Was a mobile PET-scanner arrangement a taxable equipment lease or a nontaxable operated service?

Plain-English summary

A mobile imaging company leased a PET scanner and motorcoach from an out-of-state lessor, then provided healthcare facilities with the equipment, two licensed technologists, and marketing, training, and administrative services.

Florida treated the healthcare-facility agreement as a nontaxable service rather than a lease. The company retained possession and operational control, supplied the operators and supplies, and performed the work to customer specifications.

The PET scanner itself did not qualify for the requested medical-product exemption, and the company could not use a resale certificate because it was not re-leasing the scanner. Its own equipment transaction was subject to use tax: monthly if truly an operating lease or on the full price upon Florida entry if actually an installment purchase. The underlying lease documents were not provided, so Florida did not make a final characterization.

What this means for you

Equipment with an operator can be a service to the customer while the service provider still owes tax on acquiring or leasing the equipment it uses.

Common questions

Did healthcare facilities owe tax on service payments? No. They did not receive possession or operating control of the scanner.

Was the scanner medically exempt? No under the claimed provisions; it was not dispensed by individual prescription or a qualifying prosthetic device.

Could the provider buy or lease it for resale? No. The provider used the equipment to perform services rather than re-leasing it.

Citations and references

• Fla. Stat. §§ 212.05 and 212.08(2)(a) (sales/use tax and medical products)
• Fla. Admin. Code rr. 12A-1.020 and 12A-1.021 (medical products and prosthetic appliances)
• Fla. Admin. Code r. 12A-1.071(9)(d) (equipment with operator as a service)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-046

Original ruling text

SUMMARY
QUESTION(S): Do the leases of a Mobile Positron Emission Tomography ("PET") scanner and motorcoach to a
healthcare provider qualify for a medical exemption? If Taxpayer supplies two qualified technologists that operate the
equipment, is the transaction a lease or a nontaxable service?
ANSWER - Based on Facts Below: Although the agreement purports to be a lease or rental of the scanner to the
healthcare providers, it is actually a service agreement. In fact, the agreement is entitled "Mobile PET/CT Services
Agreement." Rule 12A-1.071(9)(d), F.A.C., states:
When the owner of equipment furnishes the operator and all operating supplies, and contracts for their use to perform
certain work under his direction and according to his customer's specifications, and the customer does not take
possession or have any direction or control over the physical operation, the contract constitutes a service transaction
and not the rental of tangible personal property, and no tax is due on the transaction.
This is exactly the type of transaction covered by Rule 12A-1.071(9)(d), F.A.C. This Agreement is a service contract
for which no Florida sales tax would be due from the healthcare provider on payments made to the Taxpayer.
However, since Taxpayer is using the PET scanner and motorcoach in the State of Florida to provide the medical
services, sales tax would be due on the PET scanner and motorcoach leased by the Taxpayer. Since the lessor is not
a Florida dealer, Taxpayer owes a use tax on the leases. The use tax can be paid in a lump sum on the total cost of
the lease for a capital lease, or monthly over the lease stream on an operating lease.

November 11, 2005

Re: Technical Assistance Advisement 05A-046
XXX ("Taxpayer")
FEIN: XX
Sales and Use Tax - Medical Equipment Lease
Statute: Sections 212.05, 212.08(2), F.S.
Rules: 12A-1.020, 12A-1.021, 12A-1.071, F.A.C.
Dear:
This response is in reply to your letter dated June 2, 2005, requesting the Department's issuance of a Technical
Assistance Advisement ("TAA") pursuant to s. 213.22, F.S., and Chapter 12-11, F.A.C., regarding the 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.

