SUMMARY
QUESTIONS:
(1) Whether Taxpayers’ transactions involving the provision of light poles and light pole fixtures to customers are properly classified, under the facts provided, as leases of tangible personal property for Chapter 212, F.S., tax purposes and are not subject to sales tax as sales of electric power or energy.
(2) Whether Taxpayers’ purchases of light poles and light pole fixtures for purposes of these transactions are nontaxable purchases for resale under Chapter 212, F.S.
(3) Whether the Gross Receipts Tax, imposed by Chapter 203, F.S., applies to amounts received in payment for charges on these light poles and light pole fixtures.
ANSWERS - Based on Facts Below:
(1)The provision of light poles and light pole fixtures, under the facts provided, are not subject to sales tax as sales of electric power or energy because the charge for leasing is separate from the charge for the provision of electric power or energy.
(2) Taxpayers’ purchases of poles and pole fixtures for purposes of these transactions are nontaxable purchases for resale under Chapter 212, F.S. Taxpayers are remindedthat a sale for resale is exempt from the tax imposed by Chapter 212, F.S., only when the sale for resale is in strict compliance with the provisions of Rule 12A-1.039, F.A.C.
(3) Gross Receipts Tax does not apply to the amounts received as payment for separately stated charges that are exclusively for these light poles and light pole fixtures. Gross Receipt Tax does apply to the amounts received as payment for charges for the delivery of electricity for light, heat, or power.
August 10, 2007
Re:Technical Assistance Advisement 07A-025
Rental of Light Poles and Light Pole Fixtures By Electric Utilities
XXX *
FEIN:XX
XXX*
FEIN:XX
XXX*
FEIN:XX
* Jointly referred to as “the electric utilities” or “the Taxpayers”
Gross Receipts Tax and Sales Tax
Sections 203.01, 212.02 and 212.05, F.S. (“Florida Statutes”)
Rule 12A-1.039, F.A.C. (“Florida Administrative Code”)
Dear:
This response is in reply to your letter datedXX, requesting the Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to Section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the Department’s position on the issues involving the renting of light poles and light pole fixtures.An examination of your letter has established that you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for issuance of a TAA.
ISSUES
1. Whether Taxpayers’ transactions involving the provision of light poles and light pole fixtures to customers are properly classified, under the facts provided, as leases of tangible personal property for Chapter 212, F.S., tax purposes and are not subject to sales tax as sales of electric power or energy.
2. Whether Taxpayers’ purchases of light poles and light pole fixtures for purposes of these transactions are nontaxable purchases for resale under Chapter 212, F.S.
3. Whether the Gross Receipts Tax, imposed by Chapter 203, F.S., applies to amounts received in payment for charges on these light poles and light pole fixtures.
FACTS
Your letter of October 12, 2006, provides, in part:
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Taxpayers are regulated utilities that provide electricity to retail customers in Florida. Absent an applicable exemption or exclusion, Taxpayers all charge the Chapter 203 gross receipts tax and the Chapter 212 sales tax on their charges to customers for electric energy.
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… [T]he facts set forth below do not in all respects reflect the current aspects of the transactions for all the utilities, but present the transactions as Taxpayers envision them after making any necessary modifications following a favorable response to this TAA request.
In addition to purchasing electricity, some customers contract with Taxpayers to provide light poles and light fixtures for illumination of areas designated by the customers. Essential characteristics of these transactions are:
●The Taxpayers provide a pole and light fixture that is mounted on the pole. A variety of poles and fixtures, which embody different styles and appearances, are available. The customer is offered a choice from the available styles. The pole and fixture must be compatible with each other, and the choices also vary according to such factors as whether the lighting is for streets, parking lots, or other outdoor security.
●The contracts are for limited duration. The terms vary between utilities and the way they are administered. All the utilities have programs that feature ten year initial terms. Beyond this, some have other programs featuring terms as short as one year or as long as twenty.
