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