Could Florida penalize a car-rental dealer for charging tax to an exempt charity when the dealer later refunded it?

Plain-English summary

Florida agreed that the charitable foundation's car rental was exempt. The foundation held a consumer's certificate of exemption, its director was authorized to act for it, and the foundation paid the dealer directly. The rental dealer nevertheless charged tax and later refunded it.

The Department concluded that it could not penalize or otherwise sanction the dealer. The statutes did not make collection of tax on an exempt transaction illegal and did not provide a penalty when the dealer subsequently refunded the erroneous charge.

That did not allow a dealer to keep tax collected by mistake. The ruling said a dealer must refund erroneous tax when the customer requests it or, if no refund is requested, remit the collected amount to the Department. The Department referred the issue to taxpayer-education personnel but could not disclose confidential communications with the dealer.

Common questions

Was the foundation's rental exempt? Yes. It held an exemption certificate, used an authorized employee, and paid the dealer directly.

Did the dealer collect tax in error? Yes. The dealer later refunded that amount to the foundation.

Could the Department impose a penalty? No. The TAA found no statutory authority for a monetary or other sanction on these facts.

What must a dealer do with tax collected by mistake? Refund it to the customer on request or remit it to the Department.

Citations and references

• Fla. Stat. §§ 212.08, 212.084(1), (2), and 212.15(1)
• Fla. Admin. Code rr. 12A-1.001 and 12A-1.014(7)
• Fla. Stat. §§ 213.053(2) and 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-097

Original ruling text

SUMMARY

A non-profit Foundation holding a consumer's certificate of
exemption issued by the Department argued that a Dealer
violated the law or Department guidelines by charging tax
to the Foundation on a car rental transaction, where the
Foundation's Director presented the Foundation's consumer's
certificate of exemption at the time of the transaction,
and where the Dealer later refunded the tax to the
Foundation. Unfortunately, the Florida Statutes do not
provide for the imposition of any penalty, monetary or
otherwise, upon dealers that improperly collect tax on
exempt transactions; nor do the statutes provide that it is
illegal to collect tax on exempt transactions. The Dealer
did comply with the statutory requirement that taxes
collected in error be refunded at the customer's request.

Since the Legislature has not provided the Department with
sanctions to impose against a dealer that collects tax on
an exempt transaction and subsequently refunds that tax,
the Department is unable to impose sanctions against
Dealer. The Department will refer to its taxpayer education
personnel the situation the Foundation has brought to its
attention so these personnel can inform taxpayers of the
proper way to treat this type of transaction.

Dec 22, 1998

Re: Technical Assistance Advisement 98A-097
Sales and Use Tax
Legality of Tax Charged to Charitable Organization
Section 212.08, F.S.
Rules 12A-1.001, 12A-1.014,F.A.C.

Dear :

This response to your letter of May 20, 1998, constitutes a
Technical Assistance Advisement (TAA) issued in accordance with

the provisions of Chapter 12-11, Florida Administrative Code
(F.A.C.), and pursuant to the authority granted by s. 213.22,
Florida Statutes (F.S.).

FACTS

The XXX (Foundation), is a charitable organization that
holds a Florida Consumer's Certificate of Exemption. While on
Foundation business, the Foundation's managing director
(Director) rented a car from a national rental car company
(Dealer). After the parties entered into the rental agreement in
Florida, the Director paid for the rental using the Foundation's
Visa card and took possession of the car in Florida. Although
the Director presented a copy of the Foundation's consumer's
certificate, the Dealer charged tax on the transaction. When the
Director told the Dealer it was improperly charging tax on an
exempt transaction, he was informed: (1) that the computer
system automatically calculated and charged tax on the
transaction, and (2) that the agent at the counter was unable to
override the system to exempt the transaction from sales tax.
Shortly after the original transaction, the Foundation received
a refund of the tax from the Dealer.

ISSUE

Whether the Dealer violated the law or any Department
guidelines by charging tax to the Foundation on a car rental
transaction, where the Foundation's Director presented the
Foundation's consumer's certificate of exemption at the time of
the transaction, and where the Dealer later refunded the tax to
the Foundation.

TAXPAYER'S POSITION

The Foundation argues, in essence, that the Department is
responsible for preventing, or at least discouraging, dealers
from collecting tax on transactions with exempt entities.

