How did Florida sales tax apply when a vehicle lessor used a qualified intermediary for federal section 1031 exchanges?

Plain-English summary

Federal section 1031 treatment did not override Florida's ordinary sales-tax rules for the vehicles. When an end-of-lease vehicle was sold to the lessee or another taxable individual for consideration, the transfer was a Florida sale and the purchaser owed sales tax.

A sale of the relinquished vehicle to a registered dealer for resale was exempt if the purchasing dealer gave the lessor an annual resale certificate. The leasing company could likewise buy replacement vehicles tax free when they were used exclusively for lease and it issued its own resale certificate.

The lessor still had to collect and remit tax on the later lease payments. The qualified intermediary and federal income-tax deferral did not independently create a Florida sales-tax exemption.

What this means for you

Analyze each leg of a vehicle exchange separately: acquisition for lease, lease receipts, end-user disposition, and dealer resale. Federal income-tax classification does not determine Florida transaction tax.

Common questions

Q: Was an end-of-lease sale to an individual taxable? Yes.

Q: Was a sale to a dealer for resale taxable? No, with a valid resale certificate.

Q: Could the lessor buy replacement lease vehicles tax free? Yes, for exclusive leasing use with its resale certificate.

Q: Were later lease payments taxable? Yes.

Citations and references

• Fla. Stat. §§ 212.02(10)(g), (14)(a), (15)(a) — lease, retail sale, and sale definitions
• Fla. Stat. §§ 212.05(1)(a) and 212.06(10) — sales tax and vehicle transfers
• Fla. Admin. Code r. 12A-1.007(14) — vehicles purchased exclusively for lease
• Fla. Admin. Code r. 12A-1.039 — sales for resale
• I.R.C. § 1031 — federal like-kind exchange treatment
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02A-002

Original ruling text

SUMMARY

QUESTION 1: Taxpayer is a motor vehicle leasing company
that has entered into an agreement with a qualified
intermediary, to purchase and sell motor vehicles in
connection with its leasing business, that qualifies for
tax-free "like-kind exchange" treatment under Internal
Revenue Code Section 1031. Is Florida sales tax imposed on
the sale of a motor vehicle, to a taxable individual (e.g.,
sale to the lessee), at the conclusion of a lease?

ANSWER 1 - Based on Facts Below: Section 212.02(15)(a),
F.S., provides that the transfer of title or possession, or
both, of personalty and the flow of consideration in
exchange for the transfer of title or possession, or both,
of personalty, must be present for a transaction to
constitute a "sale." The transaction described in Question
1 meets the criteria of a "sale," as set forth in Section
212.02(15)(a), F.S., and, therefore, the purchaser is
required to pay Florida sales tax on the transaction.

QUESTION 2: Taxpayer is a motor vehicle leasing company
that has entered into an agreement with a qualified
intermediary, to purchase and sell motor vehicles in
connection with its leasing business, that qualifies for
tax-free "like-kind exchange" treatment under Internal
Revenue Code Section 1031. Is Florida sales tax imposed on
the sale of a motor vehicle, to a dealer for the purpose of
resale, at the conclusion of a lease?

ANSWER 2 - Based on Facts Below: Sales to registered sales
tax dealers for the purposes of resale are exempt from tax
when the purchasing dealer issues an annual resale
certificate, as provided in Rule 12A-1.039, F.A.C., to the
selling dealer. Therefore, in lieu of collecting the
applicable sales tax due, Taxpayer may obtain an annual
resale certificate from the dealer purchasing the
relinquished motor vehicles for resale.

QUESTION 3: Taxpayer is a motor vehicle leasing company
that has entered into an agreement with a qualified

intermediary, to purchase and sell motor vehicles in
connection with its leasing business, that qualifies for
tax-free "like-kind exchange" treatment under Internal
Revenue Code Section 1031. Is Florida sales tax imposed on
Taxpayer's purchase of new motor vehicles for its leasing
operations?

ANSWER 3 - Based on Facts Below: Taxpayer, as a registered
dealer, may purchase motor vehicles used exclusively for
lease purposes tax exempt by issuing an annual resale
certificate to the selling dealer at the time of purchase
in lieu of paying sales tax. Taxpayer is required to
collect the applicable taxes due on the subsequent lease of
the motor vehicle and remit such taxes to the State. See
Rule 12A-1.007(14), F.A.C.

