Did a Florida auto dealer owe sales or use tax when it gave customers no-charge loaner vehicles during warranty-covered repairs?

Subject

Computation of Dealer Use Tax On No Charge Rentals of Motor Vehicles As Loaner Vehicles

Plain-English summary

The Department concluded that the dealer did not owe sales or use tax when it furnished a qualifying no-charge loaner vehicle during a warranty-covered repair. The result depended on all of the ruling's special circumstances being satisfied.

• Each loaner was registered as a rental or lease vehicle.
• A manufacturer warranty or motor-vehicle service agreement expressly promised a replacement vehicle while the customer's car was repaired.
• The vehicle owner paid nothing for the loaner.
• For a taxable service warranty, the appropriate Florida sales tax had been paid on the warranty purchase.

Florida taxed the sale of service warranties, but a claim paid directly under a properly taxed warranty was not taxed again. The Department treated the expressly covered loaner as part of that warranty claim.

Amounts outside the warranty remained taxable. The cited rule included deductibles paid by the warranty holder, customer payments later reimbursed by the warranty issuer, and repairs or maintenance not covered by the warranty.

What this means for you

The absence of a separate rental charge was not the only requirement. Dealers needed the warranty language, rental registration, no-customer-payment facts, and prior warranty-tax treatment to align.

If a customer paid any portion not directly covered under the warranty arrangement, that amount did not inherit the no-tax treatment.

Common questions

Q: Was any free loaner automatically exempt? No. The warranty had to expressly cover the replacement vehicle and all special circumstances had to be met.

Q: Could the customer pay a rental fee or deductible for the loaner? The ruling required the vehicle owner to make no payment for the service rental vehicle; uncovered customer-paid amounts were taxable.

Q: Did the service warranty itself need to be taxed? Yes, when it was a taxable service warranty, the appropriate Florida sales tax had to have been paid on its purchase.

Q: Did a manufacturer warranty also qualify? Yes. The ruling covered express loaner provisions in either a manufacturer warranty or a service warranty.

Citations and references

• Fla. Stat. § 212.0506(1)-(3) and (9) — service-warranty tax and exclusion for directly paid claims
• Fla. Admin. Code R. 12A-1.105(4)-(6) — direct warranty claims, taxable uncovered amounts, and discretionary surtax
• Fla. Stat. §§ 212.054 and 212.055 — discretionary sales surtax provisions referenced by the rule
• Dyer v. Department of Insurance and Treasurer, 585 So. 2d 1009 (Fla. 1st DCA 1991); Natelson v. Department of Insurance, 454 So. 2d 31 (Fla. 1st DCA 1984); State ex rel. Szabo Food Service, Inc. of North Carolina v. Dickinson, 286 So. 2d 529 (Fla. 1973) — administrative-interpretation cases cited in the advisement
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-021

Original ruling text

SUMMARY

The Department ruled that the taxpayer, an automotive
dealer, would not be subject to use tax on the loaning of
vehicles to customers whose cars were being serviced or
repaired provided the following conditions were met: (i)
The loaner use of the vehicle by the customer was
specifically covered under the express provisions of either
a service warranty or a manufacturer's warranty; and (ii)
In the case of a service warranty, the appropriate amount
of the Florida sales tax had been paid on the purchase of
such warranty.

Mar 26, 1997

Re: Technical Assistance Advisement 97(A)-021
Computation of Dealer Use Tax On No Charge Rentals of Motor
Vehicles As Loaner Vehicles
Taxpayer: XXX (the "Taxpayer" or "Lessor")
Address: XXX
Federal Identification Number: XX

Dear :

This response is in reply to your January 6, 1997, 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:

[Lessor], a Florida corporation, and its subsidiary
corporations (hereinafter collectively referred to as
"Taxpayer") are engaged in the sales of automobiles in
Florida. Taxpayer does not have a Florida state tax
identification number. [However, the respective
corporations making up the Taxpayer are registered with the
Department for sales and use tax purposes.] When Taxpayer
does file tax related documents with the DOR, it uses its
federal identification number, XXX.