On July 16, 1998, a Tax Law Specialist with the Department
issued to the Foundation a non-binding letter setting forth the
Specialist's opinion on the same issues raised in the

Foundation's current TAA Request. The Foundation, however,
disputes the Specialist's determination that dealers do not
violate the law when they collect tax on an exempt transaction
and promptly refund that tax after verifying that the
transaction was indeed exempt from tax. In her letter of July
16, 1998, the Specialist observed that

a dealer who improperly exempts a transaction upon which
tax is due is liable to the state for such tax, together
with penalty and interest thereon. Therefore, a dealer has
a valid reason for exercising caution when a purchaser is
claiming that an otherwise taxable purchase should be
exempt. If specific procedures for documenting an exemption
are not followed exactly, a dealer can incur a substantial
tax liability. Businesses with high employee turnover, or
with employees who generally have little tax experience may
prefer to have the decision as to whether the transaction
is exempt made by experienced staff. Since tax is due at
the moment of the sale, this may mean that the tax needs to
be collected from the customer and later credited back once
the evaluation is complete. The purchaser always has a
remedy available if tax is improperly collected, and not
credited, as it can request a refund from the dealer. In
your particular instance, [the Dealer] made its evaluation
and then acted correctly in crediting the tax back to the
foundation.

In response, the Foundation asserts:

...the [S]pecialist actually makes excuses for the company
to wrongly charge an exempt customer tax by inventing
hypothetical scenarios of businesses with high employee
turnover, or employees not familiar with the tax laws. The
[S]pecialist did this with no knowledge of the internal
structure of [the Dealer] or the dispositions or
qualifications of its employees. Nowhere in the paragraph
does it refer to the inconvenience incurred by [the
Foundation], but only to that of [the Dealer].
Additionally, the [S]pecialist completely overlooked the
statement in [The Foundation's] original letter that after
[the Foundation] was refunded the tax-obviously because

[Dealer] personnel concluded that [the Foundation was]
sales-tax exempt-[the Foundation's Managing Director] was
told [he] would have to go through the same tedious
procedure every time [the Foundation] rented a car from
[the Dealer].

... never has [the Foundation], in its nearly ten-year
existence, encountered the lack of cooperation with respect
to sales tax that [it] did with [the Dealer].

[The Foundation] found the scenario on which the
[S]pecialist based a determination to be absurd and
insulting. (TAA Request).

In a supplemental letter to its TAA Request (Supplemental
Letter), dated August 11, 1998, the Foundation argues that it is

not aware of any Contrary Authority to [its] contention
that [the Dealer] might have been in violation of the law
by refusing to honor [the Foundation's] tax-exempt status.
[The Foundation] contend[s] that it is incumbent upon the
Department of Revenue to determine not only whether Florida
[S]tatutes were violated, but also whether Department of
Revenue administrative or operational policy guidelines
were violated, and what steps the Department might take to
rectify the situation.... [The Foundation] continue[s] to
find it hard to believe that it is not within [the
Department's] discretionary authority to issue a
clarification, warning, or merely a suggestion to [the
Dealer] that the company deal with sales-tax exempt
entities in a manner consistent with the business practices
of virtually every other vendor [the Foundation] has dealt
with in its... history.

STATUTORY AND ADMINISTRATIVE AUTHORITY

Section 212.08(7)(o)1.b., F.S., 1998 Supplement, exempts
from the sales and use tax:

Sales or leases to nonprofit religious, nonprofit
charitable, nonprofit scientific, or nonprofit educational

institutions when used in carrying on their customary
nonprofit religious, nonprofit charitable, nonprofit
scientific, or nonprofit educational activities, including
church cemeteries....

Section 212.084(1), (2), F.S., authorizes the Department to
issue sales tax exemptions certificates, to review each entity
holding a certificate to ensure that the entity is "actively
engaged in an exempt endeavor," and to revoke the certificates
of non-qualifying entities.

Rule 12A-1.001(3)(a), F.A.C., implements Section
212.08(7)(o)1.b., F.S., and provides in pertinent part that
sales or leases "... directly to... nonprofit charitable
institutions... for use in the course of their customary...
nonprofit charitable activities... are exempt from the tax
imposed by Chapter 212, F.S." The Rule also provides that

... payment must be made directly to the dealer by the
exempt entity. See subparagraph (9)(d)2. of this rule for a
suggested document to be provided the dealer by an employee
who has been authorized to make purchases on behalf of a
nonprofit organization when payments are made directly to
the dealer by the exempt entity. This exemption shall not
inure to any transaction otherwise taxable when payment is
made by an exempt entity's employee by any means, including
but not limited to, cash, check, or credit card, when that
employee is subsequently reimbursed by the exempt entity.
See Rules 12A-1.038 and 12A-1.039, F.A.C.

