, it is the Department's determination that in the
instance of an executed lease agreement with no consideration
noted, the Taxpayer owes the applicable sales or use tax on the
greater of the usual daily rental amount (multiplied by the
number of days loaned) for the type of vehicle "loaned", or the
amount actually charged as a business expense on Dealer's books
and records in connection with the "no charge" lease of the
vehicle loaned to the customer. The Dealership is required to
execute and tender to the seller resale certificates in

compliance with Rules 12A-1.038 and 12A-1.039, F.A.C., at the
time such motor vehicles are acquired.

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. 18484