Could a nonresident exempt an unfinished boat purchase and also avoid tax on later Florida completion work?

Subject

Purchase of Vessel Under Construction Including Repairs and Additions

Plain-English summary

The unfinished vessel's original sale could qualify for Florida's nonresident boat exemption, but the later completion, repair, addition, and modification charges were taxable. The nonresident purchaser took title and possession from the registered manufacturer, executed a removal affidavit, and moved the hull to a registered Florida repair facility after delays and cost disputes.

Florida treated that title transfer as the boat sale. The buyer could preserve the sale exemption only by timely satisfying every condition in the statute and rule, including removal, nonresident status, affidavits, proof of departure, and out-of-state licensing or registration.

The later work was a separate set of transactions with the repair facility and subcontractors. It was not performed under the original seller's construction agreement, so calling it completion of an unfinished boat did not exempt the charges. The buyer owed sales tax on all of that later work.

The ruling also warned that failing to remove the vessel within 20 days after repairs or allowing it to return to Florida within six months after departure would trigger use tax on the boat's cost price.

What this means for you

For a partly built vessel, the point when title and possession transfer can split one project into an exempt nonresident boat sale and taxable later work. Contracts and invoices should clearly identify who agreed to build or modify the vessel, when delivery occurred, and which removal deadlines apply.

Common questions

Q: Did the boat have to be finished before the nonresident sale exemption could apply? No. The ruling conditionally applied the exemption to the unfinished vessel sale after title transferred.

Q: Why was the remaining construction taxable? It arose under later agreements with a repair facility and subcontractors rather than the original sale contract.

Q: Did placing the boat in a registered repair facility eliminate tax on the work? No. Registered-facility status helped with the removal timeline, but the repair and modification billings themselves remained taxable.

Citations and references

• Fla. Stat. § 212.05(1)(a)1.-2. — retail sales and conditional exemption for boats sold to nonresidents
• Fla. Admin. Code r. 12A-1.007(9) — affidavits, repair-facility delivery, removal, proof, and return restrictions
• Fla. Admin. Code r. 12A-1.038(1) — taxability unless exemption is established
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-056

Original ruling text

SUMMARY

A nonresident purchaser executed a removal affidavit, pursuant to the provisions of Rule 12A-1.007(9), F.A.C., and removed a vessel under construction from the manufacturer due to missed deadlines and other delays. Title was transferred upon removal. The nonresident purchaser placed the unfinished vessel with a registered repair facility for completion of the initial construction. The purchaser states that since the vessel was incomplete, the registered repair facility is really not repairing or altering the vessel, but completing the initial construction, therefore, sales tax should not apply to the construction performed. It was determined that these construction repairs and modifications are subject to sales tax on such construction billings since the work performed was not part of any agreement with regard to the initial sale of the boat.

Jul 16, 1998

Re: Technical Assistance Advisement 98(A)-056 Sales and Use Tax - Purchase of Vessel Under Construction Including Repairs and Additions XXX ("Purchaser") Sections: 212.05, F.S. Rules: 12A-1.007(9), 12A-1.038(1), F.A.C.

Dear :

This is a response styled a Technical Assistance Advisement, to your letter dated XXX, concerning the above referenced matter. Your correspondence has been carefully examined and the Department finds it to be in compliance with the criteria set forth in Chapter 12-11, 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

The following facts were provided in your letter:

Purchaser entered into a contract with a vessel manufacturer located in XXX, known as XXX, hereinafter referred to as "Seller," to have a 50 foot sport fishing vessel built. (A copy of the contract between Purchaser and Seller was provided.) Purchaser is a resident of XXX. Due to additional costs and missed deadlines by Seller, Purchaser requested to remove the unfinished vessel and the engines and generator. Seller would not release the vessel to Purchaser unless a sales tax exemption letter was provided from the Department of Revenue. The Purchaser's attorney wrote the Department requesting an opinion on the removal transaction (Exhibit A) and received a response (Exhibit B) on XXX. An Affidavit For Exemption Of Boat Sold For Removal From The State Of Florida By A Nonresident Purchaser was executed and submitted to Seller.

