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