Could a boat owner buy a vessel tax-free for a bareboat-charter program while using it personally without paying a charter fee?

Plain-English summary

Florida said the owner-member's boat purchase was taxable unless the owner registered as a dealer and held the vessel exclusively for bareboat rental. If those conditions were met, the purchase could be made tax-free as rental inventory, while sales tax would apply to the charter receipts.

The proposed program did not fully satisfy that structure. Other members paid monthly charter fees, but the owner-member could use the boat without making the same payment. Florida treated that unpaid owner use as conversion of tax-exempt rental property to the owner's own use, triggering use tax under section 212.05(1)(b).

The front-end exemption required dealer registration

The owner-member—not merely the managing boat dealer—had to register as a dealer under section 212.18 before purchasing the vessel tax-free for rental.

Rule 12A-1.071 allowed tax-free purchase only when the boat was used exclusively for bareboat rental. A bareboat rental meant the lessor supplied no crew, or any crew was separately hired by the lessee.

Tax shifted from the purchase to rental receipts

When a vessel qualified as rental inventory, Florida did not collect sales tax on its acquisition because tax would instead be collected on the gross proceeds from its bareboat leases. The owner-member therefore had to pay sales tax on its own charter just as the other members did.

Free owner use broke the exclusive-rental treatment

The management agreement stated that the owner did not have to make monthly member payments except for taxes required by law. Florida found that arrangement inconsistent with holding the vessel exclusively for lease. Personal use without a charter payment converted the boat to the owner's own use and subjected the owner-member to use tax.

What this means for you

Boat owners placing vessels in charter programs

A management agreement calling the program a rental arrangement is not enough. If you buy the vessel tax-free as rental inventory, your own use must also be a genuine taxable charter under the structure Florida analyzed.

Boat dealers and charter managers

Confirm which party owns the vessel and which party must register as a dealer. Here, the owner-member's purchase—not the manager's existing dealership status—was the transaction at issue.

Accountants and tax professionals

Review both sides of the tax treatment: dealer registration and exclusive rental can remove tax at acquisition, but taxable rental receipts replace it. An owner-use provision can create conversion use tax even when third-party charters are otherwise taxable.

Common questions

Q: Was the boat automatically exempt because it entered a charter program?
A: No. The owner-member had to register as a dealer and use the vessel exclusively for bareboat rental.

Q: Were the charter receipts taxable?
A: Yes. Sales tax applied to the gross proceeds from bareboat leases or rentals.

Q: Could the owner use the boat without paying a charter fee?
A: Not without a use-tax consequence under the agreement reviewed. Florida treated that use as conversion to the owner's own use.

Q: Did the program qualify as bareboat chartering?
A: The described members had sole custody and control during use, and no captain was provided. The defect Florida identified was the owner's unpaid use, not the absence of a bareboat arrangement for paying members.

Citations and references

• Fla. Stat. § 212.05(1)(b) — use tax when exempt rental property is converted to the owner's use
• Fla. Stat. § 212.05(1)(d) — sales tax on lease or rental price
• Fla. Stat. § 212.18(3)(a) — dealer-registration requirement
• Fla. Admin. Code r. 12A-1.071(16) — tax on bareboat rentals and definition of a bareboat basis
• Fla. Admin. Code r. 12A-1.071(18) — taxable vessel purchase unless exclusively for bareboat rental

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04A-047

Original ruling text

SUMMARY
QUESTION: Is a Florida boat dealer exempt from collection of Florida sales tax on the purchase price of a new boat
purchased for use exclusively in bareboat charters?
ANSWER - Based on Facts Below: The purchase of the boat by Owner-Member is subject to sales tax unless the
Owner-Member registers as a dealer, as required by section 212.18, F.S. If Owner-Member registers as a dealer, he
may purchase the boat tax exempt provided that the boat is used exclusively for rental on a bare-boat basis. In this
instance, the Owner-Member will be required to pay sales tax on its charter of the boat, since no tax will be paid at the
time of purchase. As presently drafted, the Boat Management Agreement would subject the Owner-Member to use
tax if it charters the vessel in that it will be considered to have converted the vessel to its own use as provided in
section 212.05(1)(b),F.S.

August 6, 2004
Subject: Technical Assistance Advisement 04A-047
Sale of Vessel for Leasing Purposes
Sales and Use Tax
Sections 212.05 and 212.18, F.S.
Rule 12A-1.071, F.A.C.
Dear:
This response is in reply to your petition received April 8, 2004, requesting the Department's issuance of a Technical
Assistance Advisement pursuant to s. 213.22, F.S., and Chapter 12-11, F.A.C., regarding the above referenced
matter and parties. An examination of your petition 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.
ISSUE
Is a Florida boat dealer exempt from collection of Florida sales tax on the purchase price of a new boat purchased for
use exclusively in bareboat charters?
FACTS
The taxpayer is a Florida corporation engaged in the sale of new and used boats, and as a manager and broker for
boats offered for charter. The taxpayer plans to sell a boat to purchasers where the purchaser will contract with the
taxpayer for management of the boats under a management program (“Program”). During the term of the
management contract the boat will not be used other than in the Program. Boats in the Program will each be owned
by a single "Owner-Member", who has the benefits and liabilities as the boat owner. Each boat in the Program,

