Florida Sales and Florida Sales and Use Tax Use Tax

Exemptions and Exemptions and ExclusionsExclusions

Florida Taxation and Budget Reform Florida Taxation and Budget Reform CommissionCommission

Finance and Taxation CommitteeFinance and Taxation Committee

August 17, 2007August 17, 2007

General Principles of Sales General Principles of Sales and Use Taxand Use Tax

General PrinciplesGeneral Principles The taxable event must take place in Florida.The taxable event must take place in Florida. The taxable event must involve the ultimate The taxable event must involve the ultimate

consumer (i.e., be a retail transaction). consumer (i.e., be a retail transaction). Pyramiding of tax on the same property or Pyramiding of tax on the same property or

event is to be avoided.event is to be avoided. The economic burden may fall on the consumer, The economic burden may fall on the consumer,

but the collection responsibility falls on the but the collection responsibility falls on the Florida seller. DOR can collect from either one.Florida seller. DOR can collect from either one.

A compensating use tax is imposed directly on A compensating use tax is imposed directly on the consumer for goods purchased out of state the consumer for goods purchased out of state and used in Florida, subject to credit for like and used in Florida, subject to credit for like tax paid to another state. A use tax may also be tax paid to another state. A use tax may also be imposed on the consumer for goods purchased imposed on the consumer for goods purchased in Florida where tax was not collected.in Florida where tax was not collected.

What is Taxable under What is Taxable under Florida’s Sales and Use Tax Florida’s Sales and Use Tax

Statutes?Statutes? Retail sales and leases of tangible personal property (s. Retail sales and leases of tangible personal property (s.

212.05(1), F.S.)212.05(1), F.S.) Includes fabrication of tangible personal property from customer-Includes fabrication of tangible personal property from customer-

provided materials (s. 212.02(15), F.S.)provided materials (s. 212.02(15), F.S.) Includes repairs of tangible personal property if any materials are Includes repairs of tangible personal property if any materials are

furnished by the repairer (s. 212.02(16), F.S.)furnished by the repairer (s. 212.02(16), F.S.) Includes services that are part of the sale (s. 212.02(16), F.S.)Includes services that are part of the sale (s. 212.02(16), F.S.)

Use of tangible personal property (s. 212.05(1)(b), F.S.)Use of tangible personal property (s. 212.05(1)(b), F.S.) Transient rentals, motor vehicle parking, boat dockage, aircraft Transient rentals, motor vehicle parking, boat dockage, aircraft

tie-down space (s. 212.03, F.S.)tie-down space (s. 212.03, F.S.) Real property rentals (non-residential) (s. 212.031, F.S.)Real property rentals (non-residential) (s. 212.031, F.S.) Admissions (s. 212.04, F.S.)Admissions (s. 212.04, F.S.) Security services, commercial cleaning and pest control (s. Security services, commercial cleaning and pest control (s.

212.05, F.S.)212.05, F.S.) Service warranty contracts (s. 212.0506, F.S.)Service warranty contracts (s. 212.0506, F.S.) Retail sales of electricity (non-residential) (s. 212.05(1)(e)1.c., Retail sales of electricity (non-residential) (s. 212.05(1)(e)1.c.,

F.S.)F.S.) Coin operated amusement machines (s. 212.05(1)(j), F.S.)Coin operated amusement machines (s. 212.05(1)(j), F.S.)

What is an Exclusion What is an Exclusion from Tax?from Tax?

Generally speaking, Florida Sales and Use tax is imposed under Generally speaking, Florida Sales and Use tax is imposed under Chapter 212, Florida Statutes and these statutes define those Chapter 212, Florida Statutes and these statutes define those transactions subject to tax.transactions subject to tax.

