Could an interstate railroad and its refrigerated-car subsidiary prorate Florida tax on railcar parts and fuel?

Plain-English summary

Florida allowed mileage-based tax proration for qualifying repair parts and fuel used in the parent railroad's and subsidiary's interstate rail equipment. The parent was a rail common carrier recognized by the Surface Transportation Board, and the refrigerated-car subsidiary operated as an integral part of that interstate business.

The Department treated rolling stock owned by the controlled subsidiary as part of the parent's railroad operation when used for hire in interstate commerce. Repair parts for those cars qualified under the railroad proration rule. Fuel used in the parent's locomotives and in qualifying refrigerated cars also qualified under the cited fuel and railroad provisions.

What this means for you

The result was not a general exemption for any railcar owner. It depended on interstate use, common-carrier status, the statutory mileage ratio, and the subsidiary's operational integration with its parent.

Common questions

Q: Did cars owned by the subsidiary qualify? Yes, on these facts, because they were used as an integral part of the common-carrier parent's interstate operations.

Q: Did both repair parts and fuel qualify? Yes. The ruling approved proration for both categories described in the request.

Q: What was the proration basis? The cited statutes used the ratio of intrastate mileage to interstate or foreign mileage.

Citations and references

• Fla. Stat. § 212.08(9)(a) — railroad interstate-commerce proration
• Fla. Stat. § 212.08(4)(a)2. — qualifying railroad fuel
• Fla. Stat. § 212.0501; §§ 206.874(3), 206.8745 — refrigerated-car fuel provisions cited
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-054

Original ruling text

SUMMARY

QUESTION: Do repairs of rail cars and purchases of fuel for
rail cars qualify for proration?

ANSWER - Based on Facts Below: Repairs of rail cars used in
interstate commerce and owned by a railroad licensed as a
common carrier by the Surface Transportation Board or,
under the circumstances described in the advisement, by a
wholly-owned subsidiary of the railroad qualify for
proration. Fuel purchased for use in those cars also
qualifies.

Oct 07, 1999

Re: Technical Assistance Advisement (99A-054)
Sales and Use Tax -- Proration of Fuel and Parts
Section 212.08(4), (9), F.S.

Dear :

This is in response to your letter to the Florida Department of
Revenue dated August 11, 1999, in which you asked for a
technical assistance advisement indicating that XXX ("Taxpayer")
is entitled to prorate purchases of fuel and parts for railroad
cars for purposes of Florida sales and use taxes. Pursuant to
our conversation of XXX, this advisement addresses only fuel and
repair parts used in railroad cars owned by Taxpayer or by XXX
("Parent").

Facts

Taxpayer is a wholly owned subsidiary of Parent, a rail common
carrier registered with the Surface Transportation Board
("STB"). Taxpayer was formed approximately 80 years ago by order
of the Interstate Commerce Commission ("ICC") to provide
refrigerated rail cars for use in interstate commerce throughout
the United States. Taxpayer was owned by a consortium of

railroads until XXX, when Parent became the sole owner.

Parent and Taxpayer own refrigerated rail cars used to transport
produce or other food products that require temperature control.
These cars require fuel for their cooling equipment. Taxpayer
ordinarily provides its cars to Parent or other railroads for
their use in hauling for growers. Occasionally, Taxpayer may
contract with growers to provide transport services, in which
case Taxpayer's cars are attached to the trains of Parent or
other interstate carriers.

Taxpayer has never been treated as a common carrier by the STB
or its predecessor, the ICC. It has throughout its existence,
however, been regulated by the ICC and STB. Prior to recent
deregulation statutes, Taxpayer's rates were established through
and posted with the ICC. Taxpayer is operated as an integral
part of the Parent's interstate common carrier activities.
Taxpayer has a facility in Florida where rail cars are serviced
and repaired. During the audit period, Taxpayer provided
services and repairs to its own cars and to those of Parent and
other railroads.

Requested Advisements

Taxpayer requests advice on the following issues:

1. Whether repair parts used by Taxpayer to service railroad
   cars owned by Parent and by Taxpayer qualify for proration
   under section 212.08(9), F.S.

2. Whether the fuel purchased by Taxpayer and used in railroad
   locomotives and refrigerated cars owned by Parent or by
   Taxpayer qualifies for proration under section 212.08(4),
   (9), F.S.