Jan 04, 2002

Re: Technical Assistance Advisement 02A-002
Sales and Use Tax
Like-Kind Exchange of Motor Vehicles
Section 212.02(10)(g), Florida Statutes, (F.S.)
Section 212.02(14)(a), F.S.
Section 212.02(15)(a), F.S.
Section 212.05(1)(a), F.S.
Section 212.06(10), F.S.
Rule 12A-1.007, Florida Administrative Code, (F.A.C.)
XXX ("Taxpayer")
XXX ("Intermediary")

Dear :

This is in response to your request dated September 18, 2001,
requesting a ruling regarding the application of Florida sales
and use tax to "like-kind exchanges" of motor vehicles. Your
letter provides a discussion of the transaction for business and
federal tax purposes; an analysis of the sales and use tax
considerations, including pertinent authority; and your request

for a ruling. This response to your request constitutes a TAA
under Chapter 12-11, Florida Administrative Code (F.A.C.), and
is issued to you under the authority of Section 213.22, Florida
Statutes (F.S.).

BACKGROUND

At issue in this request is the modified purchase, lease and
sale of a motor vehicle to qualify as a "like-kind exchange"
under Internal Revenue Code (IRC) Section 1031. Your letter
provides that the Internal Revenue Service (IRS) has ruled that
exchanges of rental property by a corporation through an
intermediary can qualify under Section 1031 as tax-free likekind exchanges for federal income tax purposes. Taxpayer has
entered into an agreement with Intermediary that qualifies for
the tax-free like-kind exchange treatment.

You have characterized the terms of the transaction into three
categories: 1) the acquisition of the property by the lessor; 2)
the term of the lease; and 3) the disposition of the property by
the lessor at the conclusion of the lease term. Section 1031
does not impact the relationship between the lessor and lessee
during the term of the lease. The lease payments will continue
as they currently exist and the lessor will continue to invoice,
collect, and remit all appropriate taxes. However, there is a
change under Section 1031 for lease transactions regarding the
sale of a motor vehicle at the conclusion of the lease or the
purchase of a new motor vehicle by the lessor.

Your letter provides that your Taxpayer leases motor vehicles.
Based on telephone conversations with you, the lease periods are
for longer than twelve months in duration. At the termination
of the lease period, Taxpayer disposes of (i.e., sells) the
vehicles in one of several ways: (1) Taxpayer directly sells the
motor vehicle to the lessee through the purchase option of the
lease; (2) Taxpayer sells the motor vehicle to a dealer for
resale to the lessee, who exercises the purchase option; (3)
Taxpayer sells the motor vehicle directly to a dealer for resale
to someone other than the lessee; or (4) Taxpayer sells the
motor vehicle at auction to a dealer for purposes of resale.
Under any of these described scenarios, Taxpayer will dispose of

the vehicles ("relinquished property") at the termination of the
lease through Intermediary. Intermediary has been assigned
Taxpayer's rights (but not its obligations) with respect to the
sale of the relinquished property at the termination of the
lease. The property is sold in accordance with Taxpayer's
directions and instructions either to (a) the lessor, or (b) a
dealer for resale. Taxpayer controls the disposition of the
relinquished property, and the title to the property is
transferred directly from Taxpayer to the purchaser. The
proceeds from the sale are received in a Taxpayer and
Intermediary joint bank account ("Account"), which restricts
Taxpayer's right to receive or otherwise obtain the immediate
benefit of the proceeds. Intermediary serves as a qualified
intermediary for federal like-kind exchange purposes but does
not change the basic character of the transaction. For this
service, Intermediary receives a fee.

Taxpayer also acquires replacement motor vehicles using the
services of Intermediary. As with the relinquished property,
Intermediary has been assigned Taxpayer's rights (but not its
obligations) with respect to the acquisition of newly leased
vehicles ("replacement property"). At Taxpayer's direction,
Intermediary pays for the replacement property out of the
Account with funds from the sale of relinquished property. If
there is a shortfall (the funds in the Account are less than the
purchased price of replacement property), Taxpayer will pay the
difference. Exchanges of relinquished property for replacement
property are identified to the qualified intermediary within the
time frames prescribed in Section 1031(a)(3). If an exchange
does not occur within the federally required time frames,
Taxpayer will recognize gain on the exchange on its federal
income tax return. The title for the motor vehicle is
transferred directly between the motor vehicle dealer and
Taxpayer and never rests with Intermediary.

APPLICABLE AUTHORITY

Section 212.02(14)(a), F.S., defines a "retail sale" or a "sale
at retail" as "a sale to a consumer or to any person for any
purpose other than for resale in the form of tangible personal
property."

Section 212.02(15)(a), F.S., defines a "sale" as "[a]ny 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." (emphasis supplied)

Section 212.05(1)(a), F.S., imposes a sales tax on the sale of
tangible personal property, including the sale of motor
vehicles. Section 212.06(10), F.S., provides that all transfers
of title to motor vehicles and other vehicles are taxable
transactions, unless expressly exempt under Chapter 212, F.S.

