Did an out-of-state warranty seller owe county surtax on Florida service-warranty sales, and could it advertise tax-included prices instead of separately stating tax?

Plain-English summary

The optional service warranties were not subject to a Florida county discretionary sales surtax when the seller received the customer's payment outside Florida. That remained true even when the purchaser lived in a Florida county that imposed the surtax.

The state-level tax treatment was different. The seller acknowledged that its warranties were subject to Florida's then-stated 6% sales tax, and the Department required that tax to be separately stated on the sales evidence and calculated under the statutory brackets.

The seller could not simply advertise prices as including tax and back the tax out with a 1.06 formula. Nor could it use an industry-wide effective rate; the Department found that approach inappropriate for this business.

What this means for you

The ruling separated the location rule for county surtax from the obligation to collect state tax. Receiving consideration outside Florida defeated the local-option surtax on these facts, but it did not eliminate the taxable service-warranty transaction.

Price matrices approved by another Florida agency did not override the Department of Revenue's collection rules. Even though the applications said sales tax was included, the tax still had to be separately stated.

Common questions

Q: Did the Florida customer's home county control the surtax? No. For these service warranties, the ruling looked to where the warranty seller received the consideration.

Q: Was Florida state sales tax still due? Yes. The taxpayer acknowledged the then-applicable 6% state tax and its duty to collect and remit it.

Q: Could the seller say all listed prices included sales tax? No. The Department required tax on the warranty charge to be separately stated.

Q: Could the seller calculate tax by backing it out of a tax-included price? No. The ruling required use of the brackets referenced in section 212.12.

Q: Did the Department approve an effective industry tax rate? No. It said an effective rate was not appropriate for the taxpayer's industry.

Citations and references

• Fla. Stat. § 212.0506 — tax on service warranties
• Fla. Stat. § 212.07(2) — separately stating Florida tax and possible industry effective rates
• Fla. Stat. § 212.12(1)(b)2. — tax brackets and required information
• Fla. Stat. § 212.18(2) — Department administration and collection rules
• Fla. Stat. § 213.34(1) — audit authority
• Fla. Admin. Code r. 12A-1.105 — service warranties
• Fla. Admin. Code r. 12A-15.003(2)(d) — surtax location for service-warranty consideration
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-059

Original ruling text

SUMMARY

The taxpayer endeavored advice regarding the requirements of collecting and remitting local option sales taxes on service warranties, as well as the impracticality of separately stating the Florida sales tax applicable to each product set forth in the taxpayer's product price matrix.

The Department responded by stating that the service warranty, which is optional and is purchased for a specified charge, is not subject to the discretionary sales surtax when the consideration is received in another state, even though the purchaser lives in a county which imposes the surtax. Secondly, based on the provisions of ss. 212.07(2) and 212.0506(4), (5), (6), F.S., the tax on the charge for a service warranty must be separately stated and its amount must be based on the brackets set forth in s. 212.12, F.S. The tax on the charges for service warranties must be separately stated, and the use of an effective sales tax rate would not be appropriate in this client's industry.

Sep 29, 1997

Re: Technical Assistance Advisement 97A-059 Sales and Use Tax - Service Warranties Sections 212.0506, 213.34, 212.07(2), 212.12(1)(b)2., and 212.18(2), F.S. Rules 12A-1.105, and 12A-15.003, F.A.C. XXX ("Taxpayer")

Dear :

This response is in reply to your June 23, 1997, petition for the Department's issuance of a Technical Assistance Advisement ("TAA") pursuant to s. 213.22, F.S., concerning the captioned matter and party. Your petition has been carefully examined and the Department finds it to be in compliance with the requisite

criteria set forth in Chapter 12-11, F.A.C. Therefore, the Department is herewith granting your request for the issuance of a TAA and the ensuing discourse shall embody said ruling.

DISCUSSION OF FACTS

Your petition and supporting documents impart the following significant information regarding the issues under advisement herein:

FROM YOUR PETITION

... [Taxpayer] is a Florida corporation; however,
[Taxpayer] does not maintain an office in Florida and does not have any employees or agents located in the State of Florida. Rather, [Taxpayer's] principal place of business is located in XX [Other State]. All of [Taxpayer's] business is transacted from its principal place of business in [Other State].