Applicable Law, Discussion & Analysis

Section 212.08(9)(a), F.S., provides a partial exemption for
railroad property that is used to transport passengers or
freight in interstate commerce. That statute reads as follows:

(9) PARTIAL EXEMPTIONS; RAILROADS AND MOTOR VEHICLES
ENGAGED IN INTERSTATE OR FOREIGN COMMERCE.--

(a) Railroads which are licensed as common carriers by the
Interstate Commerce Commission and parts thereof used to
transport persons or property in interstate or foreign
commerce are subject to tax imposed in this chapter only to
the extent provided herein. The basis of the tax shall be
the ratio of intrastate mileage to interstate or foreign
mileage traveled by the carrier during the previous fiscal
year of the carrier. Such ratio is to be determined at the
close of the carrier's fiscal year. This ratio shall be
applied each month to the total purchases of the railroad
which are used in this state to establish that portion of
the total used and consumed in intrastate movement and
subject to tax under this chapter.... Railroads which are
licensed as common carriers by the Interstate Commerce
Commission and parts thereof used to transport persons or
property in interstate and foreign commerce are hereby
determined to be susceptible to a distinct and separate
classification for taxation under the provisions of this
chapter.

A brief review of the section's history is helpful in
interpreting its intended scope. Before 1963, Florida did not
tax property used to transport persons or property in interstate
commerce. The exemption was originally in section 212.08(3),
F.S., and later in section 212.08(7), F.S. In either case, it
exempted "vehicles and vessels and parts thereof used to
transport passengers or property in interstate and foreign
commerce." Judicial interpretations limited the exemption to
common carriers engaged in a public business of transport for
value. See L.B. Smith Aircraft Corp. v. Green, 94 So.2d 832
(Fla. 1957); Ruke Transport Line, Inc. v. Green, 156 So.2d 176
(Fla. 1st DCA 1963). The single exemption applied to all
instrumentalities of interstate commerce, including vessels,
rail carriers, trucks, and aircraft.

In 1963, the Legislature changed the exemption for interstate
carriers to a partial exemption based on mileage proration.
Vessels were treated in a separate section. All the other forms

of transport were combined in section 212.08(9), F.S., which
provided: "Vehicles and parts thereof used to transport persons
or property in interstate commerce are subject to tax imposed by
this chapter only to the extent provided herein. The basis of
tax shall be the ratio of intrastate mileage to interstate or
foreign mileage traveled by the carrier during the previous
fiscal year of the carrier,...."

This statute was held not to require that a taxpayer be a common
carrier to claim the exemption, and the Department's attempt to
provide by rule that licensure as a common carrier was required
was rejected. The courts held that contract carriers who were
not licensed or regulated as common carriers could qualify. See
Fruit Growers Coop. Transport v. Department of Revenue, 273
So.2d 142 (Fla. 1st DCA 142); Graf v. Department of Revenue, 292
So.2d 599 (Fla. 1st DCA 1974). Subsequently, the statute was
amended to include the licensure and common carrier
restrictions. The version of section 212.08, F.S., included in
the 1982 Florida Supplement provided proration for vehicles
licensed as common carriers by either the ICC, which regulated
rail and truck carriers, or the Civil Aeronautics Board, which
regulated air carriers. This change in the statute clearly
reflected a rejection of the position taken by the court in
Fruit Growers Coop. and Graf that any taxpayers other than
common carriers were intended to receive the benefit of
proration.

The next substantial change in the exemption was in Chapter 85342, Laws of Florida. That legislation for the first time split
out the exemptions for air, rail, and truck carriers. It
amended section 212.08(9), F.S., by providing for rail carriers
in paragraph (a) and for trucking companies in paragraph (b).
For rail carriers, it incorporated the current language, which
refers both to common carrier status and to ICC licensure. It
maintained those requirements for trucking operations as well.