The general rule is that tax statutes must be strictly construed The general rule is that tax statutes must be strictly construed against the taxing authority and in favor of the taxpayer. The against the taxing authority and in favor of the taxpayer. The Florida Supreme Court has said that “this salutary principle is Florida Supreme Court has said that “this salutary principle is found in the reason that the duty to pay taxes, while necessary found in the reason that the duty to pay taxes, while necessary to the business of the sovereign, is still a duty of pure statutory to the business of the sovereign, is still a duty of pure statutory creation and taxes may be collected only within the clear creation and taxes may be collected only within the clear definite boundaries recited by statute.”definite boundaries recited by statute.”

Therefore, exclusions from tax are those transactions that Therefore, exclusions from tax are those transactions that simply fall outside of the taxing statute. A few examples of simply fall outside of the taxing statute. A few examples of things “excluded” from sales and use tax law are:things “excluded” from sales and use tax law are:

Most “pure service” transactionsMost “pure service” transactions Sales of real propertySales of real property Sales of intangible personal propertySales of intangible personal property

What is an Exemption?What is an Exemption?Section 212.21(2), F.S., provides in pertinent part thatSection 212.21(2), F.S., provides in pertinent part that::

It is hereby declared to be the specific legislative intent to tax each and It is hereby declared to be the specific legislative intent to tax each and every sale, admission, use, storage, consumption, or rental levied and set every sale, admission, use, storage, consumption, or rental levied and set forth in this chapter, except as to such sale, admission, use, storage, forth in this chapter, except as to such sale, admission, use, storage, consumption, or rental as shall be specifically exempted therefrom by consumption, or rental as shall be specifically exempted therefrom by this chapter subject to the conditions appertaining to such exemption.this chapter subject to the conditions appertaining to such exemption.

Exemptions (or exceptions) differ from exclusions because they Exemptions (or exceptions) differ from exclusions because they relate to items or transactions that would otherwise be taxable relate to items or transactions that would otherwise be taxable under Chapter 212, F.S., if not for the Legislature having specifically under Chapter 212, F.S., if not for the Legislature having specifically carved out or removed or exempted the transaction from tax.carved out or removed or exempted the transaction from tax.

Florida Courts have described exemptions as follows:Florida Courts have described exemptions as follows: ““Exemptions to taxing statutes are special favors granted by the Exemptions to taxing statutes are special favors granted by the

Legislature and are to be strictly construed against the taxpayer.” Legislature and are to be strictly construed against the taxpayer.” ““It is well settled that he who would shelter himself under an exemption It is well settled that he who would shelter himself under an exemption

clause in a tax statute must show clearly that he is entitled under the law clause in a tax statute must show clearly that he is entitled under the law to exemption; and the law is to be strictly construed as against the to exemption; and the law is to be strictly construed as against the person claiming the exemption and in favor of the taxing power.”person claiming the exemption and in favor of the taxing power.”

““At common law, there was no right to a refund of taxes from the At common law, there was no right to a refund of taxes from the sovereign. Thus, statutes authorizing tax refunds or exemptions are in sovereign. Thus, statutes authorizing tax refunds or exemptions are in derogation of common law; statutes in derogation of the common law derogation of common law; statutes in derogation of the common law must be strictly construed.”must be strictly construed.”

Exemptions v. ExclusionsExemptions v. Exclusions

Exclusions from tax are strictly Exclusions from tax are strictly construed against the taxing authority construed against the taxing authority and in favor of the taxpayer while and in favor of the taxpayer while exemptions are strictly construed exemptions are strictly construed against the taxpayer.against the taxpayer.

