Did a condominium master association owe Florida sales tax when it passed guard payroll costs to separate member associations?

Subject

Security Service Charges Passed Through to Condominium Associations

Plain-English summary

A condominium master association had to collect Florida sales tax when it allocated security-guard payroll and related expenses to separate condominium associations. The result did not change because the master association passed through only its actual cost, added no markup, or described the guards as employees shared by all associations.

The master association paid the guards, controlled their work, withheld income taxes, and paid FICA and unemployment contributions. Those facts made the guards employees of the master association. The individual condominium associations had separate legal identities and federal identification numbers, so the guards were not providing exempt employee services to their own employer when they protected those associations.

Florida specifically treated guard and other protection services charged by condominium or community associations as taxable. The tax applied whether the master association separately itemized the security charge or included it within a package of services.

What this means for you

Passing through payroll at cost does not erase the taxable character of security services supplied to another legal entity. The employee exemption follows the actual employer-employee relationship, not common board members, related association status, or the absence of profit.

Bundling is also not a workaround under the rule applied here. A package charge remained taxable when the agreement included security services.

Common questions

Q: Did the lack of markup make the reimbursement nontaxable? No. The Department taxed the security service charge even though the master association passed through actual payroll and expenses without profit.

Q: Were the guards employees of every condominium association? No. Only the master association compensated and controlled them and handled the employment taxes.

Q: Would separately invoicing the security charge change the result? No. Tax applied both to separately stated security charges and to charges included in a service package.

Q: What if an outside management company supplied the guards? The ruling said third-party security personnel charges were also taxable.

Citations and references

• Fla. Stat. § 212.05(1)(j)1.a. — sales tax on detective, burglar-protection, and other protection services
• Fla. Admin. Code r. 12A-1.0092 — taxable guard and security services, including charges by condominium and community associations
• Fla. Admin. Code r. 12A-1.0161 — taxable services and the employee-to-employer exemption
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-046

Original ruling text

SUMMARY

Security service charges passed through to individual
condominium associations by a condominium master
association are subject to sales and use tax whether
invoiced separately, or included as part of a package of
services.

Jun 26, 1998

Re: TAA 98(A)-046
Sales and Use Tax
Security Service Charges Passed Through to Condominium
Associations
Section 212.05(1)(j), Florida Statutes
Rules 12A-1.0092, 12A-1.0161, Florida Administrative Code
XXX (hereinafter Taxpayer)
XXX (hereinafter Community)
Taxpayer I.D. #XXX

Dear :

This is a response to your petition dated XXX, for the
Department's issuance of a Technical Assistance Advisement
("TAA") concerning the above referenced matter. Your petition
has been carefully examined and the Department finds it to be in
compliance with the requisite criteria set forth in Chapter 1211, F.A.C. This response to your request constitutes a TAA and
is issued to you under the authority of s. 213.22, F.S.

STATED FACTS

This letter responds to your XXX letter, which presented your
request for guidance on the applicability of our State's sales
tax on pass-through of security personnel payroll and other
expenses by a condominium master association to various
individual condominium associations under facts and
circumstances you have described, as follows:

[Community] is a condominium community located in XXX.
Security services have previously been provided to the
various condominium associations of [Taxpayer] by a
management company. The security personnel were employed
by the management company, a third party. Therefore, the
charges for services they provided to the individual
condominium associations were subject to sales tax. The
Master Condominium Association, [Taxpayer], is now
proposing to employ the security personnel. The payroll
and other expenses will be allocated to the various
buildings based upon the number of man-hours expended at
each building. The pass-through of costs will be the
actual expenses, with no mark-up to the Master Association.

... [T]he security employees hired by [Taxpayer] will be
considered to be the employees of all of the individual
condominium associations. [Taxpayer] will be legal
employer of the security personnel, withholding all
appropriate income taxes and paying F.I.C.A. and
unemployment insurance contributions on behalf of these
individuals.

No mark-up or profit will inure to [Taxpayer] for the
security personnel payroll and other expenses passed
through to the individual condominium associations.

You further have advised during a subsequent telephone
conversation that the employees hired by [Taxpayer] will be at
the direction and discretion of [Taxpayer]. Additionally, you
indicated that [Taxpayer] and the individual condominium
association are separate legal entities and each have different
federal identification numbers.

You have presented the following question:

Based on the above facts and circumstances, will the
taxpayer be required to collect sales tax on its passthrough of security personnel payroll and other expenses to
the various individual condominium associations?

LAW AND ANALYSIS

Section 212.05, F.S. (1997), provides in part:

Sales, storage, use tax.

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, including the business of making mail
order sales, or who rents or furnishes any of the things or
services taxable under this chapter, or who stores for use
or consumption in this state any item or article of
tangible personal property as defined herein and who leases
or rents such property within the state.

(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:

(j)1. At the rate of 6 percent on charges for all:

a. Detective, burglar protection, and other protection
services (SIC Industry Numbers 7381 and 7382)....

Rule 12A-1.0092, F.A.C., provides in part:

(1) Persons who provide any of the services enumerated in
Industry Numbers 7381 and 7382 of the Standard Industrial
Classification Manual, 1987, are dealers in a taxable
service and are required to charge sales tax on the total
taxable sales price of the service.

(2)(a) Detective, burglar protection, and other protection
services are those services which are rendered to minimize
or prevent loss or damage to life, limb, or property and
are of a kind typically performed by security or alarm
system companies, or are those investigative services which
are rendered to obtain evidence or other information for
legal, business, employment, or personal purposes of a kind
typically performed by detective or investigative agencies.

