Could a chain of purchases, leases, and subleases of semiconductor equipment qualify as tax-exempt resale transactions before the equipment reached the operating joint venture?

Subject

Lease of Tangible Personal Property

Plain-English summary

The Department approved the intermediate purchases, lease, and sublease as tax-exempt resale transactions, subject to strict dealer-registration and resale-certificate conditions. The equipment was designed for expansion of a semiconductor manufacturing facility and moved through a financing structure before reaching the operating joint venture.

The parties stated that they were registered Florida dealers and would tender resale certificates at each intermediate acquisition. The equipment would not be used to make production-quality semiconductor wafers before the lease and sublease became effective, although it would be installed and tested.

For the final manufacturing-user lease, the joint venture also had to satisfy the temporary-exemption rule. The ruling emphasized registration with the WAGES Program Business Registry before exempt purchases made on or after July 1, 1996; failure to register made those purchases taxable.

What this means for you

A financing or lease chain did not itself prevent resale treatment. Each intermediate party had to acquire the equipment exclusively for the next lease or resale, be registered as a dealer before the transaction, and deliver a valid resale certificate.

The final user's manufacturing exemption was separate from the intermediate resale exemptions. It depended on receiving the permit and satisfying the program's conditions.

Common questions

Q: Could equipment purchased exclusively for leasing be bought tax-free? Yes, when the lessor was already registered as a dealer and gave the vendor a valid resale certificate.

Q: Could a prime lessee avoid tax when it leased solely to sublease? Yes, under the same registration and resale-certificate structure.

Q: Were the joint venture's final lease payments automatically exempt? No. They were exempt only to the extent provided by the temporary manufacturing exemption after the permit was granted.

Q: Did preproduction testing defeat the resale structure? Not on the stated facts, which said the equipment would not make production-quality wafers before the lease and sublease began.

Citations and references

• Fla. Stat. § 212.05(1)(a)1.a. and (1)(c) — tax on retail sales and tangible-property leases
• Fla. Stat. § 212.02(14)(a) and (15) — retail sale and sale definitions
• Fla. Stat. § 212.07(1)(b) — strict compliance for resale transactions
• Fla. Admin. Code R. 12A-1.071(2)(a)1. and (7) — purchases and leases solely for leasing or subleasing
• Fla. Admin. Code R. 12A-1.038(1) — resale-certificate requirements
• Fla. Admin. Code R. 12A-1.096(3); Fla. Stat. § 212.08(5)(b)7. — temporary manufacturing exemption and WAGES registration condition
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-015

Original ruling text

SUMMARY

A company intends to acquire certain manufacturing
equipment designed for the purpose of producing
semiconductor products. A series of proposed transactions
are intended to ultimately result in the purchasing,
financing, leasing and subleasing of the equipment for the
expansion of a manufacturing facility. Tangible personal
property 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 tax. The
taxpayers have registered with the Department as "dealers",
and will tender resale certificates, upon each acquisition
of the equipment for the sole purpose of leasing or
subleasing the Equipment. Therefore, the transactions will
be exempt from tax, as a sale for resale. With respect to
lease payments for the expansion of the facility, the
facility must qualify for a Temporary Tax Exemption Permit
and will be exempt from tax only to the extent provided in
Rule 12A-1.096(3), F.A.C.

Mar 05, 1997

Re: Technical Assistance Advisement 97A-015
Lease of Tangible Personal Property
Sections 212.05, 212.02 and 212.07, F.S.
Rule 12A-1.071 and 12A-1.038 F.A.C.

Dear :

Your letter of May 3, 1996, 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.

DISCUSSION OF FACTS

Your letter of May 3, 1996, states in part:

This firm represents the following entities with respect to
the transactions described in this letter:

• [XXX corporation ("XXX")

• XXX corporation and wholly-owned subsidiary of XXX
  ("XXX"), individually and as a partner in a contemplated
  joint venture (the "Joint Venture") to be formed between
  XXX., a XXX corporation ("XXX");

• The XXX trust initially to be formed by XXX as the
  grantor and sole beneficiary (the "Trust"); and

• XXX corporation and wholly owned subsidiary of XXX
  ("Subsidiary").]

