Were online-course marketing, tuition collection, revenue sharing, and banner-advertising fees taxable in Florida?

Subject

Internet Marketing and Educational Services and Internet Banner Advertising Services

Plain-English summary

Florida did not tax the described online-course tuition, marketing revenue shares, or internet banner-advertising payments. The company marketed technical-training programs, linked students to training providers, handled electronic enrollment and tuition payments, and divided revenue with the training provider and cooperating schools. It also displayed advertiser-created banners tied to internet search words and linked users to the advertiser's website.

The Department found that these arrangements did not make the company a telecommunications provider or seller of another taxable service. The result depended on no customer or partner gaining ownership or control of the company's computer hardware, and on the contracts not including a sale, rental, lease, or license of hardware, off-the-shelf software, canned software, or telecommunications.

The company still had to pay tax as the consumer of taxable telecommunications, property, or services used to perform its work. Separately charged books or other instructional materials sold to students would also be taxable and were outside the ruling's approval.

What this means for you

The Department analyzed what the contracts actually supplied. Marketing, enrollment, payment processing, education, and banner placement remained nontaxable services on these facts because the customer received no equipment or software rights and paid no telecommunications charge. Adding those items could change the treatment.

Common questions

Q: Was student tuition collected through the website taxable? No. The tuition collected for the described online educational service was not subject to sales tax.

Q: Were revenue shares paid to the marketer taxable? No. The ruling did not tax the divisions of program revenue under the proposed agreements.

Q: Were internet banner-ad fees taxable? No, where the advertiser supplied its own banner content and received no tangible property, hardware control, software license, or telecommunications service.

Q: What costs did the online-service company still pay tax on? It was the consumer of the telecommunications, taxable property, and taxable services it used. Separately sold books or instructional materials were also taxable.

Citations and references

• Fla. Stat. § 203.012(5) — telecommunication service and exclusion for internet or similar online services
• Fla. Stat. § 212.05(1) — taxable property and enumerated services
• Fla. Stat. § 212.05(1)(b) — use tax on property consumed in Florida
• Fla. Stat. § 212.08(7)(v)1. — professional and personal service transactions
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-083

Original ruling text

SUMMARY

Taxpayer, a Florida corporation, provided proposed
contracts for providing (1) Internet Marketing and
Educational Services, and (2) Internet Banner Advertising
Based upon the provided agreements, taxpayer is not
providing a telecommunication service nor any other service
which would subject its revenue division, tuition
collection, and internet banner advertising services to
Florida's gross receipts tax nor to Florida Sales and Use
Tax. Further, the Internet marketing services and Internet
banner advertising services provided under the agreements
are not subject to sales and use tax if the following
considerations apply; (1) no entity gains any ownership
interest or control of the taxpayer's computer hardware;
(2) taxpayer's services do not include transactions
regarding the development, purchase, sale, rental, lease,
or license to use hardware, or "off-the-shelf" or canned
software; and (3) taxpayer's services do not include
charges for telecommunication services.

Nov 16, 1998

Re: Technical Assistance Advisement 98A-083
XXX ("the taxpayer")
Gross Receipts Tax and Sales and Use Tax
Internet Marketing and Educational Services and Internet
Banner Advertising Services
Sections: 203.012(5), 212.05(1), 212.08(7)(v), F.S.
XXX ("Corporation X")

Dear :

This is a response to your letter dated September 3, 1998,
requesting a Technical Assistance Advisement (TAA) regarding the
referenced matter. 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.).

FACTS

The following facts have been established through your letter
and the attached copies of the taxpayer's proposed agreements.

A. Internet Marketing and Educational Services

The taxpayer is a Florida corporation. There are two contracts
that control the provision of these services, which were
designated as Exhibits A and B. Upon examination of the
contract between the taxpayer and Corporation X (Exhibit A) and
the contract between the taxpayer and the cooperating schools
(Exhibit B), the agreements provide for cooperation to offer and
establish on-line technical training services.

Exhibit A is titled "On-Line Technical Training Agreement
Between [Taxpayer] and [Corporation X]." The stated purpose is
"to allow for the parties to jointly create, maintain, operate
and market the Program." The Program consists of educational
training programs that lead to certification status in various
computer related disciplines. The contract specifies that the
parties are independent contractors of each other.

The contract specifically requires the taxpayer to perform the
following obligations:

1) establish a website address for itself;

2) "[b]e responsible for, at its cost, all on-line
marketing, on-line advertising and on-line promotion in
connection with the Program..." on its home page;

3) maintain a home page at the established website address,
on which the taxpayer will sell the Program, and the home
page will have a link to the training site maintained by
Corporation X; and

4) "[m]aintain an electronic commerce service that will
allow students to enroll in courses and pay by credit card

or electronic check payment draft in a real time
authorization mode."

