Were client-paid employee health-insurance charges part of the taxable price of Florida security services?

Subject

Healthcare Benefit Determination

Plain-English summary

The client's contribution toward security employees' health-insurance premiums was taxable as part of the security-service charge. Florida taxed detective, burglar-protection, and other protection services on their total taxable sales price.

The contract made eligible employees responsible for electing coverage. If coverage was elected, the client subsidized part of the monthly premium and the employee paid the rest through payroll deductions. Although the security company billed the client's share on a separate monthly invoice, the Department found that providing the benefit furthered the taxable security service, so the entire client charge remained taxable.

What this means for you

Separately stating a reimbursement or employee-benefit charge does not necessarily remove it from the taxable price of a service. The Department looked at whether the expense helped provide the taxable security service, not merely at how it appeared on the invoice.

Common questions

Q: Were security services taxable? Yes. The ruling applied Florida's tax on detective, burglar-protection, and other protection services.

Q: Did separate health-insurance invoices avoid tax? No. The client's premium contribution was taxable even though billed independently of the regular security invoice.

Q: Did it matter that coverage was optional? Not enough on these contract terms. Employees elected coverage, and the Department did not read the option as solely within the client's discretion.

Citations and references

• Fla. Stat. § 212.05(1)(j)1.a. and (2) — detective, burglar-protection, and other protection services
• Fla. Admin. Code r. 12A-1.0092(1) (1993 and 1998 versions) — tax on the total taxable sales price
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-078

Original ruling text

SUMMARY

The issue is whether payments by taxpayer's clients for
health care benefits provided to taxpayer's Florida
employees are subject to sales tax as part of the
consideration for providing security services to its
clients.

Pursuant to Section 212.05(1)(j) F.S., security services,
such as those provided by your company, are taxable. Based
upon the specific provisions of the taxpayer's contract,
employees have the option of purchasing health care
coverage. The option is not written in such a manner for
it to be reasonably interpreted as an option that is solely
at the discretion of the client. Rule 12A-1.0092(1),
F.A.C., as it read during the period in question and as it
reads today, makes it clear that sales tax is imposed on
the total taxable sales price of the service. Based on the
foregoing discussion, the charge made by the taxpayer to
the client for its portion of the employees' insurance
premiums is subject to tax, regardless of whether the
charge is separately stated.

Oct 22, 1998

Re: Technical Assistance Advisement 98A-078
XXX ("the taxpayer")
Sales and Use Tax - Healthcare Benefit Determination
Section: 212.05(1)(j)1.a. and (2), F.S.
Rule:

12A-1.0092, F.A.C.

Dear :

This is a response to your letter dated August 7, 1998,
requesting a Technical Assistance Advisement (TAA) regarding the
taxability of healthcare benefits provided to your security
service employees. This response to your request constitutes a
TAA under Chapter 12-11, Florida Administrative Code (F.A.C.),

and is issued to you under the authority of section 213.22,
Florida Statutes (F.S.).

REQUESTED ADVISEMENT

The issue is whether payments by taxpayer's clients for health
care benefits provided to taxpayer's Florida employees are
subject to sales tax as part of the consideration for providing
security services to its clients.

FACTS

In your request, you state:

... This request is derived from [an] audit that was for
the period of 04/01/93 - 03/31/98. During this audit,
[taxpayer] was assessed for exceptions noted for a
healthcare benefit that is provided to our employees.

We have paid the taxes assessed in the audit; however,
there still appears to be some confusion as to the
taxability of these items[;] therefore, I am writing to
receive an official statement for clarification....

[The taxpayer] provides public safety and security services
to regional shopping centers. [The taxpayer] offers within
an addendum to our security contracts the optional
provision for health insurance benefits. The client may
start or stop this coverage at any time. This is not
something that we are required to provide to our employees
by law. If the client agrees to provide this benefit, and
the employees are eligible for coverage, there is an amount
that is invoiced to the client and generally a payroll
deduction for the employee. Additional coverage for family
insurance is at the employee's expense. Separate invoices
for health insurance are sent out on a monthly basis,
independent of our security services invoice....

The taxpayer has provided a copy of the contract and the
necessary addendums. Pertinent provisions from the contract
addendums include:

ADDENDUM B

RATE QUOTATIONS

GENERAL INFORMATION

(B) Billing rates shown do not include provision for
optional health insurance benefits. The cost of this
benefit is currently calculated at $154.00 per month for
individual coverage. It is proposed that any eligible
employee who chooses to participate in the program would
contribute $33.00 per month of the premium cost through biweekly payroll deductions and that [client] would subsidize
the balance of the premium ($121.00 per month per covered
employee). If elected, the additional costs for family
health coverage would be at the employee's expense.
Separate invoicing for health insurance would be provided
on a monthly basis. (emphasis supplied.)

ADDENDUM B

EMPLOYEE BENEFITS

(E) HEALTH INSURANCE: All employees of the Public Safety
Staff who work at least 32 average hours per week, are
eligible to elect Benefit coverage with [the taxpayer].
(emphasis supplied.)

APPLICABLE LAW

The following statutory and administrative law is relevant to
the issue under advisement:

Section 212.05(1)(j)1.a. and (2), F.S., provides:

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). . . .

***

2. As used in this paragraph, "SIC" means those
   classifications contained in the Standard Industrial
   Classification Manual, 1987, as published by the Office of
   Management and Budget, Executive Office of the President.

Rule 12A-1.0092(1), F.A.C. (1993), provides:

(1) On or after September 1, 1992, persons who provide any
of the services enumerated in this rule are considered to
be dealers in that service and are required to charge sales
tax on the total taxable sales price of the service.
(emphasis supplied.)

Rule 12A-1.0092(1), F.A.C. (1998), provides:

(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. (emphasis supplied.)

DETERMINATION

Pursuant to Section 212.05(1)(j), F.S., security services, such
as those provided by your company, are taxable. Based upon the
above-referenced provisions of the taxpayer's contract,
employees have the option of purchasing health care coverage.
The option is not written in such a manner for it to be
reasonably interpreted as an option that is solely at the
discretion of the client. Rule 12A-1.0092(1), F.A.C., as it
read during the period in question and as it reads today, makes
it clear that sales tax is imposed on "the total taxable sales
price of the service."

The provision of benefits is required to accomplish the purpose
of the taxable security services; thus, the entire charge is
taxable. Since the provision of benefits is in furtherance of
the taxable security service, the entire charge is subject to
tax. Based on the foregoing discussion, the charge made by the
taxpayer to the client for its portion of the employees'

insurance premiums is subject to tax, regardless of whether the
charge is separately stated.

This response constitutes a Technical Assistance Advisement
under Section 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the requests
for this advice, as specified in Section 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 Section 213.22,
F.S. Your name, address, and any other details that might lead
to identification of the taxpayer must be deleted by the
Department before disclosure. In an effort to protect the
confidentiality of such information, we request you notify the
undersigned in writing within 15 days of any deletions you wish
made to the request or response.

Sincerely,

Jennifer J. Silvey
Attorney
Technical Assistance & Dispute Resolution

Control #: 34983