2. Description of Transaction:

Pursuant to approximately 200 purchase orders (the
"Purchase Orders") placed with manufacturers outside of the
State of Florida (the "Manufacturers") and assigned,
without consideration, to [XXX by an affiliate of XXX
(herein the "Affiliate")], [XXX] intends to acquire certain
manufacturing equipment designed and manufactured for the
purpose of manufacturing and producing semiconductor
products (the "Equipment"). The Equipment will eventually
be utilized by the Joint Venture through a series of
transactions which will ultimately result in the
continuation and expansion of a semiconductor manufacturing
business currently operated at a manufacturing facility
located in [XXX] (the "Facility"). The purchases of
Equipment by [XXX], and, as hereinafter described, after
the Initial Phase (as defined below) by the Trust, will
take place over a period of approximately eighteen (18)
months in duration.

During an initial phase expected to last for two to three
months (the "Initial Phase"), [XXX] will acquire the
Equipment from the Manufacturers, for the sole purpose of
reselling the Equipment to the Trust. [XXX] has entered
into a Purchase and Sale Agreement (the "Purchase
Agreement") to sell the Equipment acquired by [XXX] to the
Trust, and has registered with the Florida Department of
Revenue as a "dealer" and tendered resale certificates to
the [M]anufacturers. At present, [XXX] is the sole grantor
and sole beneficiary of the Trust. Prior to the transfer
of the Equipment to the Trust pursuant to the Purchase
Agreement, one or more third parties will become the
beneficial owners of the Trust (the "Owner Participants")
and [XXX] will withdraw from the Trust. [XXX] will take
delivery of the Equipment during the Initial Phase and will
ensure that the Equipment is installed and tested at the
Facility prior to reselling such Equipment to the Trust.
The testing program includes preproduction test runs of
semiconductor wafers.

The Trust will be acquiring the Equipment for the sole
purpose of leasing the Equipment to the Subsidiary. The
Trust will finance its purchase of the Equipment by funds
provided by the Owner Participants and the issuance of
debt. The Trust has registered as a "dealer" with the
Department and upon the purchase of the Equipment by the
Trust pursuant to the Purchase Agreement, the Trust will
deliver a resale certificate to [XXX].

Immediately upon acquisition of the Equipment by the Trust,
the Trust will lease the Equipment to the Subsidiary. The
Subsidiary will be leasing the Equipment for the sole
purpose of subleasing the Equipment to the Joint Venture.
The Subsidiary has registered as a "dealer" with the
Department and upon the lease of the Equipment by the
Subsidiary from the Trust, the Subsidiary will deliver a
resale certificate to the Trust. Immediately upon the
execution of the lease by the Subsidiary and the trust, the
Subsidiary will sublease the Equipment to the Joint
Venture. Both the lease and the sublease described above
will constitute "operating leases" (as opposed to "capital

leases") within Florida Administrative Code Rule 12A-1.071.
The Equipment will not be used to manufacture production
quality semiconductor wafers prior to the effective date of
the lease by the Trust to the Subsidiary and the sublease
between the Subsidiary and the Joint Venture.

After the Initial Phase, [XXX] will not act as an
intermediate "title holder," and the Trust will take title
to purchased Equipment directly from the Manufacturers.
The Trust will then continue to lease such Equipment to the
Subsidiary as described above, and the Subsidiary will
sublease such Equipment to the Joint Venture as described
above.

Certain Purchase Orders provide for F.O.B. at a location
within the State of Florida and, accordingly, title and
risk of loss to this Equipment pass within the State of
Florida. In most cases, however, sales pursuant to Purchase
Orders are F.O.B. Manufacturers Plant. In connection with
these Purchase Orders, a majority provide for transfer of
title and risk of loss outside the State of Florida (with
the remainder providing for transfer of title and risk of
loss within the State of Florida).

Subsequent to the delivery of this Request for Technical
Assistance to the Department, the Joint Venture will be
filing an Application for Temporary Tax Exemption Permit
(form DR-1214) concerning the expansion of the production
capacity of the Facility as a result of the acquisition of
the Equipment.

