What did the original Florida ruling say about a pool warranty covering both equipment and real-property improvements?

Plain-English summary

This May 2003 advisement was superseded by revised TAA 03A-025R in July 2003. The original PDF itself directs readers to the revised ruling, and the revised ruling says it supersedes this response.

The original and revised rulings share the core mixed-contract result: a swimming-pool warranty covering taxable tangible personal property and exempt real-property improvements had to separately state the taxable portion. If it did not, the entire contract charge was taxable. If every covered item was a real-property improvement, the warranty charge was exempt.

Skimmer type mattered because Florida said a skimmer could be tangible personal property or an improvement to real property. Other listed in-ground-pool components, leak detection, and leak repair were treated as real-property improvements on the stated facts.

What the revision changed

The original broadly said the seller owed use tax on repair materials whether all or part of the warranty charge was taxable. The revised advisement removed that broad statement and instead said the contractor owed use tax on materials used under a nontaxable warranty for improvements to real property. Readers should use TAA 03A-025R for the Department's revised response.

What this means for you

Do not rely on this original ruling as the operative answer. For historical research, it shows why warranty sellers must classify covered property and separately allocate mixed taxable and exempt charges, but the revised advisement controls the Department's stated position for these facts.

Common questions

Q: Is this the final Department response?
A: No. TAA 03A-025R superseded it.

Q: Did the core allocation rule change?
A: No. Both versions said an unallocated mixed warranty was fully taxable.

Q: What changed?
A: The revision narrowed the discussion of use tax on repair materials.

Citations and references

• Fla. Stat. § 212.0506 — service warranties and mixed taxable/nontaxable charges
• Fla. Stat. § 212.06(14) — real property and fixtures
• Fla. Admin. Code r. 12A-1.051 — real-property contractors
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Original advisement: TAA 03A-025
• Revised advisement: TAA 03A-025R

Original ruling text

See Revised TAA 03A-025R Dated July 14, 2003
SUMMARY

QUESTION: Is the sale of a service warranty subject to tax?

ANSWER - Based on Facts Below: Service warranties that
cover both items that are subject to tax and items that are
exempt from tax must separately state the taxable portion
from the exempt portion. If not, the entire contract is
taxable. Taxpayer's service warranty contract may cover
both improvements to real property and tangible personal
property, depending on the type of skimmer a particular
customer has. If the warranty contract does cover both
tangible personal property and real property improvements,
the contract price is not allocated between the taxable
portions and the exempt portions. In these cases, the
entire contract amount is taxable. Taxpayer may desire to
alter its contract so that the amount attributable to the
tangible personal property (skimmer) is separately stated
from the remainder of the items. In cases where all items
covered are improvements to real property, the contract
price is exempt from tax.

May 06, 2003

Re: Technical Assistance Advisement 03A-025
Sales and Use Tax - Service Warranties
Sections: 212.0506, 212.06, F.S.
Rule: 12A-1.051, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XX

Dear :

This letter is a response to your petition dated January 15,
2003, for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced party and

matter. Your petition has been carefully examined and the
Department finds it to be in compliance with the requisite
criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.

FACTS

According to the petition, Taxpayer sells service warranty
contracts for the repair and/or replacement of certain swimming
pool equipment and provides certain services. The service
contract identifies the covered equipment as pumps, motors,
filters, underwater light fixtures, transformers, skimmers, main
drains, and valves. The contract identifies the covered
services as leak detection and leak repair. The terms and
conditions of the contract state that the contract will not
apply to above ground pools, among other things.

A customer may enter into a contract for a one-year or a twoyear period.

REQUESTED ADVISEMENT

Advice is requested whether the sale of the service warranty is
subject to tax.

LAW AND DISCUSSION

Section 212.06(14), Florida Statutes, defines certain terms to
help determine whether a person is working with an improvement
to real property. These terms and their definitions are as
follows:

(a) "Real property" means the land and improvements thereto
and fixtures and is synonymous with the terms "realty" and
"real estate."

(b) "Fixtures" means items that are an accessory to a
building, other structure, or land and that do not lose
their identity as accessories when installed but that do
become permanently attached to realty. However, the term

does not include the following items, whether or not such
items are attached to real property in a permanent manner:
property of a type that is required to be registered,
licensed, titled, or documented by this state or by the
United States Government, including, but not limited to,
mobile homes, except mobile homes assessed as real
property, or industrial machinery or equipment. For
purposes of this paragraph, industrial machinery or
equipment is not limited to machinery and equipment used to
manufacture, process, compound, or produce tangible
personal property. For an item to be considered a fixture,
it is not necessary that the owner of the item also own the
real property to which it is attached.

(c) "Improvements to real property" includes the activities
of building, erecting, constructing, altering, improving,
repairing, or maintaining real property.