Rule 12A-1.001(9)(d)2., F.A.C., suggests a format for the
document to be executed by an exempt nonprofit employer
authorizing an employee to make purchases on its behalf. This
document must be given by the named employee to the dealer to
support the exempt nature of the sale.

Rule 12A-1.014, F.A.C., provides in pertinent part:

(7) A taxpayer who has overpaid tax to a dealer, or who has
paid tax to a dealer when no tax is due, must secure a
refund of the tax from the dealer and not from the

Department of Revenue.

ANALYSIS

Pursuant to Section 212.084(1), (2), F.S., the Department
is authorized to issue sales tax exemption certificates, to
review each entity holding a certificate to ensure that the
entity is "actively engaged in an exempt endeavor," and to
revoke the certificates of non-qualifying entities. The
Foundation held a consumer's certificate of exemption at the
time of the car rental transaction, and was exempt from the
taxes imposed by Chapter 212, F.S., on car rental transactions.

In addition, the Foundation's Director apparently possessed
an authorization from the Foundation to make purchases or leases
on its behalf. See Rule 12A-1.001(9)(d)2., F.A.C. The Director
paid the Dealer directly, on behalf of the Foundation, in
accordance with the provisions of Rule 12A-1.001(3)(a), F.A.C.
The Dealer collected tax on the exempt transaction, and
subsequently refunded the tax to the Foundation.

Unfortunately, the Florida Statutes do not provide for the
imposition of any penalty, monetary or otherwise, upon dealers
that improperly collect tax on exempt transactions; nor do the
statutes provide that it is illegal to collect tax on exempt
transactions. Nevertheless, dealers are required to refund to
the customer any taxes collected in error or, in the absence of
a refund request, to remit those taxes to the Department. See
Rule 12A-1.014(7), F.A.C.; Section 212.15(1), F.S.

When taxpayers encounter what they believe to be unjust or
illegal tax collection practices, the Department encourages
these taxpayers to bring the practices to the attention of the
Department. The Department commends the Foundation for taking
the initiative to seek clarification of the tax laws, and to
report suspected violations of them.

It is a fundamental principle of Florida law that state
agencies must adhere to the law set forth by the Legislature in
the Florida Statutes, and may not enlarge, modify, or contravene
statutory provisions. See Department of Business Regulation v.

Salvation Ltd., 452 So.2d 65 (Fla. 1st DCA 1984); Department of
Health and Rehabilitative Services v. McTigue, 387 So.2d 454
(Fla. 1st DCA 1980); 4245 Corp. v. Division of Beverage, 371
So.2d 1032 (Fla. 1st DCA 1978); Florida Growers Coop. Transport
v. Department of Revenue, 273 So.2d 142 (Fla. 1st DCA 1973),
cert. denied, 279 So.2d 33 (Fla. 1973). Thus, although Dealer's
taxing practices created an administrative inconvenience for the
Foundation, and may inconvenience other exempt organizations
conducting business in this state, careful review of the
applicable statutes and administrative provisions reveals that
Dealer's taxing practices are not illegal. In addition, since
there is no statutory basis for imposing sanctions upon a dealer
that collects tax on an exempt transaction, the Department has
no "administrative or operational policy guidelines" applicable
to these circumstances.

The Department has undertaken numerous efforts to educate
taxpayers regarding their responsibilities, and will continue to
educate all dealers of the way in which exempt transactions
should be handled. The strict confidentiality restrictions of
Section 213.053(2), F.S., however, prevent the Department from
revealing to the Foundation information learned in any
communication, whether formal or informal, that the Department
has with any dealer or taxpayer in the state.

DETERMINATION

The Legislature has not provided the Department with
sanctions to impose against a dealer that collects tax on an
exempt transaction and subsequently refunds that tax.
Consequently, the Department is unable to impose sanctions
against Dealer. We will refer to our taxpayer education
personnel the situation the Foundation has brought to our
attention so they can inform taxpayers of the proper way to
treat this type of transaction.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., and 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 from that
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 that 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.

Should you have any questions concerning this Advisement,
please do not hesitate to contact me.

Sincerely,

Rebecca Newton-Clarke
Attorney
Technical Assistance & Dispute Resolution
(850) 488-9669

RNC/
Control No. 34980