●At the expiration of the term[,] the customer may require removal of the supplied pole and fixture, and Taxpayers have the right to remove them at expiration, as well as in the event of a breach of the agreement. Although these poles must be securely affixed to the ground for safety, they are not considered permanent because their presence on the customer’s property is solely a consequence of the limited term agreement. If the customer sells the property, the new owner has no obligation to make further payments for the pole or fixture, or to allow them to remain on the property.
●With some limitations[,] the customer may choose the location of the pole on the customer’s property. The limitations are safety, accessibility, and avoidance of objection by others. Taxpayers will also relocate a pole upon the customer’s request.
●The transactions at issue are entirely optional with the customer. Most customers receive electricity from Taxpayers without also engaging in transactions relating to light poles and fixtures.
●Customer bills display a separate line item for rental of the light pole and/or fixture, and this charge does not include electric energy. Unless the customer is entitled to an exemption, Taxpayers charge, collect, and remit Chapter 212 tax on rentals of tangible personal property, with respect to these amounts and any additional amounts charged for maintenance of these items.
●The rates charged for electricity are unaffected by these transactions. Taxpayers collect, report, and remit the Chapter 203 and 212 taxes due on the customer’s consumption of electricity without regard for whether the electricity consumed is used for lighting or for other purposes.
●Taxpayers record the revenues from these transactions in a rental account.
●Taxpayers have responsibility for maintenance of the light poles and fixtures they provide, and are given easements or other access to the customer’s premises for this purpose.
The transactions described above involve the provision of a pole and fixture for the exclusive use of a specific customer. In other fact patterns such as street lighting, Taxpayers provide fixtures installed on poles that are part of their distribution systems. These poles are not selected by the customer, their locations are not chosen by the customer, and they would be used by Taxpayers for distribution even in the absence of a specific customer’s need for lighting. Taxpayers do not charge customers for the use of those distribution poles. However, there is a charge for the use of the fixture, and with respect to such fixtures the transactions embody the same features as those described above. Both fact patterns – those in which [a] Taxpayer furnishes the customer with a pole and fixture and those in which [the] Taxpayers provide the fixture alone – are within the scope of this request.
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TAXPAYER’S POSITION
Your letter of XX, also provides, in part:
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Section 212.05, Florida Statutes[,] imposes the sales tax on rentals of tangible personal property. See Section 212.05(1)(c), (d), Florida Statutes. A “sale” is defined to include …
Any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration.
Section 212.02(15)(a), Florida Statutes. Rule 12A-1.071(1)(a)[, F.A.C.,] provides that the term “lease” includes licenses to use and refers to all transactions that are not bailments in which there is a transfer of possession of tangible personal property for a consideration, without a transfer of title. Paragraph (1)(b) of the Rule provides that a transfer of possession occurs when one of the following attributes of ownership has been transferred:
1. Custody or possession of the property, actual or constructive;
2. The right to custody or possession of the property; or
3. The right to use and control or direct the use of the property.
The light poles and light fixtures are specifically selected by the customer, in a transaction that occurs only at the option of the customer. Subject only to safety and similar constraints, the poles are located in accordance with the wishes of the customer. Upon being situated on the property of the customer, they are, at a minimum, within the customer’s custody. Moreover, they are used by the customer to provide light to the customer’s property. Their placement is temporary, and continues only so long as the term of the agreement. The agreement for their placement is termed a lease, the charges are stated separately from other amounts and described as rental charges on the customer’s bill, and Taxpayers account for them as rental receipts.
In TAA 04A-067, the Department responded to an inquiry from a utility that combined its charges for the light fixture and the basic cost of electricity used to power the light. The customer was charged separately for the pole. The Department determined that the first charge, for the combination of the fixture and electricity, was subject to tax as a sale of electric energy under both Chapter 203 and Chapter 212. Charges for the pole, however, were separate, and the Department concluded that they were lease or rental charges subject to the sales tax but not the gross receipts tax.
