Were separately stated late-payment fees on electric, water, and sewer utility bills subject to Florida sales tax?

Plain-English summary

The separately stated late fee was not subject to Florida sales tax. The utility charged 1.5% of the previous balance on the next statement only when payment was not received by the due date.

The customer could avoid the fee entirely by paying on time. Under B & L Concepts, that customer-controlled, separately itemized charge was incidental rather than part of the taxable price of utility service.

What this means for you

An avoidable late-payment charge can be different from a mandatory service charge. Separate statement and the customer's unilateral ability to avoid the fee were central to the result.

Common questions

Q: Was the late fee taxable? No.

Q: What made it avoidable? Timely payment of the utility bill.

Q: How was it shown? Separately on the next billing statement.

Citations and references

• Fla. Stat. § 212.02(16) — sales price
• Department of Revenue v. B & L Concepts, 612 So. 2d 720 (Fla. 5th DCA 1993)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-074

Original ruling text

SUMMARY

QUESTION 1: Are the late fees assessed on consumers'
utility bills subject to sales tax?

ANSWER 1 - Based on Facts Below: Late fees are separately
stated and can be avoided by the customer by timely payment
of the utility bill. Pursuant to the court decision in
Department of Revenue v. B & L Concepts, these late fees
are not subject to tax.

Dec 13, 2001

Re: Technical Assistance Advisement 01A-074
XXX ("Utility")
FEI # XX
Sales Tax
Late Fees on Utility Bills
Section 212.02(16), F.S.

Dear :

This is a response, styled a Technical Assistance Advisement, to
your letter of October 10, 2001. You have asked the Florida
Department of Revenue to provide clarification and guidance on
the application of sales tax for late fees assessed on consumers
utility bills.

Utility was created for the express purpose of acquiring,
constructing, operating, financing and otherwise having plenary
authority with respect to electric, water, sewer, natural gas
and such other utility systems. Utility provides electric,
water, and sewer services to approximately 600,000 accounts
located in Jacksonville and surrounding counties.

During the course of business, customers are billed monthly for
the electric, water and sewer usage. The invoice indicates the
date the electric or water meter was read, the invoice date, the

cycle, usage, total amount due and the due date that payment is
to be made by. When a customer makes a partial payment or pays
the entire bill on or before the due date, no additional fees
are assessed. When a payment is not received on or by the due
date, the customer is billed a late fee of 1.5% of the previous
balance on the next billing statement. In addition to being
billed for the amount of the monthly usage, the customer is
billed a late fee, which is separately stated and currently is
being included in the taxable amount.

Utility is in the process of acquiring a new billing system and
requests an opinion on the taxability of the late fees assessed
for past due accounts.

Late Fees

Section 212.02(16), F.S., provides:

"Sales price" means the total amount paid for tangible
personal property, including any services that are a part
of the sale, valued in money, whether paid in money or
otherwise, and includes any amount for which credit is
given to the purchaser by the seller, without any deduction
therefrom on account of the cost of the property sold, the
cost of materials used, labor or service cost, interest
charged, losses, or any other expense whatsoever....

Generally, the sale or receipt of anything of value for utility
service is subject to sales tax. However, the above statutory
definition was interpreted by a Florida court in Department of
Revenue v. B & L Concepts, 612 So.2d 720 (Fla. 5th DCA 1993).
The court applied the following standard in analyzing whether
late fees, order processing fees, and delivery fees billed in
connection with the lease of household appliances, furniture,
and home entertainment products were part of the "sales price":

We hold that in the context of this problem, the proper
line of demarcation is that if service charges or fees
incidental to the sale or lease are imposed at the option
of the vendor or lessor, those service charges or fees are
a part of the "sales price" and are subject to the sales

tax, but if such service charges or fees are separately
itemized and applied at the sole option or election of the
vendee or lessee, or can be avoided by decision or action
on the part of the vendee or lessee alone, then those
charges and fees are only incidental to the sale, are not a
part or the "sales price" and are not subject to sales tax.

The definition interpreted by the Florida court in B & L
Concepts made it clear that service charges or fees incidental
to the sale or lease of tangible personal property are not
subject to sales tax under certain conditions. The late fees
billed by Utility to their customers are separately stated and
could be avoided by an action on the part of the customer,
namely paying the bill on time. These late fees are not subject
to sales tax.

This response constitutes a Technical Assistance Advisement
under s. 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 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,
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.

If you have any further questions with regard to this matter and
wish to discuss them, you may contact me directly at (850)922-

4839.

Sincerely,

Jean Davis
Senior Tax Specialist
Technical Assistance & Dispute Resolution

JD\
Control No: 47100