Could a hospital-housekeeping company separately exempt its supervisory management contract while charging tax on a different physical-cleaning contract?

Plain-English summary

Florida approved separate tax treatment for two hospital-housekeeping contracts. A management-only agreement was exempt professional service; a separate agreement for actual hospital cleaning was taxable nonresidential cleaning.

Under the Professional Housekeeping Management Agreement, the company provided management, program policy, training materials, and other professional services for a monthly fee. It performed no physical cleaning under that contract.

Under the Housekeeping Labor and Services Agreement, the company supplied the labor and supplies for the actual cleaning work and charged a separate monthly fee.

Management without cleaning was exempt

The Department treated the management agreement as purely supervisory and administrative. Because no physical cleaning activity occurred under it, section 212.08(7)(v)'s professional-service exemption applied, and the exclusion for services taxable under section 212.05(1)(i) did not apply.

Physical hospital cleaning was taxable

The hospital was a nonresidential facility. Charges under the labor-and-services agreement were therefore taxable nonresidential cleaning under section 212.05(1)(i)1.b.

Section 212.05(1)(i)4. allowed a transaction containing taxable and exempt work to be divided when the consideration was separately identified and documented. The company's two-contract structure conformed to that rule.

What this means for you

Hospital service and facility-management companies

Separate real management work from physical cleaning in both the contract and actual performance. A management label will not protect a contract whose staff also clean the premises.

Hospitals and contract managers

Use distinct scopes and fees for supervisory services and cleaning labor. The allocation must match what is actually delivered.

Accountants and tax professionals

If taxable and exempt portions are not separately identified, the statute described in the ruling presumed the entire transaction taxable unless documentary evidence overcame that result.

Common questions

Q: Was the management agreement taxable?
A: No. It was purely administrative and supervisory and included no physical cleaning.

Q: Was the cleaning agreement taxable?
A: Yes. It covered physical cleaning in a nonresidential hospital.

Q: Could the company provide both services to one hospital?
A: Yes, under separate contracts and separately stated monthly fees.

Q: What if cleaning work were performed under the management contract?
A: The ruling did not approve that fact pattern; it relied on the absence of physical cleaning.

Citations and references

• Fla. Stat. § 212.05(1)(i)1.b. — nonresidential cleaning services
• Fla. Stat. § 212.05(1)(i)4. — separately identified taxable and exempt portions
• Fla. Stat. § 212.08(7)(v) — professional-service exemption and taxable-service exclusion
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04A-010

Original ruling text

SUMMARY

QUESTION: Company provides housekeeping management services
and nonresidential cleaning services for hospitals. The
company may provide one or both of the services to a
hospital under separate contracts. The company seeks a
determination as to whether the separate Management
Agreement is exempt from sales and use tax as a
professional service pursuant to s. 212.08(7)(v), F.S., or
subject to sales and use tax as nonresidential cleaning
service pursuant to s. 212.05(1)(i)1.b., F.S.

ANSWER - Based on Facts Below: The Management Agreement is
purely supervisory or administrative in nature. No
physical cleaning activities are performed under this
contract. This type of contract would be for the provision
of professional services and would not be subject to tax
pursuant to s. 212.08(7)(v), F.S. Taxpayer's decision to
utilize two separate contracts, one for taxable
nonresidential cleaning services and one for exempt
management services is appropriate.

Feb 10, 2004

Re: Technical Assistance Advisement 04A-010
Sales and Use Tax
Nonresidential Management and Cleaning Services
Section 212.05(1)(i)1.b., F.S.

Dear:

This is in response to your request for a Technical
Assistance Advisement (TAA) regarding housekeeping management
service contracts and nonresidential cleaning service contracts
utilized by your client, XXX, hereinafter referred to as
"Taxpayer."

BACKGROUND

Taxpayer is in the business of providing housekeeping
management services and nonresidential cleaning services for
hospitals. Taxpayer may provide one or both of the services to
the hospital. The hospitals enter into a contract with
Taxpayer, and agree to pay a monthly fee, for housekeeping
management, program policy, training materials, and other
professional services. A sample of this type of contract,
entitled "Professional Housekeeping Management Agreement"
(hereinafter "Management Agreement"), was submitted for review.
The Management Agreement does not provide for any actual
cleaning of a hospital's premises. The hospitals may also enter
into a separate, contemporaneous contract with Taxpayer, and
agree to pay a separate monthly fee, for housekeeping services,
labor, and supplies. Generally, these are the physical cleaning
activities. A sample of this type of contract, entitled
"Housekeeping Labor and Services Agreement" (hereinafter
"Services Agreement"), was also submitted for review.

ISSUE

Whether the separate Management Agreement is exempt from
sales and use tax as a professional service pursuant to s.
212.08(7)(v), F.S., or subject to sales and use tax as
nonresidential cleaning service pursuant to s. 212.05(1)(i)1.b.,
F.S.

RELEVANT AUTHORITY

The following passages from the Florida Statutes (F.S.) are
pertinent to your request for a Technical Assistance Advisement.

Section 212.05(1), F.S., provides in part that a tax is levied:

(i)1. At the rate of 6 percent on charges for all:....

b. Nonresidential cleaning and nonresidential pest control
services (SIC Industry Group Number 734)....

4. If a transaction involves both the sale or use of a
   service taxable under this paragraph and the sale or use of

a service or any other item not taxable under this chapter,
the consideration paid must be separately identified and
stated with respect to the taxable and exempt portions of
the transaction or the entire transaction shall be presumed
taxable. The burden shall be on the seller of the service
or the purchaser of the service, whichever applicable, to
overcome this presumption by providing documentary evidence
as to which portion of the transaction is exempt from tax.
The department is authorized to adjust the amount of
consideration identified as the taxable and exempt portions
of the transaction; however, a determination that the
taxable and exempt portions are inaccurately stated and
that the adjustment is applicable must be supported by
substantial competent evidence....

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

(v) Professional services.-

1. Also exempted are professional, insurance, or personal
   service transactions that involve sales as inconsequential
   elements for which no separate charges are made....

2. This exemption does not apply to any service transaction
   taxable under s. 212.05(1)(i).

DETERMINATION

The Management Agreement is purely supervisory or
administrative in nature. No physical cleaning activities are
performed under this contract. This type of contract would be
for the provision of professional services and would not be
subject to tax pursuant to s. 212.08(7)(v)1., F.S. Since no
cleaning services are physically performed under this contract,
the exclusionary language of subparagraph 4. of s. 212.08(7)(v),
F.S., is not applicable.

All physical cleaning activities are performed under the
Services Agreement. Since the cleaning services are performed
in a nonresidential facility (a hospital), the Service Agreement
is subject to tax under the provisions of s. 212.05(1)(i)1.b.,

F.S.

Section 212.05(1)(i)4., F.S., allows an otherwise fully
taxable service transaction to be divided into taxable and
exempt portions. Taxpayer's decision to utilize two separate
contracts, one for taxable nonresidential cleaning services and
one for exempt management services, conforms to the provisions
of s. 212.05(1)(i)4., F.S., and is appropriate.

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 documents are public records under Chapter 119,
F.S., which are subject to disclosure to the public under the
conditions of Section 213.22, F.S. Your name, address, and any
other details, which might lead to identification of the
taxpayer, must be deleted before disclosure. In an effort to
protect the confidentiality of such information, we request you
provide the undersigned with an edited copy of your request for
Technical Assistance Advisement, backup material and response
within fifteen days of the date of this advisement.

Sincerely,

Jeffery L. Soff
Tax Law Specialist
Technical Assistance and
Dispute Resolution

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