The Florida Department of Revenue recently issued a Technical Assistance Advisement (“TAA”) clarifying the applicability of sales tax to certain equestrian supplies. The TAA explains that the sale of veterinary drugs, substances, or preparations that are required by federal or state law to be dispensed only by prescription are exempt from sales tax under the general prescription medicine exemption. Non-prescription substances or preparations are taxable. Feed for livestock, which includes all animals of the equine class (including racehorses), is also exempt from sales tax. Exempt feed includes equine joint supplements. Sales of equine insect and fly repellant are exempt as sales of pesticides used directly on livestock. Finally, sales of insect or fly masks and fly sheets are taxable.
Yesterday, in American Business USA Corp. v. Department of Revenue, the Fourth District Court of Appeal for Florida ruled that the Florida Department of Revenue could not impose sales tax on sales of flowers and other tangible personal property made by a Florida corporation over the internet to out-of-state customers for out-of-state delivery. The taxpayer would use “local florists” to fill the out-of-state orders, and so the flowers and other inventory items were never stored in or brought into Florida. The court concluded that the sales did not have “substantial nexus” with Florida, and therefore imposing tax on the sales violated the dormant commerce clause of the US Constitution.
On behalf of a client, Williams Parker recently obtained a Technical Assistance Advisement from the Florida Department of Revenue (the “Department”) that leases of nursing homes and assisted living facilities are exempt from sales tax to a greater degree than currently provided in the Florida Administrative Code. Oftentimes, the operator of a senior living facility leases the real estate from another legal entity, which may or may not be related. In interpreting the statutory exemption for leases of residential facilities for the aged, the Florida Administrative Code provides that only the areas of a senior living facility that are accessed and used by residents (excluding, for example, the kitchen portion of a cafeteria and administrative office areas) are exempt from sales tax. However, a trial court opinion (from the 18th Circuit Court for Brevard and Seminole counties) held that all areas of senior living facilities (not just those areas accessed and used by residents) are exempt, except for those areas leased for separate commercial purposes, such as a portion of the facility leased to a bank or hair salon. The Technical Assistance Advisement obtained by Williams Parker (i) affirms that the Department will follow the holding of the trial court outside of the 18th Circuit, and (ii) extends the holding of the trial court to leases of equipment and other tangible personal property owned by the landlord and used by the operator of the facility, at least where the lease is silent regarding any separate consideration for the tangible personal property.
A recent ruling by the Florida Department of Revenue indicates when sales tax will be imposed on leasehold improvements required to be made by a tenant pursuant to a commercial lease. In Technical Assistance Advisement 13A-023, the Department concluded that such leasehold improvements would be considered rent subject to sales tax unless all of the following five conditions are satisfied:
The leasehold improvements are made to put the premises in a condition suitable for the operation of the tenant’s business;
There is no requirement for the tenant to spend a specific or minimum amount of money on the improvements;
There is no credit given against rental payments for the leasehold improvements furnished by the tenant;
The leasehold improvements are not explicitly classified as rent, additional rent, rent-in-kind, or in lieu of rent; and
There is no evidence that the tenant and landlord attempted to reclassify rental payments to avoid tax.
Below is a link to an article that describes the ruling in more detail and addresses related topics.
Governor Rick Scott recently signed legislation providing for three separate sales tax holidays in 2014 for purchases of hurricane supplies, school supplies, and energy efficient appliances. The sales tax holiday for hurricane supplies runs from May 31 through June 8, 2014, and covers (a) portable self-powered light sources selling for $20 or less; (b) portable self-powered radios (including two-way radios and weather band radios) selling for $50 or less; (c) tarpaulin or other flexible waterproof sheeting selling for $50 or less; (d) self-contained first-aid kits selling for $30 or less; (e) ground anchor systems or tie-down kits selling for $50 or less; (f) fuel tanks selling for $25 or less; (g) packages of AA-cell, C-cell, D-cell, 6-volt, or 9-volt batteries selling for $30 or less; (h) nonelectric food storage coolers selling for $30 or less; (i) a portable generators selling for $750 or less; and (j) reusable ice selling for $10 or less.
The school supply sales tax holiday runs from August 1 through August 3, 2014, and covers (a) clothing, footwear, wallets, and bags (including backpacks and handbags) selling for $100 or less; (b) school supplies selling for $15 or less per item; and (c) the first $750 of the sales price for personal computers and related accessories (including tablets and laptops, but not cell phones) purchased for home or personal use.
The sales tax holiday for energy efficient appliances and products runs from September 19 through September 21, 2014, and applies to the first $1,500 of the sales price of a new Energy Star or WaterSense product. However, the exemption only applies to one purchase of each specified type of Energy Start or WaterSense product with a sales price of $500 or more. Eligible Energy Start products are air conditioners, air purifiers, ceiling fans, clothes washers and dryers, dehumidifiers, dishwashers, freezers, refrigerators, water heaters, swimming pool pumps, and specified light bulbs. Eligible WaterSense products are bathroom sink faucets, faucet accessories, high-efficiency toilets and urinals, showerheads, and weather or sensor-based irrigation controllers.
The Florida Department of Revenue published the discretionary sales surtax rates for 2014 (http://www.floridasalestax.com/documents/FL-Discretionary-Sales-Tax-Rates-2014.pdf).
Florida imposes a state-wide 6% sales tax, but most Florida counties impose an additional local sales tax rate known as the “discretionary sales surtax” or “local option county sales tax.” The discretionary sales surtax rates currently range from 0.5% to
1.5%. The applicable rate is the rate for the county where the goods are delivered or the services are provided. For most transactions, the discretionary sales surtax is only imposed on the first $5,000 of the sales amount. There is no cap on the discretionary
sales surtax for rentals of real property, admissions (such as country club dues), service warranties, or taxable services.
If you have questions regarding the discretionary sales surtax or any other Florida taxes, please contact:
Florida Governor Rick Scott called for beginning a phase-out of sales tax on commercial rents in fiscal year 2014-2015. A general announcement, but no specifics of the phase-out, was provided in a FAQ statement issued by the Governor’s office on January 28, 2014 (http://www.flgov.com/wp-content/uploads/2014/01/FAQ.pdf). Florida generally imposes sales tax on rent payments (including constructive rent payments) for commercial property, and the tax is imposed even where the landlord and tenant are related parties. This tax causes an unwelcome surprise to many taxpayers undergoing an audit by the Florida Department of Revenue.
However, in certain situations, there are techniques and restructuring options that can be used to minimize or even eliminate sales tax where related parties own and use the commercial property. Please contact us if you have questions regarding these techniques and options or any other sales tax issues.