[Taxpayer] markets it service warranties by direct mail advertisements sent by U.S. mail to residents of the State of Florida. Persons electing to purchase a service warranty from [Taxpayer] complete one of [Taxpayer's] applications (attached as Exhibits A and B), and return the application together with the correct payment to
[Taxpayer's] principal place of business in [Other State]. Upon receipt, [Taxpayer] deposits the purchasers' consideration for the service agreements in a financial institution located outside the State of Florida.

Alternatively, consumers may elect to use credit cards to pay for service warranties purchased from [Taxpayer]. The company processes credit card payments in its [Other State] offices.

Each application (Exhibits A and B) contains an extensive price matrix based upon the warranty services and length of warranty purchased. The price matrixes have been approved by the Florida Department of Insurance. Each approved application contains a statement that the sales price

includes applicable sales tax.

[Taxpayer] acknowledges that its service warranties are subject to Florida's general sales tax of six percent.
[Taxpayer] further acknowledges its responsibility to collect such general sales tax from its purchasers, and remit the sales tax to the Department of Revenue. As such,
[Taxpayer] would be a dealer for the purposes of Chapter 212, Florida Statutes.

REQUESTED ADVISEMENT

You endeavor to elicit the following advice from the Department:

1. Whether [Taxpayer] is required to collect and remit
   local option sales taxes on service warranties sold by
   [Taxpayer] when the purchaser remits payment to
   [Taxpayer's] place of business, which is located outside the State of Florida.

2. Whether given the impracticality of separately stating
   the Florida sales tax applicable to each product set forth in [Taxpayer's] product price matrix, [Taxpayer] may state that all prices include appropriate sales tax, which Florida sales tax is calculated as follows:

Applicable total sales price less (sales price/1.06) equals sales tax due. Alternatively, whether
[Taxpayer] may utilize an existing industry rate which is based on facts similar to those contained in this request.

DISCUSSION OF LAW

The following passages from the Florida Statutes (F.S.) and the Florida Administrative Code (F.A.C.) are pertinent to the issues raised in your request.

Rule 12A-1.105, F.A.C., states the following in regard to service warranties.

(1)(a) Every person who solicits, offers, provides, issues, or delivers any service warranty, or who receives, on behalf of another person, any consideration from a service warranty holder is exercising a taxable privilege and shall register as a dealer with the Department of Revenue before such person may engage in or conduct business in this state. See Rule 12A-1.060, F.A.C.

(b)1. The term "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, whether or not the contract provides for the furnishing of parts. The term "service warranty" includes motor vehicle warranties issued under Part I of Chapter 634, F.S., and service warranties issued under Part III of Chapter 634, F.S....

Rule 12A-15.003, F.A.C., imparts the following in regard to the imposition and payment of tax:

(1) All transactions occurring in a county imposing the surtax which are subject to the state tax imposed on sales, use, rentals, admissions, and other transactions by Part I of Chapter 212, F.S., are subject to the surtax. Effective January 1, 1994, services which are subject to the state tax imposed by Part I of Chapter 212, F.S., are subject to the surtax. These services include detective, burglar protection, and other protection services, nonresidential cleaning and nonresidential pest control services.

(2) For purposes of the surtax, a transaction, except for a transaction involving any motor vehicle or mobile home of a class or type which is required to be registered in this state or in any other state, shall be deemed to have occurred in a county imposing the surtax when:...

(d)1. The person receiving the consideration for the issuance of a service warranty from the service warranty agreement holder is in a county imposing the surtax.

