Did resident-only physical therapy prevent a for-profit nursing home from claiming Florida's residential-facility electricity exemption?

Plain-English summary

Florida held that the for-profit nursing home's electricity remained exempt even though an outside contractor provided physical therapy inside the facility. The therapy was not a separate commercial use because it served only residents, followed medical orders, and directly supported their care and daily living needs.

The facility qualified as residential

The nursing home served up to 120 residents and fit the Chapter 400 facility definition cited in the ruling. Rule 12A-1.053 exempted electricity used in those residential facilities, while making the entire sale taxable if any electricity served a nonexempt purpose.

Resident-only therapy did not defeat the exemption

The contractor had no office or storage space in the nursing home. Its services were unavailable to the general public, were ordered by medical staff or doctors, and were paid for by the nursing home rather than directly by residents. Florida contrasted this care-related activity with operating a separate commercial business such as a bank.

Previously paid tax came back through the dealer

The ruling directed the nursing home to seek its refund from the utility, not directly from the Department. The utility could refund the customer and then seek reimbursement from Florida. The ruling also described an alternative in which the utility assigned its refund rights to the nursing home for inclusion with the Department application.

What this means for you

Residential-care facilities should document the contractor's space, customers, payment path, medical purpose, and relationship to resident care. Refund claims should also identify whether the dealer will file or assign its rights.

Common questions

Q: Did for-profit status defeat the exemption?
A: No. The ruling treated the nursing home as an eligible residential facility.

Q: Did contracted physical therapy count as commercial use?
A: No, on these resident-only, care-related facts.

Q: Could the nursing home request the refund directly from Florida?
A: Generally no. It first sought the tax from the utility, unless it received an assignment of the utility's refund rights.

Q: Would therapy for outside patients present the same facts?
A: No. The Department relied on services being unavailable to the public and directly tied to residents' care.

Citations and references

• Fla. Stat. §§ 212.05(1)(e) and 212.08(7)(j) — electricity tax and residential utility exemption
• Fla. Stat. § 400.021(8) — facility definition
• Fla. Admin. Code r. 12A-1.053(1) — electricity used in residential facilities
• Fla. Admin. Code r. 12A-1.014(4) — refund from the dealer
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-049

Original ruling text

SUMMARY

QUESTION: Whether a for-profit nursing home qualifies for a
sales tax exemption on the purchase of electricity when it
contracts for physical therapy services strictly for its
residents and the third-party contractor does not have an
office facility within the nursing home. If so, how is a
refund of the sales tax already paid handled?

ANSWER - Based on Facts Below: The for-profit nursing home
qualifies for a sales tax exemption on the purchase of
electricity because the physical therapy services are not
commercial in nature (as compared to the operation of a
"bank") and the physical therapy services are directly
related to the care and daily living needs of the
residents. When a taxpayer pays sales tax not actually
due, the taxpayer should secure a refund from the dealer
(here, the utility company) and not the Department of
Revenue.

Oct 16, 2003

Re: Technical Assistance Advisement 03A-049
Electricity Sold to a Nursing Home
Sales and Use Tax
Sections 212.05, 212.08, 213.22 and 400.021, F.S. ("Florida
Statutes")
Rules 12A-1.014 and 1.053, F.A.C. ("Florida Administrative
Code")

Dear :

This response is in reply to your letter dated August 27, 2003,
requesting the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to Section 213.22, F.S., and Chapter
12-11, F.A.C., regarding Florida sales tax charged on
electricity sold to a nursing home. An examination of your
letter has established that you have complied with the statutory

and regulatory requirements for issuance of a TAA. Therefore,
the Department is hereby granting your request for issuance of a
TAA.

ISSUES

Whether a for-profit nursing home qualifies for a sales tax
exemption on the purchase of electricity when it contracts for
physical therapy services strictly for its residents and the
third-party contractor does not have an office facility within
the nursing home. If so, how is a refund of the sales tax
already paid handled?

FACTS

The Taxpayer owns and operates a for-profit nursing home that,
pursuant to the Florida Agency for Health Care Administration's
website, accepts Medicaid and Medicare, provides respite care,
physical therapy and hospice services for up to 120 residents.
Electricity for the nursing home is provided for by the City.
Along with your letter, you provided a document titled "Restated
Master Therapy Services Agreement" and a "Second Amendment to
the Restated Master Therapy Services Agreement."

Your letter of August 27, 2003 provides, in part:

The City... charges [the Taxpayer] sales tax on their
utility bill. We requested the City... stop charging us
sales tax based on Florida Administrative Code 12A-1.053,
which states that the sale of electricity used in
residential facilities is exempt. The City... denied our
request based on the fact that our residents receive
physical therapy services in our facility, which the
City... interpreted as a commercial activity.

We contract with a physical therapy company that treats
only our residents in our facility. If a doctor orders
these services we are required by Medicaid and Medicare to
provide them to the resident. We do not provide physical
therapy service in our facility to any outside persons....

***

Along with your request, you provided a document titled
"Restated Master Therapy Services Agreement." Exhibit C,
"Standard Provisions," Section 5 ("Equipment Materials and Work
Space") provides in part:

[The Taxpayer] will provide basic equipment and supplies
needed in order for [the Contractor] to provide Services,
unless [the Contractor] has agreed to provide equipment and
supplies with respect to any Service. [The Taxpayer] will
not be responsible in any way for any additional equipment
and materials which may be required or supplied by [the
Contractor]....