In the mid-1990's, federal law changes abolished the ICC,
transferred railroad authority to the STB, and largely
deregulated the trucking industry. In response, the Florida
Legislature amended section 212.08(9)(b), F.S., dealing with
motor vehicle common carriers twice. It first struck "licensed

as common carriers by the Interstate Commerce Commission" and
then, in the following year, added language that required
operation as a common carrier. The apparent intent of the two
changes was to retain a common carrier requirement while
recognizing that there was no longer any federal licensing
agency. No changes were made to section 212.08(9)(a), F.S., in
response to the federal law changes. The Department nonetheless
recognizes that the statute should be read by substituting
"Surface Transportation Board" for "Interstate Commerce
Commission," in accordance with the federal statute that
abolished the ICC. The Department also recognizes that, under
the current trend, the STB may not impose the same level of
regulation as the ICC did in the past. The Department
recognizes entitlement to proration if a railroad is recognized
as a common carrier by the STB and is subject to the Interstate
Commerce Act and federal regulations applicable to railroads
operating as interstate common carriers.

Based on the history and current wording of the statute, the
proper interpretation of section 212.08(9)(a), F.S., is that it
is intended to reach the railroad cars and other rolling stock
owned or leased by railroads that are common carriers. It is
appropriate to include within the scope of the exemption rolling
stock owned of record by a controlled subsidiary of a rail
common carrier when, as in this case, that rolling stock is used
to transport persons or property for hire in interstate commerce
as an integral part of the parent corporation's operations.
Under those circumstances, the rolling stock of the subsidiary
is indirectly owned by a railroad common carrier and is being
used as a "part" of the parent's railroad operation. Tax on
repair parts for that rolling stock should be based on the
proration factor set forth in section 212.08(9)(a), F.S.

Pursuant to section 212.08(4)(a)2., F.S., proration of tax on
fuel used in Taxpayer's operations or those of its parent will
be permitted under the same principles as apply to rolling
stock. That statute provides:

2. ... Fuel other than motor fuel and diesel fuel is
   taxable as provided in this chapter with the exception of
   fuel expressly exempt herein. Motor fuels and diesel fuels

are taxable as provided in chapter 206, with the exception
of those motor fuels and diesel fuels used by railroad
locomotives or vessels to transport persons or property in
interstate or foreign commerce, which are taxable under
this chapter only to the extent provided herein. The basis
of the tax shall be the ratio of intrastate mileage to
interstate or foreign mileage traveled by the carrier's
railroad locomotives or vessels that were used in
interstate or foreign commerce and that had at least some
Florida mileage during the previous fiscal year of the
carrier, such ratio to be determined at the close of the
fiscal year of the carrier. This ratio shall be applied
each month to the total Florida purchases made in this
state of motor and diesel fuels to establish that portion
of the total used and consumed in intrastate movement and
subject to tax under this chapter..... The basis for
imposition of any discretionary surtax shall be set forth
in s. 212.054. Fuels used exclusively in intrastate
commerce do not qualify for the proration of tax.

Motor or diesel fuel used in Parent's locomotives is subject to
proration under the specific provision in section
212.08(4)(a)2., F.S. Fuel used in refrigerated cars is taxable
as provided in Chapter 206, F.S., the general fuel tax
provision. That chapter, however, refers the reader back to
section 212.0501, F.S., for the taxation of diesel fuel used in
a taxpayer's own trade or business in equipment like the cooling
apparatus in Taxpayer's cars. See sections 206.874(3) and
206.8745, F.S. Because the tax on that fuel is imposed by
Chapter 212, F.S., it is subject to proration under section
212.08(9)(a), F.S.

Conclusions

1. Repair parts used by Taxpayer to service railroad cars
   owned by Parent and by Taxpayer qualify for proration under
   section 212.08(9), F.S.

2. Fuel purchased by Taxpayer and used in railroad locomotives
   and refrigerated cars owned by Parent or by Taxpayer
   qualifies for proration under section 212.08(4), (9), F.S.

Closing Statement

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 request
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, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of section 213.22, F.S. Confidential information
must be deleted before public disclosure. In an effort to
protect confidentiality, we request you provide the undersigned
with an edited copy of your request for Technical Assistance
Advisement, the backup material and this response, deleting
names, addresses and any other details which might lead to
identification of the taxpayer. Your response should be
received by the Department within 15 days of the date of this
letter.

Sincerely,

Linda W. Bridges
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 922-9412

LWB/
Enclosure.: Rule 12A-1.039
Control #: 38592