however, will be under a management contract with the taxpayer for exclusive use of the boat by persons who are
members for that boat. A member (other than the Owner-Member) will have no ownership interest in the boat. Each
Member will have an equal right to use the boat exclusively with the other Members of the boat.
The usage of the boat will be scheduled by an on-line computer program administered by Program group. A Member
may schedule use of the boat on an online calendar which is programmed to allow a prescribed amount of allowable
use by each Member over a period of time (i.e., approximately six half-day slots allocated to each member for each
calendar month). Each Member will contract with the taxpayer to pay a monthly charter fee, which will cover a
proportional amount of the expenses for dockage, insurance, cleaning, maintenance, etc. for the boat, with a
management fee to the taxpayer and a monthly payment to the Owner-Member. Each Member pays for fuel,
consumable supplies and running expenses during the Member's use of the boat. Each Member is essentially a
bareboat charterer of the boat during the time of use by that Member. During the Member’s use of the boat, he will be
in sole custody and control of the boat, will be responsible for damages to the boat, or caused by the boat, and will be
obligated to clean, refuel, and to check the boat’s operating systems after each use. The boat’s insurance will name
the taxpayer, the Owner-Member, and each Member as insured parties. The Owner-Member will have no custody or
control of the boat during the term of the management contract with the taxpayer, except that Owner-Member will
have the same right to use of the boat as other Members. There will be no captain provided with the boat.
Each Member will pay sales tax on its monthly fee paid to the taxpayer for its share as a Member, since this is
considered a charter fee. The Owner-Member will pay sales tax for charter as if it were a Member, although no
monthly fee to the taxpayer is required from the Owner-Member, since the Owner-Member will be paying the purchase
price for the boat. The taxpayer will act as the manager of the boat during the term of the management contract with
the Owner-Member. The agreement will be for a one year term, renewable annually. The Member agreement
between each Member and the taxpayer will be for a term of one year, renewable annually.
DOCUMENTS PROVIDED

1. Sample Boat Management Agreement.
2. Sample Program Member Agreement.
   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)(b) At the rate of 6 percent of the cost price of each item or article of tangible personal property when the same is

not sold but is used, consumed, distributed, or stored for use or consumption in this state; however, for tangible
personal property originally purchased exempt from tax for use exclusively for lease and which is converted to the
owner’s own use, tax may be paid on the fair market value of the property at the time of conversion. If the fair market
value of the property cannot be determined, use tax at the time of conversion shall be based on the owner’s
acquisition cost. Under no circumstances may the aggregate amount of sales tax from leasing the property and use
tax at the time of conversion be less than the total sales tax that would have been due on the original acquisition cost
paid by the owner. (Emphasis Supplied.)

(d) At the rate of 6 percent of the lease or rental price paid by the lessee or rentee, or contracted or agreed to be paid
by a lessee or rentee, to the owner of the tangible personal property.
Section 212.18, F.S., provides in part:
(3)(a) Every person desiring to engage in or conduct business in this state as a dealer, as defined in this chapter ...
must file with the department an application for a certificate of registration for each place of business, showing the
names of the persons who have interests in such business and their residences, the address of the business, and
such other data as the department may reasonably require....
Rule 12A-1.071, F.A.C., provides in part:
(16) When a boat or vessel is leased or rented on a "bare boat" basis, the sales tax applies to the gross proceeds
derived from the lease or rental. The lease or rental is considered to be on a "bare boat" basis when:
(a) The lessor does not provide a crew;
(b) The lessor does provide a crew but it is hired by the lessee under a separate employment contract. (Under such
circumstances the employment contract cost is not a part of the gross proceeds derived from the lease or rental and is
not taxable.)

(18) Unless a boat or vessel is purchased exclusively for rental on a bare boat basis as described in subsection (16),
the purchase of the boat or vessel and parts thereof is taxable. See Rule 12A-1.0641, F.A.C., for vessels engaged in
interstate and foreign commerce.
RESPONSE
In the facts you have provided, the Owner-Member will purchase the boat from the taxpayer, then contract with the
taxpayer to serve as the management company to rent it out on a bare-boat basis to Members and Owner-Member.
The purchase of the boat by Owner-Member is subject to sales tax unless the Owner-Member registers as a dealer,
as required by section 212.18, F.S. If Owner-Member registers as a dealer, he may purchase the boat tax exempt
provided that the boat is used exclusively for rental on a bare-boat basis. In this instance, the Owner-Member will be
required to pay sales tax on its charter of the boat, since no tax will be paid at the time of purchase. Paragraph 4.3 of
the Boat Management Agreement, however, provides that "[t]he Owner is not required to make monthly Member

payments except for taxes as may be required by local law." In other words, the Owner-Member is not required under
the Management Agreement to pay for the charter of the vessel. This runs counter to the requirement by statute and
rule that the vessel be purchased exclusively for lease. To do otherwise would open the door to abuse and run the
risk of sham transactions. The reason for allowing an exemption for the rental of tangible personal property is that
sales tax is "excused" on the front end purchase since it will be collected on the back end rental. As presently drafted,
therefore, the Boat Management Agreement would subject the Owner-Member to use tax if it charters the vessel in
that it will be considered to have converted the vessel to its own use as provided in section 212.05(1)(b), F.S.
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 advisement 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,
Kelley A. Cramer
Attorney
Technical Assistance and Dispute Resolution
(850) 922-4835
KC/
Ctrl# 59693
Enclosure