Seller is a registered dealer who holds a valid Florida Certificate of Registration. Purchaser removed the vessel from Seller on January 23, 1998, and moved it to a registered repair facility located in Panama City, Florida. Purchaser is leasing space at the registered repair facility for the purpose of finishing the construction of the vessel. Purchaser is acting as general contractor and does not hold a valid Florida Certificate of Registration for sales tax purposes. The registered repair facility, where the vessel is stored, will be doing some of the work, along with other subcontractors. All subcontractors hold a valid Florida Certificate of Registration for sales tax purposes. The vessel is scheduled to be completed sometime this summer. At no time has the vessel been used for its intended purpose, fishing.

Purchaser certified in a previous letter to the Department, and continues to certify in this request, that the following provisions of Rule 12A-1.007(9), F.A.C., were met:

1.) Seller was a registered dealer who held a valid dealer's Certificate Of Registration issued by the Florida Department of Revenue;

2.) Purchaser removed the vessel and placed it in a registered repair facility for ultimate removal from the State of Florida within twenty (20) days after completion of the repairs or alterations;

3.) Purchaser, as a corporation, has no officer or director who is a resident of, or who makes his or her permanent place of abode in, Florida;

4.) The vessel was delivered to a registered repair facility for immediate work, repair and alterations, which shall be completed by the registered repair facility or its subcontractors, and the vessel was not delivered for the purpose of storage or holding;

5.) Purchaser will file an affidavit when the vessel is completed by the registered repair facility; and,

6.) Once removed from Florida, Purchaser will comply with the remaining provisions of Rule 12A-1.007(9), F.A.C., as required.

The response from the Department (Exhibit B) found that the Purchaser could be exempt from Florida sales tax provided the Purchaser met the requirements of Rule 12A-1.007(9), F.A.C. It also found that all repairs, additions and modifications completed after Purchaser takes possession would be subject to Florida sales tax.

Purchaser agrees with the Department's determination that the purchase by a nonresident can be exempt from sales tax provided the remaining provisions of Rule 12A-1.007(9), F.A.C., are met. Purchaser disagrees with the determination that all repairs, additions and modifications performed after Purchaser takes possession are subject to tax. Purchaser states that the work done by the registered repair facility is really not a repair or alteration, but

rather finishing of the initial construction. Since the vessel was not completed, it has not become a complete product. Purchaser maintains that it has not purchased a completed vessel. Purchaser states that it should pay no sales tax for work performed either before or since the removal from Seller. Purchaser contends that it will comply with Rule 12A-1.007(9), F.A.C., and will register the vessel with the State of Alabama.

REQUESTED ADVISEMENT

You ask: What is Purchaser's liability for sales tax on the above described transactions? The first issue is whether the purchase of a vessel through a Florida registered dealer by a nonresident can be exempt from Florida sales tax. The second issue is whether the additional parts, repairs, and modifications completed in a registered repair facility after Purchaser takes possession of the vessel are subject to Florida sales tax.

LAW AND ANALYSIS

Section 212.05(1)(a)1.a., F.S., imposes a six percent sales tax on the sales price of each article of tangible personal property when sold at retail in this state, unless specifically exempt. Rule 12A-1.038(1), F.A.C., interprets relevant statutory provisions.

However, s. 212.05(1)(a)2., F.S., authorizes an exemption for sales of boats to nonresident purchasers, provided specific statutory requirements are met.

Section 212.05(1)(a)2., F.S., provides in part:

This paragraph does not apply to the sale of a boat or airplane by or through a registered dealer under this chapter to a purchaser who, at the time of taking delivery, is a nonresident of this state, does not make his permanent place of abode in this state, and is not engaged in carrying on in this state any employment, trade, business, or profession in which the boat will be used in this state,

or is a corporation none of the officers or directors of which is a resident of, or makes his permanent place of abode in, this state....