Although Taxpayers realized that a TAA is only binding for the taxpayer to whom it is issued, they submit that the result reached with respect to the poles in TAA 04A-067 is correct. The essential facts relating to the poles are the same here, and the conclusion should therefore also be the same. On the other hand, the conclusion reached in TAA 04A-067 should not apply to Taxpayers’ light fixtures, because the fact pattern here differs from that in the prior ruling in the critical respect that Taxpayers’ charges for the fixtures, like their charges for the poles, are separated from any charges for electric energy. Thus, the fixtures and poles are both properly classified as leases or licenses to use tangible personal property, and not the sale of electric energy. The result reached in the TAA with regard to light poles would apply also to light fixtures in the context of Taxpayers’ fact patterns.
Accordingly, the Department should issue the ruling requested. The separately stated charges for light poles and fixtures are for leases or licenses to use tangible personal property and subject to the sales tax as such, but are not subject to the sales tax as electric power or energy and are not subject to the gross receipts tax. Taxpayers’ purchases of the poles and fixtures that are rented to customers are non-taxable purchases for resale under Chapter 212.
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DISCUSSION
Generally:
Every person who engages in the business of leasing tangible personal property at retail in this state is exercising a taxable privilege. See Section 212.05, F.S. Florida sales tax is due at the rate of 6 percent on the leasing of tangible personal property. See Section 212.05, F.S.
Florida sales tax is due on the sale of electrical power or energy, which is taxed at a rate of 7 percent. See Section 212.05(1)(e)1.c., F.S. In addition to sales tax, Florida imposes a Gross Receipts Tax on the total amount of gross receipts from every person that receives payment for any utility service at the rate of 2.5 percent. See Section 203.01, F.S., generally, and Section 203.01(1)(b), F.S., specifically.
A “sale for resale” is specifically not included within the meaning of the definition of a “retail sale” (see Section 212.02(14), F.S.). A “sale for resale” is not subject to Florida sales tax so long as certain criteria are met. See Rule 12A-1.039, F.A.C.
We note that you have identified two (2) basic fact patterns in your letter. The first involves the Taxpayers renting of light poles and light pole fixtures to customers. The second involves the Taxpayers renting only a light pole fixture to customers – the pole itself is part of the Taxpayers’ distribution system (an example would be street lighting). Our response applies to both fact patterns.
Issue #1:
The Taxpayers’ transactions involving the provision of light poles and light pole fixtures to customers are properly classified, under the facts provided, as leases of tangible personal property for Chapter 212, F.S., tax purposes. The provision of light poles and light pole fixtures, under the facts provided, are not subject to sales tax as sales of electric power or energy because the charge for leasing is separate from the charge for the provision of electric power or energy.
Florida sales tax, at the rate of 6 percent, is due on the charge for the leasing of light poles and light pole fixtures to customers.[1]
Florida sales tax, at the rate of 7 percent (plus Florida gross receipts tax at the rate of 2.5 percent) is due on the separately stated charge for the provision of electric power or energy.[2]
Issue #2:
Taxpayers’ purchases of poles and pole fixtures for purposes of these transactions are nontaxable purchases for resale under Chapter 212, F.S. The Taxpayers are remindedthat a sale for resale is exempt from the tax imposed by Chapter 212, F.S., only when the sale for resale is in strict compliance with the provisions of Rule 12A-1.039, F.A.C.
Issue #3:
Under the facts presented, the charge for the leasing of the light poles and light pole fixtures, and the charge for the delivery of electricity for light, heat, or power, are separately stated to the customer. Under the facts presented, Gross Receipts Tax does not apply to the amounts received as payment forseparately stated chargesthat are exclusivelyfor these light poles and light pole fixtures. Gross Receipt Tax does apply to the amounts received as payment for charges for the delivery of electricity for light, heat, or power.[3]
CONCLUDING 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,
Eric R. Peate
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 922-4714
Ctrl # 25525
[1] Absent, of course, an applicable exemption or if the lease is not within the scope of Chapter 212, F.S.
[2] Absent, of course, an applicable exemption or if the sale is not within the scope of Chapter 212, F.S.
[3] Absent, of course, an applicable exemption of if the sale is not within the scope of Chapter 203, F.S.