Could a Florida cable provider buy converter boxes and remote controls tax free for resale when it separately leased them to subscribers?

Plain-English summary

Florida allowed the cable provider to buy converter boxes and remote controls tax free for resale when the equipment was purchased exclusively for taxable leases to subscribers.

The provider separately stated an equipment-rental charge on customers' monthly bills, collected sales tax on that rental, was registered as a dealer, and gave vendors resale certificates when buying the equipment. The Department treated the transfer of possession to subscribers for consideration as a taxable lease of tangible personal property.

Because the equipment was acquired exclusively for leasing, the registered provider could buy it without paying tax to the vendor. If any box or remote was later converted to the provider's own use or another nonlease use, use tax became due on its fair market value at the time of conversion.

What this means for you

• The provider had to be registered as a dealer when it purchased the equipment.
• It had to issue a valid resale certificate to the vendor.
• The equipment had to be purchased exclusively for leasing.
• A later conversion to the provider's own use triggered use tax.

Common questions

Q: Could the provider buy cable boxes and remotes tax free? A: Yes, under the stated resale conditions.

Q: Were customer equipment rentals taxable? A: Yes. The provider separately charged, collected, and remitted sales tax on them.

Q: What happened if the provider later used the equipment itself? A: Use tax became due on fair market value at conversion.

Citations and references

• Fla. Stat. § 212.02(14)(a), (15) — retail sale and sale definitions
• Fla. Stat. § 212.05(1)(a), (c), (e)1.b. — sales, rentals, and television service
• Fla. Admin. Code r. 12A-1.046(5) — cable television service
• Fla. Admin. Code r. 12A-1.071(2) — property purchased for leasing
• Fla. Admin. Code r. 12-11.003(3) — audit-related TAA policy
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-031

Original ruling text

Apr 30, 1996

Re: TAA 96A-031
Converter Boxes and Remote Controls Used in Providing Cable Television Service Sections 212.02 and 212.05, F.S. Rules 12A-1.046 and 12A-1.071, F.A.C. Taxpayer: XXXX - FEI: XXXX

Dear:

Your letters of September 5, 1995, and October 13, 1995, requested a Technical Assistance Advisement concerning the above referenced matter. This response constitutes a Technical Assistance Advisement (TAA) under Chapter 12-11, Florida Administrative Code, and is issued to you under the authority of s. 213.22, Florida Statutes.

In your letter of October 13, 1995, you stated that XXXX is presently under audit. It has come to our attention that XXXX is also under audit. It is the policy of this office, in conformity with Rule 12-11.003(3), F.A.C., that we will refrain from responding to an issue involving a taxpayer that is under audit by the Department. Therefore, please be advised that this TAA will only be binding to your client, XXXX (hereinafter "Taxpayer").

DISCUSSION OF FACTS

Pursuant to your letter of September 5, 1995, Taxpayer provides cable television service in certain Florida locations. Your letter states in part:

"... A converter box and separate remote control are needed for a customer to receive certain services. The converter box and remote control are leased to the customer and the amount of the equipment rental is stated separately on the monthly invoice. Sales tax is collected and remitted on

the equipment rental.

"`Taxpayer' is registered with the Department as a dealer and provides vendors from whom converters and remote controls are purchased with a valid resale certificate."

Attached to that letter, was a copy of a statement of charges from XXXX to a customer in Florida, account Number XXX, for the period 3/16/94 to 4/15/94 . According to your subsequent letter dated November 30, 1995, Taxpayer used the d/b/a "XXXX" during early 1994. Pursuant to my request, you also provided a detailed explanation of each charge on the statement.

REQUESTED ADVISEMENT

You request advice as to the following issue:

"Whether the purchase of the converter boxes and remote controls by `Taxpayer' is a tax exempt purchase for resale."

The statement of charges discussed in the preceding paragraph contained an itemized charge for "EQUIP-ADDR $1.65 EA." Your letter of November 30, 1995, described this charge as "charge for equipment leased to the subscriber." This response assumes that this equipment is the "... converter boxes and remote controls" for which you request our advice.

RELEVANT AUTHORITY

APPLICABLE STATUTE

Section 212.05, F.S., is cited in pertinent parts:

"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.... "(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:
"(a)1.a. At the rate of 6 percent of the sales price of each item or article of tangible personal property when sold at retail in this state, computed on each taxable sale for the purpose of remitting the amount of tax due the state, and including each and every retail sale.
...
"(c) At the rate of 6 percent of the gross proceeds derived from the lease or rental of tangible personal property...."
...
"(e)1. At the rate of 6 percent on charges for:
...
"b. Any television system program service....
...
"2. For purposes of this part, `television system program service' means the transmitting, by any means, of any audio or video signal to a subscriber for other than retransmission, or the installing, connecting, reconnecting, disconnecting, moving, or changing of any equipment related to such service."

Section 212.02, F.S., provides in parts:

"(14)(a) Retail sale' or asale at retail' means a sale to a consumer or to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this part, and includes all such transactions that may be made in lieu of retail sales or sales at retail."
...
"(15) `Sale' means and includes:
"(a) Any transfer of title or possession, or both, exchange, barter, license, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration."

APPLICABLE RULES

Rule 12A-1.046(5), F.A.C., provides:

"Charges for cable or wired television service and its

installation are taxable."

Rule 12A-1.071(2), F.A.C., provides in part:

"(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."

DETERMINATION

Based upon the cited statutory and regulatory authority, the facts as presented in your request, and the statement of charges provided with that request, Taxpayer is in the business of providing a taxable television system program service, pursuant to s. 212.05(1)(e)1.b., F.S. and Rule 12A-1.046(5), F.A.C. In conjunction with providing such service, Taxpayer is furnishing tangible personal property, a converter box and remote control.

Taxpayer is making a separate charge for rental of the tangible personal property, is separately stating this charge on the customer's monthly invoice, and is including the charge for equipment rental in the total amount for which sales tax is due.

As provided in s. 212.02(14)(a), F.S., "retail sale" or "sale at retail" means a sale of tangible personal property or services for any purpose other than for resale. Pursuant to Subsection 212.02(15), F.S., "sale" includes "... any transfer of title or possession, or both,..." of tangible personal property for a consideration. As described in Rule 12A-1.071(2), F.A.C., tangible purchased for leasing purposes may be purchased tax exempt, under certain conditions. The tangible personal property must be purchased exclusively for leasing purposes, the lessor must be a registered dealer at the time of purchase, and the purchaser must issue a resale certificate to the seller in lieu of paying the tax.

According to your letter and our records, Taxpayer is a registered dealer. Therefore, if Taxpayer purchases the converter boxes and remote controls exclusively for leasing to its customers, Taxpayer may extend a resale certificate to the vendor in lieu of paying tax. Please be advised, however, that if any of the equipment is later used by Taxpayer for any use other than for leasing purposes, then tax is due and should be remitted on the fair market value of the equipment at the time of conversion.

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,

Delores Overcash
Senior Tax Specialist

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