Section 212.02(10)(g), F.S., defines a "lease or rental" as the
leasing or renting of tangible personal property and the
possession or use of property by the lessee or renter for a
consideration without transfer of title. Rule 12A-1.007(14),
F.A.C., provides that the lease of a motor vehicle that is used
in this state is subject to sales tax. The lessor is required
to collect the applicable sales tax from the lessee. Dealers
that lease motor vehicles may purchase a motor vehicle used
exclusively for lease purposes tax exempt by issuing a resale
certificate to the selling dealer at the time of purchase in
lieu of paying sales tax. Rule 12A-1.007(14)(c), F.A.C.,
provides that the sale of a motor vehicle that has previously
been a "lease vehicle" is subject to tax, except when the
vehicle is sold for resale.

Section 1031(a)(1) of the IRC provides that "[n]o gain or loss
shall be recognized on the exchange of property held for
productive use in a trade or business or for investment if such
property is exchanged solely for property of like kind which is
to be held either for productive use in a trade or business or
for investment." Section 1031(a)(2)(A) adds that "[t]his
subsection shall not apply to any exchange of stock in trade or
other property held primarily for sale."

Accordingly, when a taxpayer disposes of an asset, there are
three general requirements for non-recognition treatment under
Section 1031: (1) both the property surrendered and the property
received must be held either for productive use in a trade or

business, or for investment; (2) the property surrendered and
the property received must be of "like-kind"; and (3) there must
be an exchange as distinguished from a sale and repurchase.

Productive Use in Trade or Business

The relevant qualified use of the property owned by Taxpayer and
subsequently being exchanged in the proposed transaction is the
leasing of such property to third parties. Thus, the
relinquished property that Taxpayer previously leased to third
parties and the replacement property that Taxpayer will be
leasing to third parties upon acquisition should be considered
by the IRS as property used for productive use in a trade or
business in Taxpayer's hands. See Treas. Reg. s. 1.1031(a)-1.

Like-kind Property

The requirement that the exchanged properties be of like-kind
has "reference to the nature or character of the property and
not to its grade or quality." Treas. Reg. s. 1.1031(a)-1(b).
To qualify for like-kind exchange treatment, "[o]ne kind or
class of property may not... be exchanged for property of a
different kind or class." Id. "[D]epreciable tangible personal
properties are of a like class if they are either within the
same General Asset Class (as defined in paragraph (b)(2) of this
section) or within the same Product Class (as defined in
paragraph (b)(3) of this section)." Treas. Reg. s. 1.1031(a)2(a).

Treasury Regulation s. 1.1031(a)-2(b)(3) states that "property
within a Product Class consists of depreciable tangible personal
property that is listed in a 4-digit product class within
Division D of the Standard Industrial Classification codes, set
forth in Executive Office of the President, Office of Management
and Budget, Standard Industrial Classification Manual (1987) (
'SIC Manual')." If all property being exchanged by Taxpayer in
the proposed transaction is considered property and all items
are classified in the SIC Manual under the same SIC number, then
the depreciable tangible personal property being exchanged in
the proposed transaction is within the same Product Class as
defined in Treas. Reg. s. 1.1031(a)-2(b)(3).

However, when an exchange transaction is deferred, rather than
simultaneous, even if the taxpayer trades property for other
property of the same asset or product class, the exchanged
properties will not be of like-kind if the replacement property
is not timely identified or received. Section 1031(a)(3),
I.R.C., states that "any property received by the taxpayer shall
be treated as property which is not like-kind property if (A)
such property is not identified as property to be received in
the exchange on or before the day which is 45 days after the
date on which the taxpayer transfers the property relinquished
in the exchange, or (B) such property is received after the
earlier of (i) the day which is 180 days after the date on which
the taxpayer transfers the property relinquished in the
exchange, or (ii) the due date (determined with regard to
extension) for transferor's return of the tax imposed by this
chapter for the taxable year in which the transfer of the
relinquished property occurs."

Treasury Regulation s. 1.1031(k)-1(c) provides that "any
replacement property that is received by the taxpayer before the
end of the identification period will in all events be treated
as identified before the end of the identification period."
However, because Taxpayer, through Intermediary, initially may
receive more properties than it will be relinquishing, the issue
arises whether Taxpayer will satisfy the "3-property" or "200%
rule."