Rule 12A-1.007(9)(a), F.A.C., interprets the specific statutory requirements and is the authority quoted in your letter under which you agree that the transaction between the Seller and Purchaser can be exempt. That rule paragraph provides the following, in part:

(9) Boats.
(a) Effective September 1, 1992:

1. No sales or use tax is due on the sale in this state of
   a new or used boat which meets all the following conditions:

a. The boat is of a class or type which would be required to be registered, licensed, titled, or documented in this state or by the United States Government; and

b. The sale is by or through a registered dealer who is the holder of a valid dealer's certificate of registration issued by the Florida Department of Revenue. Where there is a listing broker for the seller and a broker for the purchaser, the purchaser's broker shall be considered the selling dealer for purposes of this paragraph; and

c. The purchaser removes the boat from this state within 10 days after the date of purchase or, if the boat is repaired or altered, within 20 days after completion of the repairs or alterations; and

d. The purchaser at the time of taking delivery of the boat is not a resident of the State of Florida and does not make his permanent place of abode in Florida; and

e. The purchaser, whether a natural person or a corporation, limited liability company, partnership, joint adventure, association, syndicate, business trust, trust, estate, or other form of artificial entity, is not engaged in Florida in any employment, trade, business, or

profession in which the boat will be used; and

f. The purchaser, if a corporation, has no officer or director who is a resident of, or makes his or her permanent place of abode in, Florida; and

g. The purchaser, if an artificial entity other than a corporation, has no individual vested with authority to participate in the management, direction, or control of the affairs of the entity who is a resident of, or makes his or her permanent place of abode in, Florida. Artificial entities other than corporations include, but are not limited to partnerships, joint adventures, associations, syndicates, limited liability companies, business trusts, trusts, and estates; and

h. The purchaser within 30 days of the boat's departure from Florida furnishes the Department proof of timely removal of the boat from Florida. The documentary proof of removal may be in the form of invoices for fuel, dockage charges, or repairs issued by out-of-state vendors or suppliers, or other documentary evidence which specifically identify the boat and evidence its removal within the time period specified in sub-subparagraph c.; and

i. The purchaser within 90 days of the date of purchase provides the Department with written proof that the boat was licensed, registered, titled, or documented outside this state; and

j. The selling dealer obtains from the purchaser an affidavit in which the purchaser attests that he has read the law providing for the exemption, that he will remove the boat from this state within the time limit set in this paragraph, that no use will be made of the boat in this state other than to move the boat expeditiously out of Florida from the point of delivery or to a registered repair facility if repairs are to immediately follow the purchase of the boat, and that the boat will be removed from this state within 20 days (excluding tolled days) after completion of the repairs or alterations; and

k. The seller provides to the Department within 30 days of the date of purchase a copy of the sales invoice, bill of sale and/or closing statement, and the original removal affidavit signed by the purchaser; and

l. The seller maintains the sales invoice, bill of sale and/or closing statement, and a copy of the removal affidavit signed by the purchaser as part of his records for a period of at least 5 years or until tax imposed by Chapter 212, F.S., may no longer be determined and assessed under s. 95.091(3), F.S....

A nonresident purchaser, who meets the conditions enumerated in the statute and the rule quoted above, is exempt from sales tax on the purchase of a boat.

A nonresident who places a vessel in a registered repair facility for the purpose of repairs, additions and modifications, is subject to sales tax on such repairs, additions and modifications. As quoted above, it is the 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. No specific exemption exists for repairs and modifications to a vessel except that found in s.212.05(1)(a)2., as implemented by Rule 12A-1.007(9)(a), F.A.C.

RESPONSE

Purchaser is not liable for sales tax on the sale of the vessel, provided all of the provisions outlined in Rule 12A-1.007(9), F.A.C., are timely fulfilled. The Purchaser took delivery from the registered dealer on January 23, 1998. At that time title to the hull was transferred. The Purchaser argues that it did not "technically" purchase the boat from Seller but concedes that there was more than one transaction. Purchaser is liable for sales tax on all repairs, additions and modifications performed by the registered repair facility and its subcontractors. These repairs were made pursuant to subsequent transactions and not pursuant to an agreement with regard to the

sale of the vessel.

Purchaser is reminded that if it fails to remove the boat from this state within 20 days after completion of such repairs or alterations, or permits the vessel to return to this state within 6 months from the date of departure, the purchaser shall be liable for use tax on the cost price of the vessel.

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,

Janet Cumbie
Tax Law Specialist
Technical Assistance & Dispute Resolution (850) 922-4847

JCC\
Control No: 34140