These taxable services include:

1. Armored car service;
2. Burglar or fire alarm or other security system devices
   monitoring and maintenance;

a. The installation of alarm or security systems that
remain tangible personal property is governed by the
provisions of Rule 12A-1.016, F.A.C.

b. The installation of alarm or security systems that
become a part of real property is governed by the
provisions of Rule 12A-1.051, F.A.C.

c. The monitoring or maintenance of alarm or security
systems is a taxable service for systems that are
considered to be either tangible personal property or a
part of real property. The term maintenance includes any
inspection of an alarm or security system to confirm its
proper working order. The term maintenance does not include
the expansion or upgrade of an existing system, but does
include the replacement of defective components.

3. Detective agency services;
4. Dogs, rental of for protective services;
5. Fingerprint service;
6. Guard service;
7. Investigators, private;
8. Lie detector or polygraph services;
9. Passenger screening services;
10. Protective service, guard; and
11. Security guard service

(b) The services in paragraph (a) above are taxable for all
persons, businesses, residences, or nonresidential
properties.

(d) Security Services Provided to Housing Facilities.

1. Security services, such as vehicle or foot patrols;
   gate, lobby, or entrance guard service; or personnel which

may be dispatched from any other site upon request, are
taxable. The following businesses or persons who charge for
these services must also charge, collect, and remit tax on
those services.

a. Developers, owners, or lessors of residential
developments who charge property owners or residents of
such developments.

b. Homeowner's, condominium, cooperative, or community
associations who charge their members.

c. Operators of apartments, roominghouses, hotels, motels,
and mobile home parks who charge the residents or guests of
such facilities.

2. A charge for the transactions enumerated in subparagraph
3. is considered to be made when:

a. A charge for security services is expressly noted on an
invoice given to the purchaser; or

b. A charge is made for a package of services which, by
agreement, includes security services. See Rule 12A1.0161(7)(a), F.A.C.

(e) The services in this rule are not taxable when provided
by employees to their employers. See Rule 12A-1.0161(3),
F.A.C.

Rule 12A-1.0161, F.A.C., provides in part:

Sales and Use Tax on Services; Sale for Resale.

(1)(a) A tax is imposed on the sale at retail or use in
this state of... detective, burglar protection, and other
protection services described in Rule 12A-1.0092, F.A.C.
The tax is imposed at the rate of 6 percent of the total
sales price or cost price of such service. The tax shall
be computed on each taxable sale or use of a service for
the purpose of remitting the amount of tax due the state,

and shall include each and every such retail sale or use of
a service....

(b) For the purposes of this rule, a service shall mean
those services enumerated in paragraph (a) above....

(3) Services by employees to their employers are exempt.

(a) In determining whether a person is an employee, the
Department will consider the following indicia:

1. Whether the person is paid a wage or salary;

2. Whether the "employer" is required to withhold income
   tax from the person's wage or salary;

3. Whether F.I.C.A. is required to be paid by the
   "employer"; or

4. Whether the "employer" is required to make unemployment
   insurance contributions on behalf of the person.

(b)1. However, if all of the indicia mentioned above are
present, the person is nevertheless not an employee if he
is acting in the capacity of an independent contractor. A
person may be an employee even if one or more of the
indicia are not present and he is not acting as an
independent contractor....

(c)1. A person who provides services for a company on a fee
basis is not an employee of the company where the company
exercises no direct control over the details of performance
of that person's duties beyond general statements about the
scope and nature of that person's obligations under the
contract between that person and the company. In addition,
where fees paid to that person are not subject to
withholding taxes or social security taxes, that person is
not considered an employee of the company. Therefore, that
person's taxable services are subject to sales tax....

(d) Advisory services provided by corporate directors and

board members to their respective corporation(s) are
exempt....

DETERMINATION

Based on the facts presented, Taxpayer has the option of hiring
protection services from a third party or hiring its own
employees to provide protection to the individual condominium
associations. Security personnel employed by a third party
management company would be subject to sales tax pursuant to s.
212.05(1)(j)1.a., F.S. With respect to the hiring by Taxpayer of
its own employees to provide the security services to the
various condominium associations, the facts supplied indicate
that only the Taxpayer, and not any of these associations, has
established a legal employer-employee relationship with such
employees, as it compensates such employees, has full control
over such employees, and is responsible for remitting all
employment related taxes with respect to such employees. Under
Chapter 718, F.S., each association is an entity whose
shareholders or members are comprised of those individuals
owning the condominiums represented by the particular
association. These various associations are distinct entities
from one another. The supplied facts indicate the Taxpayer and
the various condominium associations are separate legal
entities, though they may share some common board members. Thus,
under the provided facts, the employees hired by Taxpayer do no
appear to be employees of the individual condominium
associations. As a consequence, such employees would not be
rendering such security services to their employer, but rather
to a variety of individual entities that have a relationship to
their employer. There is no exemption for security services
provided by individuals to entities that have a relationship to
their employer. Therefore, based on s. 212.05(1)(j)1.a., F.S.,
and Rule 12A-1.0092(2)(d)1.b., F.A.C., Taxpayer must charge,
collect, and remit sales tax on security services provided to
the individual condominium associations, whether invoiced
separately, or included as part of a package of services.

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.

If you have further questions with regard to this matter and
wish to discuss them, you may contact Technical Assistance and
Dispute Resolution, Department of Revenue, P.O. Box 7443,
Tallahassee, Florida 32314-7443.

Sincerely,

Bruce H. Williams
Technical Assistance and Dispute
Resolution
(850) 488-2506

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