Treasury Regulation s. 1.1031(k)-1(c)(4)(i) provides that "[t]he
taxpayer may identify more than one replacement property.
Regardless of the number of relinquished properties transferred
by the taxpayer as part of the same deferred exchange, the
maximum number of replacement properties that the taxpayer may
identify is (A) [t]hree properties without regard to the fair
market values of the properties (the '3-property rule'), or (B)
[a]ny number of properties as long as their aggregate fair
market value as of the end of the identification period does not
exceed 200% of the aggregate fair market value of all the
relinquished properties as of the date the relinquished
properties were transferred by the taxpayer (the '200% rule')."
Treasury Regulation s. 1.1031(k)-1(c)(4)(ii) states that, "[i]f,

as of the end of the identification period, the taxpayer has
identified more properties as replacement properties than
permitted by paragraph (c)(4)(i) of this section, the taxpayer
is treated as if no replacement property had been
identified...."

However, an exchange does not fail for lack of identification
due to either the 3-property rule or the 200% rule if
identification is made by receipt of replacement property before
the end of the identification period. Treas. Reg. s. 1.1031(k)1(c)(1). If Taxpayer receives replacement property within 45
days of the sale of the relinquished property, the
identification requirements of Section 1031(a)(3) will be met by
such receipt. If identification of the replacement property is
made by receipt of the replacement property within the
identification period, neither the 3-property rule nor the 200%
rule will apply. As such, the relinquished property and the
replacement property will be of like-kind for Section 1031
purposes.

Exchange of Properties

Treasury Regulation s. 1.1031(k)-1(f)(1) provides that, "in the
case of a transfer of relinquished property in a deferred
exchange, gain or loss may be recognized if the taxpayer
actually or constructively receives money or other property
before the taxpayer actually receives like-kind replacement
property. If the taxpayer actually or constructively receives
money or other property in the full amount of the consideration
for the relinquished property before the taxpayer actually
receives like-kind replacement property, the transaction will
constitute a sale and not a deferred exchange, even though the
taxpayer may ultimately receive like-kind replacement property."
According to Treas. Reg. s. 1.1031(k)-1(f)(2), "actual or
constructive receipt of money or property by an agent of the
taxpayer (determined without regard to paragraph (k) of this
section) is actual or constructive receipt by the taxpayer."

Safe Harbors

Treasury Regulation s. 1.1031(k)-1(g) "sets forth four safe

harbors the use of which will result in a determination that the
taxpayer is not in actual or constructive receipt of money or
other property for purposes of section 1031 and this section.
More than one safe harbor can be used in the same deferred
exchange, but the terms and conditions must be separately
satisfied."

One of these safe harbor requires the use of a "Qualified
Intermediary." Treasury Regulation s. 1.1031(k)-1(g)(4)
provides that, "[i]n the case of a taxpayer's transfer of
relinquished property involving a qualified intermediary, the
qualified intermediary is not considered the agent of the
taxpayer for purposes of section 1031(a). In such a case, the
taxpayer's transfer of relinquished property and subsequent
receipt of like-kind replacement property is treated as an
exchange, and the determination of whether the taxpayer is in
actual or constructive receipt of money or other property before
the taxpayer actually receives like-kind replacement property is
made as if the qualified intermediary is not the agent of the
taxpayer."

A qualified intermediary is defined in Treas. Reg. s. 1.1031(k)1(g)(4)(iii) as a person who "(A) [i]s not the taxpayer or a
disqualified person... and (B) [e]nters into a written agreement
with the taxpayer (the 'exchange agreement') and, as required by
the exchange agreement, acquires the relinquished property from
the taxpayer, transfers the relinquished property, acquires the
replacement property, and transfers the replacement property to
the taxpayer." According to Treas. Reg. s. 1.1031(k)-1(k)(2),
the term "disqualified person" includes a person who is the
taxpayer's agent at the time of the transaction. "For this
purpose, a person who has acted as the taxpayer's employee,
attorney, accountant, investment banker or broker, or real
estate agent or broker within the 2-year period ending on the
date of the transfer of the first of the relinquished properties
is treated as an agent of the taxpayer at the time of the
transaction." However, performance of certain services does not
cause an entity to be a "disqualified person." These services
include (a) "[s]ervices for the taxpayer with respect to
exchanges of property intended to qualify for non-recognition of
gain or loss under section 1031, and (b) [r]outine financial,

title insurance, escrow, or trust services for the taxpayer by a
financial institution, title insurance company, or escrow
company." Treas. Reg. s. 1.1031(k)-1(k)(2)(i) and (ii).

In the instant case, Taxpayer has entered into a written
exchange agreement with Intermediary that qualifies for the
federal tax-free like-kind exchange treatment. Intermediary is
an independent, third party financial institution that will not
have previously performed services other than routine financial
services for Taxpayer. As such, Intermediary is not a
"disqualified person" under Treas. Reg. s. 1.1031(k)-1(k). The
exchange agreement must expressly limit "the taxpayer's rights
to receive, pledge, borrow, or otherwise obtain benefits of
money or other property held by the qualified intermediary as
provided in paragraph (g)(6) of this section." Treas. Reg. s.
1.1031(k)-1(g)(4)(ii). See also Treas. Reg. s. 1.1031(k)1(g)(4)(vi).