Further, the contract requires Corporation X to perform the
following obligations:

1) "[b]e responsible to maintain, offer and/or host on-line
training services pursuant to the Program and conduct
related activities such as chat and discussion groups, all
at [Corporation X's] cost" and

2) "[o]ffer, pursuant to the Program, substantially the
same suite of classes at substantially the same times and
availability as similar classes being offered directly by
[Corporation X] for on-line technical training...."

The contract referred to as Exhibit A contains an addendum
titled "Exhibit 'A'" that demonstrates the division of proceeds
between taxpayer, Corporation X, and other cooperating schools.
The table illustrates the various revenue sharing formulas that
will be used in dividing the funds. The table indicates:
Corporation X will host the site via which the training services
will be provided, the taxpayer or Corporation X may provide the
training services, and marketing may be performed by the
taxpayer, the cooperating schools, or another taxpayer referral
source.

The second contract (Exhibit B) is titled "Cooperating School
On-Line Training Agreement." It is substantially similar to the
first contract (Exhibit A). There are no relevant differences
in the provisions. The second contract merely provides for
cooperation between the taxpayer and cooperating schools (any
school that taxpayer contracts with) in offering students online training services provided through the taxpayer's home
page.

The taxpayer is obligated to maintain a home page; provide all
on-line marketing, advertising, and promotion; maintain the
electronic commerce service for payments; and determine "the
prices to be charged students enrolling for courses or other
services provided included in the Program." The cooperating

school is obligated to establish or maintain a home page that is
linked to the taxpayer's home page "in such a manner that all
inquiries made from parties accessing Cooperating School's home
page for the technical training or courses offered as part of
the Program shall be linked to [the taxpayer's] home page and
any course enrollments shall be made through the electronic
commerce service established by [the taxpayer] to support this
Agreement" and "be responsible, at its cost, for all on-line
marketing, on-line advertising and on-line promotion in
connection with the Program on Cooperating School's home
page...." Further, the contract provides for the revenues to be
divided between the parties based upon whose home page produced
the enrollment and who provides the training services. The
taxpayer is specifically not responsible for the cooperating
school's home page. The cooperating school is specifically
responsible for any refunds or claims based upon a paid
student's inability to access classes or other services due to
failures of the cooperating school's home page.

During a telephone conference with the taxpayer's representative
on October 5, 1998, it was confirmed that the taxpayer only
receives payments for tuition via electronic commerce and that
the taxpayer does not provide "website hosting" for other
companies.

B. Internet Banner Advertising Services

The taxpayer is a Florida corporation. There is one contract
specifying the involved service, designated as Exhibit C. Upon
examination of the contract, the advertising agreement (Exhibit
C) provides for the taxpayer to establish and maintain an
Internet banner advertisement for the advertiser.

Exhibit C is titled "Internet Banner Advertising Agreement."
The stated purpose is "to provide certain Internet advertising
opportunities to Advertiser through services provided by
[taxpayer] all as more specifically described below
('Advertising Program')." The Advertising Program, as explained
in the contract, consists of the taxpayer's ability to acquire
limited rights to use certain "search words" in a manner that
allows the taxpayer to display advertising banners on a

searching party's (a person searching the Internet) monitor
based upon the "search words" that the searching party has
entered. Taxpayer can link these banners in such a manner so
that if a searching party "clicks" on the banner, the person
will be immediately linked to the website designated by the
advertiser. The advertising fees that taxpayer receives are for
the provision of the above described service.

Further, the contract specifically provides the following:

1) the parties are independent contractors to each other;

2) the advertiser "shall compose and be solely responsible for
the graphic depictions and other contents of Advertiser's Banner
and Advertiser's home page....;"

3) the advertiser's rights are "strictly limited to Internet
searches initiated from personal computers located within the
geographic territory described...;" and

4) the taxpayer is not responsible for Internet and system
failures beyond its control, which specifically includes any
failures by Internet access providers.

During a telephone conference with the taxpayer's representative
on October 5, 1998, it was confirmed that the taxpayer does not
provide any tangible personal property to the advertisers nor
does the taxpayer create advertisements for the advertisers.

REQUESTED ADVISEMENT

In your letter, you request the following rulings:

1. The computer related services by which (the taxpayer) will
   provide internet links to educational service providers and
   enrollment of students in computer courses and collection of
   tuition from such students are not subject to the Florida gross
   receipts tax, the Florida television system program service tax,
   or any other tax imposed by F.S. Section 212.05.

2. The banner advertising to be provided by (the taxpayer) is

not subject to the Florida sales tax, the Florida gross receipts
tax, the Florida television system program service tax, or any
other tax imposed by F.S. Section 212.05.