INFORMATION SUPPLIED
Your letter states in pertinent part:
...Our client, [Taxpayer], is a ... single-member limited liability company with principal offices located [outside Florida].
[Taxpayer] will be registered to operate in the state of Florida with its primary purpose of contracting the service of
XXX with XXX. To acquire the equipment to provide this mobile service, [Taxpayer] has signed two operating leases
with ("Lessor"). One of the leases is for the XXX containing the XXX at a monthly rate of $XX. The other lease is for
the XXX at a monthly rate of $XX. Both leases are XX-year term leases, with an option to renew.
The XXX is a XXX which assists physicians in detecting and monitoring the treatment of disease. It does this through
the production of digital pictures that can, in many cases, identify many forms of cancer, damaged heart tissue, and
brain disorders such as Alzheimer's, Parkinson's, and epilepsy. As part of the XXX process, a patient will be injected
with a glucose-based radiopharmaceutical, known as FDG, which travels through the body, eventually collecting in the
organs and tissues targeted for examination. The patient lies flat on a bed/table that moves incrementally through a
scanner. The scanner has cameras that detect the gamma rays emitted from the patient, and turns those into
electrical signals, which are processed by a computer to generate the medical images. The bed/table moves a few
inches again, and the process is repeated. The end result is that all the digital images produced from this process are
assembled into a 3-D image of the patient to help the physician in making a diagnosis.
[Taxpayer] has drafted a "XXX Services Agreement" which will create a contract between [Taxpayer] and any Florida
healthcare provider (hereinafter, "user") for [Taxpayer] to provide the XXX at a designated location and time. The
contract is setup as an equipment lease agreement with the ownership and control remaining with [Taxpayer] at all
times. As a part of this agreement, [Taxpayer] will provide two qualified technologists, who are to be licensed in
Florida, to operate the XXX. [Taxpayer] will also provide the FDG used in the XXX and XXX scans. In addition to the
operation of the scanner, [Taxpayer] will provide other services such as marketing, training, administrative, etc. based
upon the user's desired service arrangement.
To enable you to fully understand [Taxpayer's] activity, we have attached a copy of the "XXX Services Agreement"
and excerpts from [Taxpayer's] website detailing their services. We request that in your TAA that you address the
following questions concerning the treatment of [Taxpayer's] activity under Florida's Sales & Use Tax laws:

1. Is the XXX scanner classified as a medical product exempt from Florida sales tax?
2. Can the Annual Resale Certificate be used to exempt [Taxpayer] from the payment of Florida Sales Tax on the XXX
   scanner operating lease from [the Lessor]?
3. Based upon the reading of [Taxpayer's] "XXX Services Agreement," will [Taxpayer] be required to charge Sales Tax
   to their contracted users?
   Pursuant to Department of Revenue's Rule 12-11.003(4), we are also stating that to the best of [Taxpayer's] and our

knowledge that this identical issue is not involved in a return of [Taxpayer].
APPLICABLE LAW AND DISCUSSION
Section 212.05 F.S., provides in pertinent 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.
Section 212.08(2), F.S., provides, in part:
(2) EXEMPTIONS; MEDICAL.
(a) There shall be exempt from the tax imposed by this chapter any medical products and supplies or medicine
dispensed according to an individual prescription or prescriptions written by a prescriber authorized by law to
prescribe medicinal drugs; .... There shall also be exempt from the tax imposed by this chapter... prosthetic and
orthopedic appliances;....
(b) For the purposes of this subsection:

1. "Prosthetic and orthopedic appliances" means any apparatus, instrument, device, or equipment used to replace or
   substitute for any missing part of the body, to alleviate the malfunction of any part of the body, or to assist any
   disabled person in leading a normal life by facilitating such person's mobility. Such apparatus, instrument, device, or
   equipment shall be exempted according to an individual prescription or prescriptions written by a physician....
   Rule 12A-1.020, F.A.C., provides, in part:
   (6)(a) Medical products and supplies used in the cure, mitigation, alleviation, prevention or treatment of injury, illness,
   disease or incapacity are taxable, unless:
2. Temporarily or permanently incorporated into a patient or client by a practitioner of the healing arts licensed by the
   State of Florida.
3. Ordered and dispensed by or on the prescription of a duly licensed practitioner authorized by the laws of the state
   to prescribe medicinal drugs; or
4. Ordered and dispensed by a pharmacist pursuant to the established dispensing procedures determined by the joint
   committee of medical, osteopathic and pharmacy professions as created by section 465.186, F.S.
   (b) The sale of medical products or supplies to physicians, dentists, veterinarians and hospitals is taxable even though

the medical products or supplies may be used in connection with medical treatment, unless the products and supplies
are specifically exempt from tax under this rule or in Rule 12A-1.021, F.A.C....
Rule 12A-1.021, F.A.C., provides, in part:
(1)(a) Prosthetic and orthopedic appliances are exempt. The term "prosthetic and orthopedic appliances" means any
apparatus, instrument, device, or equipment used to replace or substitute for any missing part of the body, used to
alleviate the malfunction of any part of the body, or used to assist any disabled person in leading a normal life by
facilitating such person's mobility. Such apparatus, instrument, device, or equipment shall be exempted according to
an individual prescription or prescriptions written by a duly licensed practitioner authorized by the laws of the state to
prescribe medicinal drugs, or according to a list prescribed and approved by the Department of Health, which list shall
be certified to the Department of Revenue from time to time....
Rule 12A-1.071, F.A.C., provides in pertinent part:
(1)(a) For the purpose of this rule, the term "lease" includes any rental or license to use tangible personal property,
unless a different meaning is clearly indicated by the context in which it is used. The term refers to all transactions that
are not bailments in which there is a transfer of possession of tangible personal property, without regard to limitations
upon the use, for a consideration, without a transfer of title to the property. It is not essential for a transfer of
possession of tangible personal property to include the right to move the tangible personal property. It includes a
transaction under which a person secures for a consideration the temporary use of tangible personal property which,
although not on his premises, is operated by or under the direction or control of the person or his employees. All
leases of tangible personal property other than conditional-sale type leases as described in paragraph (1)(d) of this
rule, are operating leases. Whether a transaction is a "sale" or a "rental, lease, or license to use" shall be determined
in accordance with the provisions of the agreement.
(b) Transfer of possession with respect to an operating lease means that one of the following attributes of tangible
personal property ownership has been transferred:

