Were railcar lease charges exempt when the lessee was an electric cooperative, not a railroad?

Subject

Lease of Railcars

Plain-English summary

The cooperative's railcar lease charges were exempt because the leases were car service agreements. Florida said that exemption did not depend on the lessor or lessee being a railroad company.

Here, banks leased railroad cars to a not-for-profit electric cooperative, and railroads hauled those cars carrying coal to the cooperative's Florida facilities. The agreements covered railcars exclusively and were treated in the industry as car service agreements.

What this means for you

The character of the agreement and railroad-car service mattered more than the parties' formal industry labels.

Common questions

Q: Did the lessee have to be a railroad? No.

Q: Did the bank lessor prevent the exemption? No.

Q: What property did the agreements cover? Railroad cars used to ship coal.

Citations and references

• Fla. Stat. § 212.02(10)(g) — car service agreements excluded from lease definition
• Fla. Stat. § 212.05 — sales and use tax
• Fla. Admin. Code r. 12A-1.071(4), (5) — railroad cars and car service agreements
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-052

Original ruling text

SUMMARY

QUESTION: What is the taxable status of charges made
pursuant to leases of railroad cars by a lessee who is not
a railroad company?

ANSWER - Based on Facts Below: The leases in question
represent "car service agreements" which are exempt from
tax, irrespective of whether the lessee is a railroad
company or not.

Oct 05, 2000

Re: Technical Assistance Advisement 00A-052
XXX (the "Taxpayer")
Lease of Railcars
Sections 212.02(10)(g), 212.05, F.S.
Rule 12A-1.071(4), (5), F.A.C.

Dear :

This is in response to your letter of August 7, 2000, in which
you request the issuance of a Technical Assistance Advisement
regarding the application of sales and use tax to certain lease
agreements entered into by your client, Taxpayer. Your client
is a not-for-profit electric generation and transmission
cooperative which provides wholesale electric service to its
members. Your letter provides in part:

[Taxpayer] is currently a party to two leases of railroad
cars. These leases and amendments to them are attached as
Exhibits A and B. As a dealer, [Taxpayer] self-accrues use
tax on lease payments.

[Taxpayer] is a lessee of railcars that are hauled by
railroads for the shipment of coal for use at its Florida
facilities. Within the railcar leasing industry, such
leases are commonly referred to as car service agreements.

Copies of the lease agreements (each titled "Equipment Lease")
have been provided and include a description of the equipment
being leased. In each case the equipment being leased consists
exclusively of railroad cars.

DISCUSSION

Section 212.02(10)(g), Florida Statutes, provides in pertinent
part:

... The term "lease", "let", or "rental" does not mean
hourly, daily, or mileage charges, to the extent that such
charges are subject to the jurisdiction of the United
States Interstate Commerce Commission, when such charges
are paid by reason of the presence of railroad cars owned
by another on the tracks of the taxpayer, or charges made
pursuant to car service agreements.... (emphasis added).

The Department is in agreement that "car service agreements" are
exempt from tax, irrespective of whether the parties involved
are railroad companies. In the case at hand, the lessor is a
bank and the lessee is an electric cooperative.

A definition of "car service agreements" is not provided in the
Florida statutes. In 49 USC, Section 10102, dealing with
Interstate Transportation, a definition of "car service" is
provided. It states in part:

(2) "car service" includes (A) the use, control, supply,
movement, distribution, exchange, interchange, and return
of locomotives, cars, other vehicles, and special types of
equipment used in the transportation of property by a rail
carrier,....

Therefore, because a lease involves the use of property owned by
others, and because the leases under review involve the use of
cars for the transportation of property by a rail carrier, the
leases in question would qualify as car service agreements and
be exempt from tax. It should be noted that the exemption does
not extend to the sale of such cars, as the statutory exemption

is limited to "car service agreements" which involve the use of
rail cars owned by others.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S. which is binding on the department only
under 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 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 s. 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,
any 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,

Jonathan E. Swift
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 922-4840

Control No.: 42112