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