According to Treas. Reg. s. 1.1031(k)-1(g)(4)(iv), "[r]egardless
of whether [a qualified] intermediary acquires and transfers
property under general tax principles, solely for purposes of
paragraph (g)(4)(iii)(B) of this section -- (A) [A qualified]
intermediary is treated as acquiring and transferring property
if the [qualified] intermediary acquires and transfers legal
title to that property; (B) [A qualified] intermediary is
treated as acquiring and transferring the relinquished property
if the [qualified] intermediary (either on its own behalf or as
the agent of any party to the transaction) enters into an
agreement with a person other than the taxpayer for the transfer
of the relinquished property to that person and, pursuant to
that agreement, the relinquished property is transferred to that
person; and (C) [A qualified] intermediary is treated as
acquiring and transferring replacement property if the
[qualified] intermediary (either on its own behalf or as the
agent of any party to the transaction) enters into an agreement
with the owner of the replacement property for the transfer of
that property and, pursuant to that agreement, the replacement
property is transferred to the taxpayer." For these purposes
only, a qualified "intermediary is treated as entering into an
agreement if the rights of a party to the agreement are assigned
to the [qualified] intermediary and all parties to that

agreement are notified in writing of the assignment on or before
the date of the relevant transfer of property." Treas. Reg. s.
1.1031(k)-1(g)(4)(v).

Another safe harbor method is the use of a "qualified escrow
account" or a "qualified trust." Treas. Reg. s. 1.1031(k)1(g)(3). "In the case of a deferred exchange, the determination
of whether the taxpayer is in actual or constructive receipt of
money or other property before the taxpayer actually receives
like-kind replacement property will be made without regard to
the fact that the obligation of the taxpayer's transferee to
transfer the replacement property to the taxpayer is or may be
secured by cash or a cash equivalent if the cash or cash
equivalent is held in a qualified escrow account or in a
qualified trust." Treas. Reg. s. 1.1031(k)-1(g)(3)(i).

"A qualified escrow account is an escrow account wherein -- (A)
[t]he escrow holder is not the taxpayer or a disqualified period
(as defined in paragraph (k) of this section); and (B) [t]he
escrow agreement expressly limits the taxpayer's rights to
receive, pledge, borrow, or otherwise obtain benefits of the
cash or cash equivalent held in the escrow account as provided
in paragraph (g)(6) of this section." Treas. Reg. s. 1.1031(k)1(g)(3)(ii). See also Treas. Reg. s. 1.1031(k)-1(g)(3)(iv).

"A qualified trust is a trust wherein -- (A) [t]he trustee is
not the taxpayer or a disqualified person... and (B) [t]he trust
agreement expressly limits the taxpayer's rights to receive,
pledge, borrow, or otherwise obtain benefits of the cash or cash
equivalent held by the trustee as provided in paragraph (g)(6)
of this section." Treas. Reg. s. 1.1031(k)-1(g)(3)(iii). See
also Treas. Reg. s. 1.1031(k)-1(g)(3)(iv).

"[T]he determination of whether the taxpayer is in actual or
constructive receipt of money or other property before the
taxpayer actually receives the like-kind replacement property
will be made without regard to the fact that the taxpayer is or
may be entitled to receive any interest or growth factor with
respect to the deferred exchange," as long as "the agreement
pursuant to which the taxpayer is or may be entitled to the
interest or growth factor expressly limits the taxpayer's rights

to receive the interest or growth factor as provided in
paragraph (g)(6) of this section...." Treas. Reg. s. 1.1031(k)1(g)(5). Under Treas. Reg. s. 1.1031(k)-1(h)(1), a "taxpayer is
treated as being entitled to receive interest or a growth factor
with respect to a deferred exchange if the amount of money or
property the taxpayer is entitled to receive depends upon the
length of time elapsed between transfer of the relinquished
property and receipt of the replacement property." "If, as part
of a deferred exchange, the taxpayer receives interest or a
growth factor, the interest or growth factor will be treated as
interest, regardless of whether it is paid to the taxpayer in
cash or in property (including property of a like kind). The
taxpayer must include the interest or growth factor in income
according to the taxpayer's method of accounting." Treas. Reg.
s. 1.1031(k)-1(h)(2).