APPLICABLE LAW

The following statutory laws are relevant to the issues under
advisement:

Section 203.012(5), F.S., provides:

(5) The term "telecommunication service" means:
(a) Local telephone service, toll telephone service, telegram or
telegraph service, teletypewriter service, or private
communication service; or

(b) Cellular mobile telephone or telecommunication service; or
specialized mobile radio, and pagers and paging, service,
including but not limited to "beepers" and any other form of
mobile and portable one-way or two-way communication; but does
not include services or equipment incidental to
telecommunication services enumerated in this paragraph such as
maintenance of customer premises equipment, whether owned by the
customer or not, or equipment sales or rental for which charges
are separately stated, itemized, or described on the bill,
invoice, or other tangible evidence of the provision of such
service.

The term "telecommunication service" does not include any
Internet access service, electronic mail service,
electronic bulletin board service, or similar on-line
computer service. (Emphasis Supplied)

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

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:

(a)1.a. At the rate of 6 percent of the sales price of each
item or article of tangible personal property when sold at
retail in this state, computed on each taxable sale for the
purpose of remitting the amount of tax due the state, and
including each and every retail sale.

(b) At the rate of 6 percent of the cost price of each item
or article of tangible personal property when the same is
not sold but is used, consumed, distributed, or stored for
use or consumption in this state;....

(c) At the rate of 6 percent of the gross proceeds derived
from the lease or rental of tangible personal property, as
defined herein;....

(d) At the rate of 6 percent of the lease or rental price
paid by a lessee or rentee, or contracted or agreed to be
paid by a lessee or rentee, to the owner of the tangible
personal property.

(e)1. At the rate of 6 percent on charges for:
a. All telegraph messages and long-distance telephone calls
beginning and terminating in this state, telecommunication
service as defined in s. 203.012, and those services
described in s. 203.012(2)(a), except that the tax rate for
charges for telecommunication service is 7 percent.

b. Any television system program service.

c. The installation of telecommunication and telegraphic
equipment.

d. Electrical power or energy, except that the tax rate for
charges for electrical power or energy is 7 percent.

2. For purposes of this chapter, "television system program
service" means the transmitting, by any means, of any audio
or video signal to a subscriber for other than
retransmission, or the installing, connecting,
reconnecting, disconnecting, moving, or changing of any
equipment related to such service. For purposes of this
chapter, the term "telecommunication service" does not
include local service provided through a pay telephone....

Section 212.08(7)(v)1., F.S., provides:

(v) Professional services.1. Also exempted are professional, insurance, or personal
service transactions that involve sales as inconsequential
elements for which no separate charges are made.

Discussion & Determination

Upon review of the educational and marketing agreements provided
(Exhibits A and B), payments made by students to the taxpayer,
for the provision of educational services, and the revenue
division made for the marketing of the educational services,
for itself and others, are not subject to sales tax.
Additionally, upon review of the advertising agreement (Exhibit
C), payments made by advertisers (clients) to the taxpayer, for
Internet banner advertising, are not subject to sales tax.

Pursuant to Section 212.08(7)(v)1., F.S., the sale of
professional services is not subject to sales tax. This
exemption includes transactions that involve sales as
inconsequential elements, when no separate charge is made for
the tangible personal property. Thus, the revenues that taxpayer
divides with other entities, the tuition that it receives from
students for this service, and payments by advertisers for
Internet banner advertising are not subject to sales tax.

However, taxpayer should be aware that separate charges for
tangible personal property, such as books or other instructional
materials, are subject to sales tax. Since the taxpayer has not
provided any information regarding sales of tangible personal

property to the students nor requested advisement concerning
such sales, this advisement is limited to the collection of
tuition, revenue division, and Internet banner advertising
discussed herein.

The taxpayer is deemed to be the ultimate consumer of the
telecommunication services used in providing these services and
is liable for the applicable taxes on those purchases. Further,
the taxpayer should pay sales tax on any taxable tangible
personal property or services that it consumes in providing its
educational and marketing services as well as its provision of
Internet banner advertising services. Section 212.05(1)(b),
F.S.

Based upon the provided agreements, taxpayer is not providing a
telecommunication service nor any other service which would
subject its revenue division, tuition collection, and Internet
banner advertising services to Florida's gross receipts tax nor
to Florida Sales and Use Tax. Further, the Internet marketing
services and Internet banner advertising services provided under
the agreements are not subject to sales and use tax if the
following considerations apply: (1) no entity gains any
ownership interest or control of the taxpayer's computer
hardware; (2) taxpayer's services do not include transactions
regarding the development, purchase, sale, rental, lease, or
license to use hardware, or "off-the-shelf" or canned software;
and (3) taxpayer's services do not include charges for
telecommunication services.

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 #: 35248