1. Custody or possession of the property, actual or constructive;
2. The right to custody or possession of the property; or,
3. The right to use and control or direct the use of the property.
   (c) For an operating lease, tax applies to the gross proceeds derived from the lease of tangible personal property for
   the entire term of the lease when the lessor of such property is an established business, part of an established
   business, or leasing tangible personal property is incidental or germane to the lessor's business....

(9)(a) A transaction involving the use of equipment with an operator supplied by the owner of the equipment is a lease
if control or direction over the use of the equipment passes to the customer.

(b) When the operator of the equipment is on the payroll of the lessee, the contract constitutes a rental of tangible
personal property and is subject to the tax.
(c) A transaction is not a lease if it is for the performance of a specific job in a manner to be determined by the owner
or his operator.
(d) When the owner of equipment furnishes the operator and all operating supplies, and contracts for their use to
perform certain work under his direction and according to his customer's specifications, and the customer does not
take possession or have any direction or control over the physical operation, the contract constitutes a service
transaction and not the rental of tangible personal property, and no tax is due on the transaction.
Taxpayer has drafted the XXX Service Agreement ("Agreement") which will create a contract with any Florida
healthcare provider for Taxpayer to provide the scanner at a designated time and location. According to your letter,
the contract is set up as an equipment lease agreement with the ownership and control remaining with Taxpayer at all
times. As part of the agreement, Taxpayer will provide two qualified and licensed technologists to operate the
scanner. Taxpayer will also provide other services such as marketing, training, and administrative services.
Although the agreement purports to be a lease or rental of the scanner to the healthcare providers, it is actually a
service agreement. n fact, the agreement is entitled "XXX Agreement." Rule 12A-1.071(9)(d), F.A.C., states:
When the owner of equipment furnishes the operator and all operating supplies, and contracts for their use to perform
certain work under his direction and according to his customer's specifications, and the customer does not take
possession or have any direction or control over the physical operation, the contract constitutes a service transaction
and not the rental of tangible personal property, and no tax is due on the transaction.
This is exactly the type of transaction covered by Rule 12A-1.071(9)(d), F.A.C. This Agreement is a service contract
for which no Florida sales tax would be due from the healthcare provider. However, since Taxpayer is using the
equipment in the State of Florida, a use tax would be due from Taxpayer on its purchase or lease of the equipment.
According to your letter, Taxpayer has entered into two operating lease agreements with the Lessor in XXX, but
copies of those leases were not provided. Therefore, no specific determination can be made on questions related to
Taxpayer's liability for Florida use tax. If the leases are correctly characterized as operation leases, tax is due as each
monthly payment becomes due. If the leases are actually installment purchases, tax is due on the full sales price
when the property enters the State.
To specifically answer your three questions from your TAA request:

1. Is the XXX scanner classified as a medical product exempt from Florida sales tax?
   No. In order for a medicine, medical product, or medical supply to be exempt under s. 212.08(2)(a), F.S, the item must
   be dispensed pursuant to an individual prescription or prescriptions written by one authorized to prescribe such
   medicines, supplies or devices.

In order for a medical product to be exempt under Rule 12A-1.021, F.A.C., it must be used to replace or substitute for
any missing part of the body, or used to alleviate the malfunction of any part of the body.

2. Can the Annual Resale Certificate be used to exempt Taxpayer from the payment of Florida Sales Tax on the XXX
   scanner operating lease from the Lessor?
   No. As stated above, the Agreement is considered a non-taxable service contract and not a lease. Therefore,
   Taxpayer is not considered to be re-leasing the scanner to the healthcare providers.
3. Based upon the reading of [Taxpayer']s "XXX Services Agreement," will Taxpayer be required to charge Sales Tax
   to their contracted users?
   No. As stated in answer number two, the Agreement is a nontaxable service contract.
   CLOSING STATEMENT
   This response constitutes a Technical Assistance Advisement under s. 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 s. 213.22,
   F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that
   subsequent statutory and administrative rule changes or those 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., which 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 that 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,
   Michael T. Cavanaugh
   Tax Law Specialist
   Technical Assistance and Dispute Resolution
   850-922-9411
   Control # 14930