Taxpayer provides a Service Rental Vehicle free of charge
to certain customers when Taxpayer is performing
maintenance or repair service on such customers' vehicles.
Taxpayer only provides Service Rental Vehicles free of
charge under the following circumstances (hereinafter
collectively referred to as "Special Circumstances"):

(i) The Service Rental Vehicles provided by Taxpayer
are [each] registered as a "rental/lease vehicle";

(ii) The provisions of either a manufacturer warranty
or motor vehicle service agreement (sometimes referred
to as "service warranties") expressly provide that a
replacement vehicle will be provided when the
customer's vehicle is being repaired under the
manufacturer warranty or service agreement; and

(iii) The vehicle owner (warranty holder) does not
make any payments for the Service Rental Vehicle.

It is hereby acknowledged that in your telephone conversation of
January 31, 1997, with Mr. Daniel M. Wagner of this office, you
notified the Department that if an adverse ruling is anticipated
you reserve the right to have a conference with the Department
and to withdraw your petition for a TAA.

ISSUE

You endeavor to receive the Department's advice regarding the
following:

Whether any sales tax is due on the use of a Service Rental
Vehicle when it is provided by the Taxpayer to a customer
and all the aforementioned special circumstances exist?

DISCUSSION OF LAW AND POLICY

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

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....

Rule 12A-1.105, F.A.C., provides administrative interpretation
of the above statutory provisions. This rule provides in
relevant part the following:

(4)(a)1. The payment of any claim arising under a taxable
service warranty by the person issuing the service warranty
made to a person performing repairs or maintenance of a
product listed under the taxable service warranty, or made
directly to a lessor of the product listed under a taxable
service warranty, is not subject to sales tax.

2. When such a claim is paid, the person performing repairs
   or maintenance shall note the following elements on the
   repair invoice:

a. The name of the person issuing the service warranty;

b. The identification number of the service warranty;

c. The date of issuance of the service warranty;

d. The Florida Sales Tax Certificate of Registration number
of the service warranty issuer; and

e. The amount of the claim to be paid by the service
warranty issuer.

(5) The payment of all, or any portion, of a claim arising
under a taxable service warranty which is not paid directly
to the person performing repairs or maintenance or directly
to a lessor of the product listed in the service warranty
by the issuer of the service warranty is subject to sales
tax. Such taxable transactions include, but are not
limited to, the following:

(a) Any deductible paid by the service warranty holder;

(b) Any amount paid by the service warranty holder directly
to the person performing repairs or maintenance of the
product for which the warranty holder may be subsequently
reimbursed by the issuer of the service warranty; and

(c) Payment by the warranty holder for repairs or
maintenance which are not covered by the service warranty.

(6) The total consideration received or to be received for
any service warranty is subject to any Discretionary Sales
Surtax authorized by s. 212.055, F.S., and administered
under s. 212.054, F.S., in any county which levies a
surtax.

In considering the weight which must be given the above rule
provisions, we note the following holdings by Florida courts:

An agency is afforded wide discretion in the interpretation
by rule of a statute which it administers and will not be
overturned on appeal unless clearly erroneous; reviewing
court will defer to any interpretation within the range of
possible interpretations by the administering agency. Dyer
v. Department of Ins. and Treasurer, 585 So.2d 1009 (Fla. 1
DCA 1991); Natelson v. Department of Ins., 454 So.2d 31
(Fla. 1 DCA 1984), reh. den. Sept. 6, 1984. Administrative
rules interpreting sales and use tax statute are accorded
considerable persuasive force and court would not depart
from such constructions unless clearly erroneous or
unauthorized. State Ex Rel. Szabo Food Serv., Inc. of N.C.
v. Dickinson, 286 So.2d 529 (Fla. 1973), reh. den. Jan. 9,
1974.

CONCLUSIONS OF LAW

It is the Department's finding that the Taxpayer is not subject
to sales or use tax on Service Rental Vehicles by reason of
furnishing such vehicles to customers under the express
provisions of a manufacturer's or service warranty which
specifically provides for the furnishing of a loaner vehicle
while the warranty holder's vehicle is being serviced. This is
further conditioned upon the appropriate Florida sales tax
having been paid on the warranty and the other special
circumstances enumerated above having been satisfied. You are
alerted to the fact that any amounts not covered by the
manufacturer's or service warranty are subject to sales or use

tax, including those amounts mentioned in Rule 12A-1.105(5),
F.A.C., above.

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/dw
Control No. 27535