Burden of proofBurden of proof

Different Types of Different Types of ExemptionsExemptions

1.1. Property Itself is Exempt (Product Exemption)Property Itself is Exempt (Product Exemption)

2.2. A Party to the Transaction is Exempt (Entity A Party to the Transaction is Exempt (Entity

Exemption)Exemption)

3.3. How the Property is Used is Exempt (Use How the Property is Used is Exempt (Use

Exemption)Exemption)

Different Reasons for Different Reasons for ExemptionsExemptions

Inherent in a sales taxInherent in a sales tax Those intended to stimulate economic Those intended to stimulate economic

activityactivity Relief from taxes considered in some Relief from taxes considered in some

way overly burdensome for specific way overly burdensome for specific businesses or types of businessesbusinesses or types of businesses

Socially desirable goalsSocially desirable goals Necessities of lifeNecessities of life Administrative concernsAdministrative concerns

Inherent in Basic Sales and Inherent in Basic Sales and Use Tax PrinciplesUse Tax Principles

Sales taxes are generally applied to the Sales taxes are generally applied to the final/retail sale occurring within final/retail sale occurring within Florida. The taxation of intermediate Florida. The taxation of intermediate or wholesale sales would lead to or wholesale sales would lead to “double taxation” or “pyramiding of “double taxation” or “pyramiding of tax.”tax.” ResaleResale Incorporation into a taxable productIncorporation into a taxable product

Tax Incentives to Stimulate Tax Incentives to Stimulate Economic Activity in Economic Activity in

FloridaFlorida

Items fabricated for use in research and Items fabricated for use in research and development (s. 212.052, F.S.)development (s. 212.052, F.S.)

The sale or use of satellites or other The sale or use of satellites or other space vehicles (s. 212.08(16), F.S.)space vehicles (s. 212.08(16), F.S.)

Purchases of machinery and equipment Purchases of machinery and equipment by new or expanding businesses (s. by new or expanding businesses (s. 212.08(5)(b), F.S.)212.08(5)(b), F.S.)

Newspapers, newsletters and magazines Newspapers, newsletters and magazines delivered by mail (s. 212.08(7)(w), F.S.)delivered by mail (s. 212.08(7)(w), F.S.)

Tax ReliefTax Relief Airport property used for landing, taxiing, Airport property used for landing, taxiing,

or loading (s. 212.031(1)(a)7., F.S.)or loading (s. 212.031(1)(a)7., F.S.) Electricity or boiler fuels used in Electricity or boiler fuels used in

manufacturing (ss. 212.08(7)ff, F.S., manufacturing (ss. 212.08(7)ff, F.S., 212.08(7)(b), F.S.)212.08(7)(b), F.S.)

Purchase of agricultural items (pesticides, Purchase of agricultural items (pesticides, seeds, fertilizers, etc.) (s. 212.08(5)(a), seeds, fertilizers, etc.) (s. 212.08(5)(a), F.S.)F.S.)

Sales and leases to organizations Sales and leases to organizations sponsoring PGA or LPGA golf tournaments sponsoring PGA or LPGA golf tournaments (s. 212.08(7)(gg), F.S.)(s. 212.08(7)(gg), F.S.)

Charter fishing boats (s. 212.08(7)(y), F.S.)Charter fishing boats (s. 212.08(7)(y), F.S.)

Socially Desirable GoalsSocially Desirable Goals

Dues, fees and admissions charged by Dues, fees and admissions charged by non-profit entities (s. 212.04(2)(a)2.a., non-profit entities (s. 212.04(2)(a)2.a., F.S.)F.S.)

Purchases by 501(c)(3) organizations Purchases by 501(c)(3) organizations (s. 212.08(7)(p), F.S.) (s. 212.08(7)(p), F.S.)

K-12 schoolbooks and lunches (s. K-12 schoolbooks and lunches (s. 212.08(7)(r), F.S.)212.08(7)(r), F.S.)

Toll road charges (s. 212.031(1)(a)6., F.S.)Toll road charges (s. 212.031(1)(a)6., F.S.) Religious items (s. 212.06(9), F.S.)Religious items (s. 212.06(9), F.S.)

Necessities of LifeNecessities of Life Groceries for human consumption (s. Groceries for human consumption (s.