Pumps, motors, filters, underwater light fixtures, transformers,
main drains, valves and timer boxes on an in-ground pool are
classed as improvements to real property. Leak detection and
repair of an in-ground pool are also improvements to real
property. However, skimmers may be classed as tangible personal
property or as improvements to real property, depending upon the
type of skimmer.

Section 212.0506, Florida Statutes, provides in pertinent part:

(1) It is the intent of the Legislature that every person
is exercising a taxable privilege who engages in this state
in the business of soliciting, offering, providing,
entering into, issuing, or delivering any service warranty.

(3) For purposes of this section, "service warranty" means
any contract or agreement which indemnifies the holder of
the contract or agreement for the cost of maintaining,
repairing, or replacing tangible personal property. The
term "service warranty" does not include contracts or
agreements to repair, maintain, or replace tangible
personal property if such property when sold at retail in
this state would not be subject to the tax imposed by this

chapter, nor does it include such contracts or agreements
covering tangible personal property which becomes a part of
real property.

(8) If a transaction involves both the issuance of a
service warranty that is subject to such tax and the
issuance of a warranty, guaranty, extended warranty or
extended guaranty, contract, agreement, or other written
promise that is not subject to such tax, the consideration
shall be separately identified and stated with respect to
the taxable and nontaxable portions of the transaction. If
the consideration is separately apportioned and identified
in good faith, such tax shall apply to the transaction to
the extent that the consideration received or to be
received in connection with the transaction is payment for
a service warranty subject to such tax. If the
consideration is not apportioned in good faith, the
department may reform the contract; such reformation by the
department is to be considered prima facie correct, and the
burden to show the contrary rests upon the dealer. If the
consideration for such a transaction is not separately
identified and stated, the entire transaction is taxable.

(10) Materials and supplies used in the performance of a
factory or manufacturer's warranty are exempt if the
contract is furnished at no extra charge with the equipment
guaranteed thereunder and such materials and supplies are
paid for by the factory or manufacturer. (Emphasis
Supplied)

Although service warranties covering improvements to real
property are not subject to tax, service warranties covering
tangible personal property are subject to tax. When a single
service warranty covers both, the portion of the contract
covering the taxable items must be separately stated from the
portion covering the exempt items. If the taxable and exempt
portions are not separately identified, then entire service
warranty amount will be subject to tax.

It appears, based on the sample contract provided, that the
contract price is a single lump sum price that does not separate

the portion of the price attributable to the skimmer from the
remainder of the covered items. Section 212.0506(8), Florida
Statutes, requires that, when these amounts are not separately
stated, the entire service warranty contract charge is subject
to tax. As such, in cases where the skimmer is tangible
personal property, the entire amount of Taxpayer's service
warranty contract charge is subject to tax. Taxpayer may desire
to alter its contract so that the amount attributable to the
tangible personal property (skimmer) is separately stated from
the remainder of the items. Conversely, when the skimmer is
property classified as an improvement to real property, the
entire amount of Taxpayer's service warranty contract charge is
exempt from tax.

Taxpayer is also advised that regardless whether all or part of
the service warranty charge is subject to tax, Taxpayer owes use
tax on the materials and supplies it uses and consumes in the
performance of a repair. To the extent that the agreement is a
service warranty for tangible personal property, Section
212.0506(10), Florida Statutes, only exempts materials and
supplies used in a factory or manufacturer's warranty which
warranty is supplied at no cost with the equipment.

To the extent that the agreement is a service warranty for
improvements to real property, Rule 12A-1.051(3) and (4),
Florida Administrative Code, provide that the contractor
(Taxpayer) owes use tax on its purchase of materials used or
consumed in the improvement of real property.

CONCLUSION

Service warranties that cover both items that are subject to tax
and items that are exempt from tax must separately state the
taxable portion from the exempt portion. If not, the entire
contract is taxable. Taxpayer's service warranty contract may
cover both improvements to real property and tangible personal
property, depending on the type of skimmer a particular customer
has. If the warranty contract does cover both tangible personal
property and real property improvements, the contract price is
not allocated between the taxable portions and the exempt
portions. In these cases, the entire contract amount is

taxable. Taxpayer may desire to alter its contract so that the
amount attributable to the tangible personal property (skimmer)
is separately stated from the remainder of the items. In cases
where all items covered are improvements to real property, the
contract price is exempt from tax.

This response constitutes a Technical Assistance Advisement
under Section 213.22, Florida Statutes, 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,
Florida Statutes. Our response is predicated upon 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 from that which is expressed in this
response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
Florida Statutes, and are subject to disclosure to the public
under the conditions of s. 213.22, Florida Statutes.
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,

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/414-9838

Control #53380