"An agreement limits a taxpayer's rights as provided in
paragraph (g)(6) of this section only if the agreement provides
that the taxpayer has no rights... to receive, pledge, borrow,
or otherwise obtain the benefits of money or other property
before the end of the exchange period." Treas. Reg. s.
1.1031(k)-1(g)(6)(i). However, "[t]he agreement may provide that
if the taxpayer has not identified replacement property by the
end of the identification period, the taxpayer may have rights
to receive, pledge, borrow, or otherwise obtain the benefits of
money or other property at any time after the end of the
identification period." Treas. Reg. s. 1.1031(k)-1(g)(6)(ii).
"The agreement may provide that if the taxpayer has identified
replacement property, the taxpayer may have rights to receive,
pledge, borrow, or otherwise obtain the benefits of money or
other property upon or after -- (A) [t]he receipt by the
taxpayer of all of the replacement property to which the
taxpayer is entitled under the exchange agreement; or (B) [t]he
occurrence after the end of the identification period of a
material and substantial contingency that -- (1) [r]elates to
the deferred exchange, (2) [i]s provided for in writing, and (3)
[i]s beyond the control of the taxpayer and of any disqualified
person (as defined in paragraph (k) of this section), other than
the person obligated to transfer the replacement property to the
taxpayer." Treas. Reg. s. 1.1031(k)-1(g)(6)(iii).

Certain items are disregarded "[i]n determining whether a safe
harbor under paragraphs (g)(3) through (g)(5) of this section
ceases to apply and whether the taxpayer's rights to receive,
pledge, borrow, or otherwise obtain the benefits of money or
other property are expressly limited as provided in paragraph
(g)(6) of this section, the taxpayer's receipt of or right to
receive any of the following items will be disregarded -- (i)
[i]tems that a seller may receive as a consequence of the
disposition of the property and that are not included in the
amount realized from the disposition of property (e.g., prorated
rents), and (ii) [t]ransactional items that relate to the
disposition of the relinquished property or to the acquisition
of the replacement property and appear under local standards in
the typical closing statements as the responsibility of a buyer
or seller (e.g., commissions, prorated taxes, recording or
transfer taxes, and title company fees)." Treas. Reg. s.
1.1031(k)-1(g)(7).

Treatment of Boot

Taxpayer's actual or constructive receipt of any boot prior to
receiving the identified replacement property could place the
entire transaction outside the safe harbor rule. See Treas.
Reg. s. 1.1031(k)-1(g)(6). Furthermore, if Taxpayer transfers
relinquished property to Intermediary and then identifies
replacement property that costs less than the proceeds available
from the disposition of the relinquished property, Taxpayer
should take the excess proceeds into account as boot. If
Taxpayer does not, the validity of the entire transaction as an
exchange may be questioned.

REQUESTED ADVISEMENT

Your letter provides a discussion of three scenarios at issue
for sales and use tax purposes. The first scenario is the sale
of the motor vehicle to a taxable individual at the termination
of the lease period. The second scenario is the sale of such
motor vehicle to a motor vehicle dealer. The third scenario at
issue is the purchase of a motor vehicle for leasing purposes.

Each of these issues will be discussed and a determination will

be based solely on the facts, as presented in your letter, that
Intermediary does not appear in the chain of title transfer and
is not an agent for Taxpayer and that the transaction qualifies
for like-kind exchange treatment under s. 1031. If the
Intermediary performs its services in the capacity as Taxpayer's
agent or Intermediary appears in the chain of title transfer,
the sales tax consequences of the transaction at issue are
substantially changed. Also, if any transaction fails to qualify
for non-recognition treatment under s. 1031, the sales tax
consequences of the transaction at issue are substantially
changed. If such conditions occur, the conclusions presented in
this technical assistance advisement would not apply to such
transactions.

SALE OF MOTOR VEHICLE TO A TAXABLE INDIVIDUAL

Your letter provides the following pertinent facts regarding the
first scenario at issue:

As summarized in Scenario I (attached), an individual
purchaser may exercise an option to purchase the leased
vehicle at the conclusion of the lease term. By way of
comparison, in a typical taxable scenario (not an IRC
[Section] 1031 transaction), the Taxpayer (i.e., lessor)
(a) sells a motor vehicle, (b) collects the payment (e.g.
purchase price plus tax), and (c) remits the appropriate
sales or use tax on the transaction, in exchange for (d)
the title that is transferred to the lessee. In a
qualified IRC [Section] 1031 transaction, the Taxpayer will
continue to (a) sell a motor vehicle and (c) remit
appropriate sales or use tax, in exchange for (d) the title
to the motor vehicle. However, the individual purchaser
will be directed to (b) remit their payment to the Account.
For sales and use tax purposes, the Taxpayer will continue
to document, report and remit all taxes due on the
transaction. The reporting of the transaction will
continue to follow the flow of documentation (i.e., title)
at the Department of Highway Safety and Motor Vehicles
("DHSMV"). The attachment "Scenario I" noted above,
graphically depicts the transaction.