212.08(1), F.S.)212.08(1), F.S.) Prescription and non-prescription drugs Prescription and non-prescription drugs

(s. 212.08(2)(a), F.S.) (s. 212.08(2)(a), F.S.) Purchases of Power & Heating Fuels by Purchases of Power & Heating Fuels by

Residential HouseholdsResidential Households (s. 212.08(7)(j), F.S.)(s. 212.08(7)(j), F.S.) Water (both metered and bottled) (s. Water (both metered and bottled) (s.

212.08(4)(a)1., F.S.)212.08(4)(a)1., F.S.) Rent on low income housing (s. 212.02, F.S.)Rent on low income housing (s. 212.02, F.S.) Rent charges paid by permanent residents Rent charges paid by permanent residents

(s. 212.031(1)(a)2., F.S.) (s. 212.031(1)(a)2., F.S.)

Administrative ConcernsAdministrative Concerns

Some exemptions are dictated by Some exemptions are dictated by concerns regarding efficient concerns regarding efficient administration of the law. In many administration of the law. In many instances, collection costs might be instances, collection costs might be greater than the potential revenue. A greater than the potential revenue. A good example of this is the exemption good example of this is the exemption for occasional or isolated sales. (s. for occasional or isolated sales. (s. 212.02(2), F.S.)212.02(2), F.S.)

Inherent in Basic Sales and Inherent in Basic Sales and Use Tax PrinciplesUse Tax Principles

Items Purchased for Subsequent Resale Items Purchased for Subsequent Resale $36,285.8 M$36,285.8 M

Credit for Tax Paid to Other StatesCredit for Tax Paid to Other States $70.2 M$70.2 M

Tax Incentives to Stimulate Tax Incentives to Stimulate Economic Activity in Economic Activity in

FloridaFlorida Sale or Use of Satellites or Other Space VehiclesSale or Use of Satellites or Other Space Vehicles

$124.6 M$124.6 M Electricity Used in ManufacturingElectricity Used in Manufacturing $71.3 M $71.3 M Purchases of machinery and equipment by new or Purchases of machinery and equipment by new or

expanding businessesexpanding businesses $60.0 $60.0 MM

Purchases of Boiler Fuels for Use in Industrial Purchases of Boiler Fuels for Use in Industrial

ManufacturingManufacturing $55.3 M $55.3 M Machinery and Equipment Used for R&DMachinery and Equipment Used for R&D $26.3 M $26.3 M Newspapers, newsletters and magazines delivered Newspapers, newsletters and magazines delivered

by mailby mail $15.2 M $15.2 M

Tax ReliefTax Relief Electricity Used in ManufacturingElectricity Used in Manufacturing $71.3 M $71.3 M Purchase of Agricultural Items (Pesticides, Seeds, Purchase of Agricultural Items (Pesticides, Seeds,

Fertilizers, Etc.)Fertilizers, Etc.) $71.0 M $71.0 M Toll Road ChargesToll Road Charges $64.7 M $64.7 M Newspaper and Magazine InsertsNewspaper and Magazine Inserts

$41.3 M$41.3 M Streets Used by a Utility for Utility PurposesStreets Used by a Utility for Utility Purposes

$40.5 M$40.5 M Farm EquipmentFarm Equipment $33.8 M $33.8 M Electricity Consumed or Dissipated in the Transmission ofElectricity Consumed or Dissipated in the Transmission of

ElectricityElectricity $33.5 M $33.5 M Master Tapes, Records, Films of Video TapesMaster Tapes, Records, Films of Video Tapes

$32.7 M$32.7 M Feed for Poultry and Livestock, Including Racehorses and Feed for Poultry and Livestock, Including Racehorses and

OstrichesOstriches $27.9 M $27.9 M Airport Property Used for Landing, Taxiing of LoadingAirport Property Used for Landing, Taxiing of Loading