2.a. Example: The person receiving consideration for the

issuance of a service warranty is in County A (a county imposing the surtax at the rate of 1%). The service warranty covers appliances in County A. Tax is due at the rate of 7% (6% state sales tax and 1% surtax).

b. Example: The person receiving consideration for the issuance of a service warranty is in County A (a county imposing the surtax at the rate of 1%). The service warranty covers computer equipment in County B (a county imposing the surtax at the rate of 1%). Tax is due at the rate of 7% (6% state sales tax and 1% surtax).

c. Example: The person receiving consideration for the issuance of a service warranty is in County A (a county imposing the surtax at the rate of 1%). The service warranty covers a television in County B (a county not imposing the surtax). Tax is due at the rate of 7% (6% state sales tax and 1% surtax).

d. Example: The person receiving consideration for the issuance of a service warranty is in County A (a county imposing the surtax at the rate of 1/2%). The service warranty covers a motor vehicle, and the resident address of the owner identified on the title document is in County B (a county imposing the surtax at the rate of 1%). Tax is due at the rate of 6 1/2%) (6% state sales tax and 1/2% surtax).

Section 212.0506, F.S., provides the following regarding the 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.

(4) Such tax shall be in addition to the total amount of the consideration for the service warranty, shall be charged by the person receiving such consideration from the service warranty agreement holder, and shall be due and payable by such person at the time he or she receives such consideration. Such person shall remit the tax to the department at the times and in the manner provided for dealers to remit taxes on tangible personal property under this part.

(5) This tax is in addition to all other taxes, whether levied in the form of excise, license, or privilege taxes, and is in addition to all other fees and taxes levied.

(6) This tax shall be due and payable according to the brackets set forth in s. 212.12....

(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.

(10) Any duties imposed by this part upon dealers of tangible personal property with respect to collecting and remitting taxes; making returns; keeping books, records, and accounts; and complying with the rules and regulations of the department apply to all dealers as defined in s. 212.06(2)(1).

Section 213.34(1), F.S., provides:

(1) The Department of Revenue shall have the authority to audit and examine the accounts, books, or records of all persons who are subject to a revenue law made applicable to this chapter, or otherwise placed under the control and administration of the department, for the purpose of ascertaining the correctness of any return which has been filed or payment which has been made, for the purpose of making a return where none has been made.

Section 212.07(2), F.S., provides in part:

A dealer shall, as far as practicable, add the amount of the tax imposed under this chapter to the sale price, and the amount of the tax shall be separately stated as Florida tax on any charge ticket, sales slip, invoice, or other tangible evidence of sale.... Where it is impracticable, due to the nature of the business practices within an industry, to separately state Florida tax on any charge ticket, sales slip, invoice, or other tangible evidence of sale, the department may establish an effective tax rate for such industry. The department may also amend this effective tax rate as the industry's pricing or practices change....

Section 212.12(1)(b)2., F.S., provides in part:

The department shall adopt rules requiring such information as it may deem necessary to ensure that the tax levied hereunder is properly collected, reviewed, compiled, and enforced, including, but not limited to:... the amount of tax collected or due....

Section 212.18(2), F.S., provides:

The department shall administer and enforce the assessment and collection of the taxes, interest, and penalties imposed by this chapter. It is authorized to make and publish such rules and regulations not inconsistent with

this chapter, as it may deem necessary in enforcing its provisions in order that there shall not be collected on the average more than the rate levied herein. The department is authorized to and it shall provide by rule and regulation a method for accomplishing this end. It shall prepare instructions to all persons required by this chapter to collect and remit the tax to guide such persons in the proper collection and remission of such tax and to instruct such persons in the practices that may be necessary for the purpose of enforcement of this chapter and the collection of the tax imposed hereby. The use of tokens in the collection of this tax is hereby expressly forbidden and prohibited.

CONCLUSIONS OF LAW

In regard to your first question stated above, the service warranty, which is optional and is purchased for a specified charge, is not subject to the discretionary sales surtax when the consideration is received in another state, even though the purchaser lives in a county which imposes the surtax. See Rule 12A-15.003(2)(d), F.A.C., quoted above.

Regarding your second question, based on the provisions of ss. 212.07(2) and 212.0506(4), (5), (6), F.S., the tax on the charge for a service warranty must be separately stated and its amount must be based on the brackets set forth in s. 212.12, F.S. The tax on the charges for your client's service warranties must be separately stated, and the use of an effective sales tax rate would not be appropriate for your client's industry.

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,

Leola B. Carter
Senior Tax Specialist
Technical Assistance and Dispute Resolution (850) 922-4835

LBC\
Control No. 29382
Enclosure