REQUESTED ADVISEMENT

Your request advice as to the following issues:

(a) During the Initial Phase, the acquisition of the
Equipment by [XXX] from the Manufacturers is exempt from
Florida Sales and Use tax (the "Tax") as a sale for
"resale" pursuant to Florida Administrative Code Rule 12A1.038(1).

(b) During the Initial Phase, the acquisition of the
Equipment by the Trust from [XXX] pursuant to the Purchase
Agreement is exempt from Tax as a sale for "releasing"
pursuant to Florida Administrative Code Rule 12A1.071(2)(a)1.

(c) After the Initial Phase, the acquisition of Equipment
by the Trust from the Manufacturers is exempt from Tax as a
sale for "re-leasing" pursuant to Florida Administrative
Code Rule 12A-1.071(2)(a)1.

(d) The lease of the Equipment by the Subsidiary from the
Trust is exempt from Tax as a lease for "re-leasing"
pursuant to Florida Administrative Code Rule 12A-1.071(7).

(e) If the Joint Venture qualifies for and is granted the
Temporary Tax Exemption Permit described above pursuant to
Florida Administrative Code Rule 12A-1.096(3), the lease
payments made by the Joint Venture to the Subsidiary will
be exempt from tax to the extent provided in 12A-1.096(3)
notwithstanding the transactions described in (a) through
(d) above.

RELEVANT AUTHORITY

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

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....

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

(14)(a) "Retail sale" or a "sale 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
sale 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....

Section 212.07(1)(b), F.S. is cited in pertinent part:

A resale must be in strict compliance with the rules and
regulations, and any dealer who makes a sale for resale
which is not in strict compliance with the rules and
regulations shall himself or herself be liable for and pay
the tax....

APPLICABLE RULES

Rule 12A-1.071(2)(a)1. and (7), F.A.C., states:

(2)(a)1. Tangible personal property purchased exclusively
for leasing purposes may be purchased 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.

(7) The lease payments on tangible personal property which

is leased solely for the purpose of leasing it to a third
party are exempt. The prime lessee is required to register
with the Department as a dealer and issue the prime lessor
a resale certificate in lieu of tax.

Rule 12A-1.038(1), F.A.C., provides in pertinent part:

It is the specific legislative intent that each and every
sale, admission, use, storage, consumption or rental is
taxable under Chapter 212, F.S, unless such sale,
admission, use, storage, consumption or rental is
specifically exempt. The exempt status of the transaction
must be established by the dealer. Unless the dealer shall
have taken from the purchaser a certificate signed by the
dealer or dealer's authorized representative to the effect
that the property or service was purchased for resale and
bearing the date, the name and address of the purchaser,
the effective date of the certificate, and the number of
the dealer's certificate of registration,... the sale shall
be deemed to be a taxable sale at retail....

DETERMINATION

Based upon the cited statutory and regulatory authority, the
facts as presented in your request, and 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 personal
property 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 tax.

According to your letter, the Taxpayers have registered with the
Florida Department of Revenue as "dealers", in accordance with
Chapter 212, F.S., and will tender resale certificates, pursuant

to Section 212.07, F.S., and Rule 12A-1.038, F.A.C., upon each
acquisition of the Equipment for the sole purpose of leasing or
subleasing the Equipment. Therefore, the transactions described
in your request for Assistance on pages four and five, (a)
through (d), will be exempt from sales and use tax, as a sale
for "resale".

With respect to the transaction described on page five,
paragraph (e), the lease payments made by the Joint Venture to
the Subsidiary will be exempt from tax only to the extent
provided in Rule 12A-1.096(3), F.A.C., and only if the Joint
Venture qualifies for and is granted the Temporary Tax Exemption
Permit. It must be emphasized that s. 212.08(5)(b)7., F.S., as
amended by section 15, Chapter 96-320, L.O.F., requires the
Joint Venture to be registered with the WAGES (Work and Gain
Economic Self-sufficiency Act) Program Business Registry prior
to making any exempt purchases on or after July 1, 1996.
Failure to do so will result in those purchases becoming
taxable. For your convenience I have enclosed a copy of the
flyers issued by the Department concerning these changes.

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 that 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,

Vicki Allen
Tax Law Specialist
Tax Policy and Dispute Resolution

Ctrl. No. 25490