$26.4 M$26.4 M

Socially Desirable GoalsSocially Desirable Goals

K-12 schoolbooks and lunchesK-12 schoolbooks and lunches $55.5 M $55.5 M Purchases by 501(c)(3) organizationsPurchases by 501(c)(3) organizations

$47.8 M$47.8 M Dues, Fees and Admissions Charged Dues, Fees and Admissions Charged

by Non-Profit Entitiesby Non-Profit Entities $29.2 M$29.2 M

Religious ItemsReligious Items $3.9 M$3.9 M

Necessities of LifeNecessities of Life

Groceries Purchased for Human ConsumptionGroceries Purchased for Human Consumption $2,651.5 $2,651.5 MM

Purchases of Power & Heating Fuels by Residential HouseholdsPurchases of Power & Heating Fuels by Residential Households$2,178.9 M$2,178.9 M

Rent Charges Paid by Permanent ResidentsRent Charges Paid by Permanent Residents $1,259.2 M$1,259.2 M

Prescription DrugsPrescription Drugs $896.0 M $896.0 M

Charges for Hospital Meals and RoomsCharges for Hospital Meals and Rooms $603.2 M $603.2 M

Metered Water, Excluding Well WaterMetered Water, Excluding Well Water $300.3 M $300.3 M

Non-Retail PharmaciesNon-Retail Pharmacies $234.9 M $234.9 M

Non-Prescription DrugsNon-Prescription Drugs $199.0 M $199.0 M

Medical Supplies and Products such as Syringes and ProstheticsMedical Supplies and Products such as Syringes and Prosthetics $114.8 M$114.8 M

Rent on Low Income HousingRent on Low Income Housing $63.7 M $63.7 M

Eyeglasses and Other Corrective LensesEyeglasses and Other Corrective Lenses $44.3 M $44.3 M

Bottled (Except Carbonated) WaterBottled (Except Carbonated) Water $42.3 M $42.3 M

Administrative ConcernsAdministrative Concerns

Occasional or Isolated SalesOccasional or Isolated Sales $ $ 25.1 M25.1 M

ExclusionsExclusions

Untaxed ServicesUntaxed Services $23,414.4 M$23,414.4 M

Intangible Personal PropertyIntangible Personal Property $19,451.0 M$19,451.0 M

What is a Credit?What is a Credit?

Credits are dollar for dollar Credits are dollar for dollar reductions in tax liability that are not reductions in tax liability that are not tied specifically to an amount of tax tied specifically to an amount of tax paid. Credits in excess of tax liability paid. Credits in excess of tax liability may often be obtained through a refund.may often be obtained through a refund. Courts have found that tax credit Courts have found that tax credit statutes represent exceptions to the statutes represent exceptions to the general sales tax law and are likewise general sales tax law and are likewise strictly construed against the taxpayer. strictly construed against the taxpayer.

Examples of Tax CreditsExamples of Tax Credits

Credit for job creation in enterprise Credit for job creation in enterprise zones (s. 212.096, F.S.)zones (s. 212.096, F.S.)

Urban high-crime area job tax credit Urban high-crime area job tax credit (s. 212.097, F.S.)(s. 212.097, F.S.)

Rural job tax credit (s. 212.098, F.S.)Rural job tax credit (s. 212.098, F.S.)

Administrative Administrative DeductionsDeductions

Value of Trade-Ins or DiscountsValue of Trade-Ins or Discounts$577.0 M$577.0 M

Credit for Returned Goods, Bad Debts Credit for Returned Goods, Bad Debts ≈$100.0 M≈$100.0 M

Credit for Tax Paid to Other StatesCredit for Tax Paid to Other States $70.2 M $70.2 M

Collection Allowance of 2.5% for the First Collection Allowance of 2.5% for the First $1,200 of Tax Per Return$1,200 of Tax Per Return

$64.7 M$64.7 M

Examples of Criteria Used Examples of Criteria Used to Review Exemptionsto Review Exemptions