A review of the Services Agreement documents reveals that the
Taxpayer compensates the Contractor after receiving its invoices
for the physical therapy services provided. It is noted that a
great deal of emphasis is placed on compliance with Medicare
regulations.

THE TAXPAYER'S POSITION

Your letter provides in part:

... We believe we are being incorrectly taxed on our
utilities. We are basing our belief on 12A-1.053 FAC and
Technical Assistance Advisements... which were issued in
the past regarding these same issues. Again, we only
conduct business in our nursing facility, which is directly
connected to the care and daily life activities of our
residents....

APPLICABLE STATUTES AND RULES

Section 212.05, F.S., provides in part:

It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who engages
in the business of selling tangible personal property at

retail in this state, including the business of making mail
order sales, or who rents or furnishes any of the things or
services taxable under this chapter, or who stores for use
or consumption in this state any item or article of
tangible personal property as defined herein and who leases
or rents such property within the state.

(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:

(e)1.c. Electrical power or energy, except that the tax
rate for charges for electrical power or energy is 7
percent.

Section 212.08(7)(j), F.S., provides in part:

Also exempt from payment of the tax imposed by this chapter
are sales of utilities to residential households or owners
of residential models in this state by utility companies
who pay the gross receipts tax imposed under s. 203.01, and
sales of fuel to residential households or owners of
residential models, including oil, kerosene, liquefied
petroleum gas, coal, wood, and other fuel products used in
the household or residential model for the purposes of
heating, cooking, lighting, and refrigeration, regardless
of whether such sales of utilities and fuels are separately
metered and billed direct to the residents or are metered
and billed to the landlord. If any part of the utility or
fuel is used for a nonexempt purpose, the entire sale is
taxable....

Section 213.22(1), F.S., provides in part:

... Technical assistance advisements shall have no
precedential value except to the taxpayer who requests the
advisement and then only for the specific transaction
addressed in the technical assistance advisement, unless
specifically stated otherwise in the advisement....

Section 400.021, F.S., provides in part:

(8) "Facility" means any institution, building, residence,
private home, or other place, whether operated for profit
or not, including a place operated by a county or
municipality, which undertakes through its ownership or
management to provide for a period exceeding 24-hour
nursing care, personal care, or custodial care for three or
more persons not related to the owner or manager by blood
or marriage, who by reason of illness, physical infirmity,
or advanced age require such services, but does not include
any place providing care and treatment primarily for the
acutely ill. A facility offering services for fewer than
three persons is within the meaning of this definition if
it holds itself out to the public to be an establishment
which regularly provides such services.

Rule 12A-1.014, F.A.C., provides in part:

(4) A taxpayer who has overpaid tax to a dealer, or who has
paid tax to a dealer when no tax is due, must secure a
refund of the tax from the dealer and not from the
Department of Revenue.

Rule 12A-1.053, F.A.C., provides in part:

(1)(a) The sale of electric power or energy by an electric
utility is taxable. The sale of electric power or energy
for use in residential households, to owners of residential
models, or to licensed family day care homes by utilities
who are required to pay the gross receipts tax imposed by
Chapter 203, F.S., is exempt. Also exempt is electric power
or energy sold by such utilities and used in the common
areas of apartment houses, cooperatives, and condominiums,
in residential facilities enumerated in Chapter 400, F.S.,
and in other residential facilities. However, if any part
of the electric power or energy is used for a non-exempt

purpose, the entire sale is subject to tax.

RESPONSE

The sale of electricity to residential facilities enumerated
under Chapter 400 of the Florida Statutes is exempt from sales
tax. See Rule 12A-1.053, F.A.C. The Taxpayer's for-profit
nursing home fits under the definition of such a facility. See
Section 400.021(8), F.S.

The central issue is whether the provision of physical therapy
services (as presented here) is a "commercial activity" (i.e., a
non-exempt purpose) which would preclude application of the
above exemption. Under the facts presented, the physical
therapy services are not a "commercial activity."

The Taxpayer has contracted with a physical therapy service
("the Contractor"). The Contractor has no office or storage
space at the Taxpayer's nursing home. The Contractor is
providing physical therapy services to the Taxpayer's residents
pursuant to the orders of medical staff and doctors. The
Contractor's services are not available to members of the
general public through the Taxpayer's nursing home. The
Contractor is reimbursed for its services by the Taxpayer and
not directly by the residents.

The physical therapy services are not commercial in nature (as
compared to the operation of a "bank"). The physical therapy
services are directly related to the care and daily living needs
of the residents.

Finally, when a taxpayer pays sales tax not actually due, the
taxpayer must secure a refund from the dealer (here, the utility
company) and not the Department of Revenue. Under the process
envisioned by the Florida Statutes, the dealer refunds sales tax
to its customer then seeks a refund from the Department. This
is so because only the party paying the tax directly to the
State can be refunded by the Comptroller. In addition, Florida
Statutes permit the utility company to present you with an
assignment of rights, assigning its right to the refund from the

Department. The assignment of rights would then be a required
part of your refund application to the Department. The forms
and procedures involved with the refund application can be found
at our website (www.myflorida.com/dor) or from the Pensacola
service center (telephone (850) 595-5170).

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 request
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,

Eric R. Peate
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 922-4714

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