It should be noted that Taxpayer does not typically sell
the leased vehicle directly to the lessee at the conclusion
of the lease. With some exceptions, Taxpayer usually sells
the leased vehicle to the dealer who resells such vehicle.
This transaction is discussed below in Scenario II.

Requested Ruling

Your letter requests that the Department confirm the following
position regarding the first scenario at issue:

The taxable sale of a motor vehicle at the conclusion of
the lease (e.g., sale to the lessee) is a transaction for
sales and use tax purposes between Taxpayer and the
individual purchaser. The Taxpayer would be the party
responsible for remittance of the appropriate sales or use
tax to the State of Florida. The required IRC s. 1031
payment to the Account, managed by a[n] Intermediary, does
not change the billing and payment process of the Taxpayer.

Discussion and Determination

Section 212.02(15)(a), F.S., provides the requisite elements of
a "sale" for the purposes of imposing the Florida sales tax and
establishes a two prong test, both prongs of which must be
satisfied in order for a transaction to constitute a "sale."
These prongs are, namely: (i) the transfer of title or
possession, or both, of personalty; and (ii) the flow of
consideration in exchange for the transfer of title or
possession, or both, of the personalty. In general, the
taxpayer making the sale is required to bill the tax to the
purchaser and remit the applicable sales tax to the State.

Under like-kind exchange transactions proposed by Taxpayer, the
title to the relinquished motor vehicle is transferred directly
from Taxpayer to the individual lessee purchasing the motor
vehicle at the termination of the lease period. In terms of the
first prong of the test, a transfer of title between Taxpayer
and the purchaser exists.

Now we must establish the second prong of the test, the flow of

"consideration." When Taxpayer sells a relinquished motor
vehicle, the purchaser makes payment to Intermediary.
Intermediary deposits the funds into the Account. At the
termination of the exchange period, Intermediary distributes the
proceeds of the sale of the motor vehicle to Taxpayer from the
Account pursuant to the agreement.

Once the terms of the agreement are satisfied, Taxpayer receives
"consideration" for the transfer of the title to the
relinquished motor vehicle. The flow of consideration to
Taxpayer in exchange for the transfer of title meets the second
prong of the test, establishing that a "sale," as defined in s.
212.02(15)(a), F.S., occurs between Taxpayer and the individual
purchasing the relinquished motor vehicle. Taxpayer is required
to remit the applicable sales taxes due on it sales of
relinquished motor vehicles to individual purchasers.

The Intermediary does not appear in the chain of title, nor does
it obtain possession of the relinquished motor vehicle. The
activities of Intermediary are to perform services for Taxpayer
and facilitate the exchange of motor vehicles directly between
Taxpayer and the purchaser. Under such activities, the
Intermediary fails the first prong of the test establishing a
"sale," as defined in s. 212.02(15)(a), F.S. Intermediary does
not transfer the title or possession of the motor vehicles at
issue. The existence of Intermediary in this transaction does
not change the sales tax consequences.

SALE OF MOTOR VEHICLE TO A DEALER

Your letter provides the following pertinent facts regarding the
second scenario at issue:

In Scenario II (attached), Taxpayer (i.e., lessor) at the
conclusion of the lease sells the used motor vehicle to a
dealer or another nontaxable reseller (e.g., dealer). By
way of comparison, in a typical nontaxable scenario (not an
IRC s. 1031 transaction) the Taxpayer (a) sells a motor
vehicle, (b) receives payment (e.g. purchase price without
tax) and a resale exemption, and (c) does not remit sales
or use tax on the transaction, in exchange for (d) the

title to the motor vehicle. In a qualified IRC s. 1031
transaction, the Taxpayer will continue to (a) sell a motor
vehicle, (b) receive a resale certificate, and (c) not
remit sales or use tax, in exchange for (d) the title to
the motor vehicle. However, as noted above, the dealer
will be directed to remit their payment to the Account.
For sales and use tax purposes, the Taxpayer will continue
to document and report the non-taxability of the
transaction. The reporting of the transaction will
continue to follow the flow of documentation (i.e., title)
at the DHSMV. The attachment, "Scenario II" noted above,
graphically depicts the transaction.

Requested Ruling

Your letter requests that the Department confirm the following
position regarding the second scenario at issue:

The nontaxable sale of a motor vehicle at the conclusion of
the lease (e.g., sale to a dealer) is a transaction for
sales and use tax purposes between Taxpayer and the dealer.
Taxpayer is required to secure the necessary sale for
resale exemption documentation (valid resale exemption
certificate or exemption number) from the dealer to
document the exempt status of the sale of the motor
vehicle. The required IRC s. 1031 payment to the Account,
managed by an Intermediary, does not change the exchange of
the motor vehicle title for a valid sale for resale
exemption, between the buyer (i.e., dealer) and the seller
(i.e., lessor or Taxpayer).