What is the economic impact of the exemption?What is the economic impact of the exemption? Were additional jobs created?Were additional jobs created? Did businesses move to or expand in Florida?Did businesses move to or expand in Florida? Would the removal of the exemption cause a loss in jobs or Would the removal of the exemption cause a loss in jobs or

make the business uncompetitive?make the business uncompetitive? Does the exemption support other statutory policy Does the exemption support other statutory policy

(e.g., environmental or growth management laws?)(e.g., environmental or growth management laws?) Does the exemption avoid “double taxation” or Does the exemption avoid “double taxation” or

“pyramiding” of taxes?“pyramiding” of taxes? Does the exemption promote equalization of tax Does the exemption promote equalization of tax

treatment?treatment? Is the exemption the most fiscally effective means of Is the exemption the most fiscally effective means of

achieving its purpose?achieving its purpose? What is the fiscal impact of the exemption?What is the fiscal impact of the exemption? Does the exemption simplify or complicate tax law Does the exemption simplify or complicate tax law

and its administration?and its administration?

Court CasesCourt Cases Fla. Dep't of Revenue v. New Sea Escape Cruises, Ltd., 894 So. 2d 954, 956 (Fla. 2005Fla. Dep't of Revenue v. New Sea Escape Cruises, Ltd., 894 So. 2d 954, 956 (Fla. 2005

))

Partial exemption tax apportionment formula for vessels engaged in interstate or foreign Partial exemption tax apportionment formula for vessels engaged in interstate or foreign

commerce under s. 212.08(8), F.S., applied to “cruises to nowhere.”commerce under s. 212.08(8), F.S., applied to “cruises to nowhere.”

Dep't of Revenue v. B & L Concepts, 612 So. 2d 720, 721 (Fla. 5th DCA 1993)Dep't of Revenue v. B & L Concepts, 612 So. 2d 720, 721 (Fla. 5th DCA 1993) Separately stated, optional delivery charges are not part of the taxable sales price.Separately stated, optional delivery charges are not part of the taxable sales price.

Department of Revenue v. Department of Revenue v. QuotronQuotron Sys., Inc., 615 So. 2d 774, 775 (Fla. 3rd DCA 1993) Sys., Inc., 615 So. 2d 774, 775 (Fla. 3rd DCA 1993) Electronic images appearing on video screens do not constitute “tangible personal property” Electronic images appearing on video screens do not constitute “tangible personal property”

subject to sales taxes where tangible personal property is defined as “means and includes subject to sales taxes where tangible personal property is defined as “means and includes

personal property which may be seen, weighed, measured or touched or is an any manner personal property which may be seen, weighed, measured or touched or is an any manner

perceptible to the senses.”perceptible to the senses.”

Crescent Miami Ctr., LLC v. Fla. Dep't of Revenue, 903 So. 2d 913, 915 (Fla. 2005)Crescent Miami Ctr., LLC v. Fla. Dep't of Revenue, 903 So. 2d 913, 915 (Fla. 2005) The transfer of property between a grantor and its wholly owned grantee, absent any The transfer of property between a grantor and its wholly owned grantee, absent any

exchange of value, is without consideration or a purchaser and thus not subject to the exchange of value, is without consideration or a purchaser and thus not subject to the

documentary stamp tax documentary stamp tax

Department of Revenue v. Kemper Investors Life Ins. Co., 660 So. 2d 1124, 1126 (Fla. Department of Revenue v. Kemper Investors Life Ins. Co., 660 So. 2d 1124, 1126 (Fla. 1st DCA 1995)1st DCA 1995)

Payments and refunds of corporate income tax are included in the computation of the Payments and refunds of corporate income tax are included in the computation of the

corporate income tax credit against the insurance premium tax in the year in which those corporate income tax credit against the insurance premium tax in the year in which those

payments or refunds should have been made had the taxpayer filed properly in the first place. payments or refunds should have been made had the taxpayer filed properly in the first place.