Was a contract covering towing and limited emergency roadside labor taxable as a Florida service warranty?

Plain-English summary

Florida ruled that the towing and emergency road-service contract was not a taxable service warranty.

The contract covered towing after a mechanical breakdown or accident, generally up to $50 per incident. It also reimbursed labor-only charges up to $25 for specified on-site services such as a jump start, locksmith, fuel delivery, or changing a flat tire. It did not reimburse parts, fuel, or repair materials.

The Department of Insurance's technical staff determined that the contract fell under section 624.124, which permits specified motor-vehicle towing and emergency services without making the provider an insurer. The tax ruling then reasoned that the contract was not insurance and did not undertake indemnification within the service-warranty definition.

Because section 212.0506 taxed only qualifying service warranties, the road-service contract was not subject to that tax.

What this means for you

• The statutory classification under section 624.124 drove the sales-tax result.
• The ruling addressed the submitted towing and emergency-labor contract, not every vehicle protection plan.
• A contract covering maintenance, repair, replacement, or broader indemnity could require a different analysis.

Common questions

Q: Was the road-service contract a taxable service warranty? A: No.

Q: What services did it cover?
A: Limited towing and specified emergency roadside labor, subject to the contract's reimbursement caps.

Q: Did it cover repair parts or fuel? A: No.

Citations and references

• Fla. Stat. § 212.0506 — taxation and definition of service warranties
• Fla. Stat. § 624.02 — insurance definition
• Fla. Stat. § 624.03 — insurer definition
• Fla. Stat. § 624.124 — specified motor-vehicle services outside the Insurance Code
• Fla. Admin. Code r. 12A-1.105 — service warranties
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-036

Original ruling text

Jul 17, 1996

Re: Technical Assistance Advisement 96A-036 Sales and Use Tax - Road Service Contract ss. 212.0506, 624.02, 624.03, and 624.124, F.S. Taxpayer: XXXXX (herein the "Taxpayer")

Dear :

This response is in reply to your October 1, 1995, 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.

REQUESTED ADVISEMENT

You request that the Department rule on the issue of whether the subject "Road Service Contract" submitted with your request constitutes a service warranty taxable under the provisions of s. 212.0506, F.S., and Rule 12A-1.105, F.A.C.

DISCUSSION OF FACTS

The copy of the "Road Service Contract" (the "Contract") submitted in support of your petition has been carefully examined. We consult the following relevant portions of the Contract in addressing the issue under advisement herein:

TOWING SERVICE: If a covered vehicle is mechanically disabled, due to equipment failure or an accident, such that it is not able to proceed safely under its own power,
[the Taxpayer] will cause a road service vehicle to be dispatched to tow the vehicle to the nearest repair facility in which case the vehicle will be towed to the

nearest dealership where necessary repairs may be made, up to $50.00 for each incident of mechanical breakdown, upon proper submission of a claim. To report a claim, call a dispatcher at XXXX. If dispatch service is unavailable, arrange your own tow and submit claim for up to $50.00. To obtain reimbursement after authorization, you must submit the original customer copy of the towing bill from a licensed, commercial tow facility or repair facility. The towing bill must be in your name and identify the vehicle towed, miles towed, the date towed, and reason for the tow. You will be reimbursed only once for each incident attributable to the same mechanical breakdown.

EMERGENCY ROAD SERVICE: If a covered vehicle is mechanically disabled, due to equipment failure or accident, such that it is not able to proceed safely under its own power, upon proper authorization of a claim, [the Taxpayer] will reimburse you for the cost of labor only for the following emergency road services performed on the site where disabled:

Mechanical Service

$25.00

Jump Start

$25.00

Locksmith

$25.00

Fuel Delivery

$25.00

Changing Flat Tire

$25.00

You must report each emergency road service to the dispatcher at XXXX and submit the original customer copy of the service statement, along with any other documentation
[the Taxpayer] may require. [The Taxpayer] will be responsible for the cost of labor only and will not reimburse you for parts, fuel or materials used in making repairs.

THIS IS NOT INSURANCE.

DISCUSSION OF LAW

Section 212.0506, F.S., provides in relevant part the following:

212.0506 Taxation of service warranties. (1) It is the intent of the Legislature that every person is exercising a taxable privilege who engages in this state in the business of soliciting, offering, providing, entering into, issuing, or delivering any service warranty. (2) For exercising such privilege, a tax is levied on each taxable transaction or incident, which tax is due and payable at the rate of 6 percent on the total consideration received or to be received by any person for issuing and delivering any service warranty. (3) For purposes of this section, "service warranty" means any contract or agreement which indemnifies the holder of the contract or agreement for the cost of maintaining, repairing, or replacing tangible personal property. The term "service warranty" does not include contracts or agreements to repair, maintain, or replace tangible personal property if such property when sold at retail in this state would not be subject to the tax imposed by this part, nor does it include such contracts or agreements covering tangible personal property which becomes a part of real property.... (9) Any claim which arises under a service warranty taxable under this section, which claim is paid directly by the person issuing such warranty, is not subject to any tax imposed under this part.... (Emphasis Supplied)

Also, relevant to this issue are ss. 624.02, 624.03, and 624.124, F.S., which provide the following:

624.02 "Insurance" defined.-"Insurance" is a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies. (Emphasis Supplied)

624.03 "Insurer" defined.-"Insurer" includes every person engaged as indemnitor, surety, or contractor in the business of entering into contracts of insurance or of annuity. (Emphasis Supplied)

624.124 Motor vehicle services; exemption from code.Any person may, in exchange for fees, dues, charges, or

other consideration, provide any of the following services related to the ownership, operation, use, or maintenance of a motor vehicle without being deemed an insurer and without being subject to the provisions of this code: (1) Towing service. (2) Procuring from an insurer group coverage for bail and arrest bonds or for accidental death and dismemberment. (3) Emergency service. (4) Procuring prepaid legal services, or providing reimbursement for legal services, except that this shall not be deemed to be an exemption from chapter 642. (5) Offering assistance in locating or recovering stolen or missing motor vehicles. (6) Paying emergency living and transportation expenses of the owner of a motor vehicle when the motor vehicle is damaged.

For purposes of this section, "motor vehicle" has the same meaning specified by s. 634.011(6). (Emphasis Supplied)

The Contract was examined by technical staff at the Bureau Specialty Insurance of the Department of Insurance and determined to fall under the provisions of s. 624.124, F.S., above.

CONCLUSIONS OF LAW

Inasmuch as the Contract falls under the provisions of s. 624.124, F.S., the Contract is not a contract for "insurance" as that term is defined in s. 624.02, F.S., above. Consequently, since the Contract is not "insurance" by statutory definition, the Contract is not a contract which undertakes to indemnify another. Therefore, since s. 212.0506, F.S., applies only to service warranties and the definition of "service warranties" as defined therein is limited to agreements which indemnify the holder, the Contract is not a service warranty for purposes of s. 212.0506, F.S. Accordingly, the levy of sales and use tax against service warranties under s. 212.0506, F.S., does not apply to the Contract.

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
Tax Policy and Dispute Resolution

DW/
Control No. 23524