Discussion and Determination

In this scenario, a motor vehicle dealer purchases the
relinquished motor vehicle for the purposes of resale. As
previously discussed, the flow of consideration to Taxpayer in
exchange for the transfer of title constitutes a "sale," as
defined in s. 212.02(15)(a), F.S., between Taxpayer and the
individual purchasing the relinquished motor vehicle. Funds are
remitted to Intermediary and deposited into the Account.
Taxpayer receives the proceeds from the sale under the same

conditions as discussed in Scenario I.

Sales to registered sales tax dealers for the purposes of resale
are exempt from tax when the purchasing dealer issues an annual
resale certificate, as provided in Rule 12A-1.039, F.A.C., to
the selling dealer. In lieu of collecting the applicable sales
tax due, Taxpayer may obtain an annual resale certificate from
the dealer purchasing the relinquished motor vehicles for
resale. Sales to registered dealers for the purposes of resale
are reported to the Department of Revenue as exempt sales by the
selling dealer. The existence of Intermediary in this
transaction does not change the sales tax consequences.

PURCHASE OF A MOTOR VEHICLE FOR LEASING PURPOSES

Your letter provides the following pertinent facts regarding the
third and final scenario at issue:

In a situation where the lessor purchases tangible personal
property (i.e., motor vehicles) and the lessee pays tax
based upon the rental costs, typically the lessor acquires
the property without sales or use tax (i.e., resale). In
Scenario III (attached), typically the Taxpayer (i.e.,
lessor) (a) purchases the vehicle from the seller, (b)
supplies a valid resale exemption certificate and (c)
receives title for the motor vehicle. In an IRC s. 1031
transaction, Taxpayer will direct Intermediary to make
payment from the Account to the seller. The Taxpayer will
continue to (b) supply a valid sale for resale exemption to
the seller and (c) receive title. The subsequent lease of
the motor vehicle will remain unchanged, and the lessor
will continue to bill, collect and remit all sales and use
taxes due upon the lease payments.

Requested Ruling

Your letter requests that the Department confirm the following
position regarding the scenario at issue:

The nontaxable purchase of a new motor vehicle (i.e.,
replacement property) for leasing operations is a

transaction, for sale[s] and use tax purposes, between the
Taxpayer and the seller. The seller is required to secure
the necessary exemption information (valid resale exemption
certificate or exemption number) from the Taxpayer to
document the exempt status of the sale of the motor
vehicle. The required IRC s. 1031 payment from the
Account, managed by a[n] Intermediary, does not change the
exchange of the motor vehicle title for a valid sale for
resale exemption documentation, between the Taxpayer (i.e.,
buyer) and the seller (i.e., dealer or vendor).

Discussion and Determination

As previously discussed, the flow of consideration to Taxpayer
in exchange for the transfer of title constitutes a "sale," as
defined in s. 212.02(15)(a), F.S., between Taxpayer and the
individual purchasing the relinquished motor vehicle. In this
scenario, the transfer of title is between a motor vehicle
dealer and Taxpayer purchasing a replacement motor vehicle. The
payment for the purchase of the motor vehicle is made by the
Intermediary from the Account at the direction of Taxpayer.
Consideration for the transfer of title is paid by Taxpayer to
the selling dealer. A "sale" is executed between Taxpayer and
the selling dealer.

The Intermediary does not appear in the chain of title, nor does
it obtain possession of the replacement motor vehicle. The
activities of Intermediary are to perform services for Taxpayer
and facilitate the purchase of replacement motor vehicles
directly between the selling dealer and Taxpayer. Under such
activities, Intermediary fails the first prong of the test
establishing a "sale," as defined in s. 212.02(15)(a), F.S. The
Intermediary does not transfer the title or possession of the
motor vehicles at issue. The existence of Intermediary in this
transaction does not change the sales tax consequences.

Taxpayer, as a registered dealer, may purchase motor vehicles
used exclusively for lease purposes tax exempt by issuing an
annual resale certificate to the selling dealer at the time of
purchase in lieu of paying sales tax. Taxpayer is required to
collect the applicable taxes due on the subsequent lease of the

motor vehicle and remit such taxes to the State. (Rule 12A1.007(14), F.A.C.)

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 requests
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 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.

Sincerely,

M. Chris Lyon, Attorney
Technical Assistance and Dispute Resolution

Control #46899
MCL/