Were early-termination charges on taxable communications-service contracts subject to Florida communications services tax?

Plain-English summary

A communications provider offered discounted rates when customers agreed to keep taxable services for a minimum term. If a customer ended the agreement early, the provider charged a fixed dollar amount multiplied by the remaining months. The charge was less than the service price for those months.

Florida found the fee subject to communications services tax. The tax applied to the sales price of taxable communications services, and the statutory definition of sales price expressly included charges for the termination of those services.

The fee's calculation and lower amount did not change its character. It was imposed because the customer terminated the service contract before its agreed expiration.

What this means for you

An early-termination fee can remain part of the taxable communications-services price even though it is separately charged after a customer stops service and is lower than the remaining service payments.

Common questions

Were the early-termination fees taxable? Yes, when imposed for ending taxable communications services.

Why were they part of sales price? Section 202.11(13) expressly included charges for the connection, movement, change, or termination of communications services.

How was the charge calculated? A fixed program amount multiplied by the months remaining in the minimum term.

Did it matter that the fee was less than the remaining service price? No. The ruling focused on the fee's role as a termination charge.

Citations and references

• Fla. Stat. § 202.11(13) (termination charges included in communications-services sales price)
• Fla. Stat. § 202.12 (communications services tax on taxable transactions)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06A-035

Original ruling text

SUMMARY
Question: Are additional charges imposed by a communications services provider subject to communications
services tax when the additional charges are imposed because a customer terminates his or her services contract with
the provider prior to the agreed expiration of the contract?
Answer - Based on Facts Below: Yes. Florida communications services tax is imposed on the sales price of
communications services. "Sales Price" is defined to include charges for the termination of communications services.
As additional charges imposed because of early termination are necessarily "termination" charges, these charges are
included in the "sales price" of the communications services sold.

November 8, 2006

Re: Technical Assistance Advisement No.06A-035
Communications Services Tax
Early Termination Charges
Sections 202.11, 202.12, Florida Statutes ("F.S.")
xxx
Business Partner Number: xx
Dear :
This correspondence is in response to your request dated August 8, 2006, in which you requested that the Florida
Department of Revenue ("Department") issue a Technical Assistance Advisement regarding the taxation of "early
termination charges." As requested, the following response constitutes a Technical Assistance Advisement pursuant
to Rule Chapter 12-11, Florida Administrative Code ("F.A.C."), and the Department issues this advisement under the
authority granted in Section 213.22, F.S.
Facts
xxx. ("Taxpayer") is a xxx corporation engaged in the business of providing xxx and related services within and without
xxx. The Taxpayer is registered with the Department as a dealer of xxx services.
The Taxpayer often implements special programs wherein its Florida customers are offered discounted rates for xxx
services in return for the customer contracting to continue the purchase of xxx services for a minimum period of time.
When a customer desires to participate in such a program, the customer completes and executes a contract
commonly referred to as a term agreement, but also known as a "program election" or referred to by some similar
name (herein "term agreement"). The term agreement is a written contract outlining the amount of the discount, the
time period over which the services must be maintained ("minimum term"), and any other terms and conditions of the
program.

The term agreement provides that if the customer terminates the agreement prior to the expiration of the minimum
term, the customer is required to pay a charge. The charge is a fixed dollar amount multiplied by the number of
months remaining on the minimum term. The fixed dollar amount varies depending on the program, but in all cases,
the charge is less than the monthly price of the services covered by the remaining term agreement.
Requested Advisement
The Taxpayer requests that the Department issue a Technical Assistance Advisement specifying whether the
termination charges described above, when billed in connection with programs involving taxable xxx services, are
subject to the Florida xxx Services Tax.
Applicable Law
Section 202.12, F.S., provides, in pertinent part:
The Legislature finds that every person who engages in the business of selling xxx services at retail in this state is
exercising a taxable privilege....
(1) For the exercise of such privilege, a tax is levied on each taxable transaction, and the tax is due and payable as
follows:
(a) Except as otherwise provided in this subsection, at a rate of 6.8 percent applied to the sales price of the xxx
service....

(emphasis added)
Section 202.11(13), F.S., provides, in pertinent part:
(a) The sales price of xxx services shall include, whether or not separately stated, charges for any of the following:

1. The connection, movement, change, or termination of xxx services.

Discussion
xxx imposes a xxx services tax on the sale of xxx services within Florida. See generally Section 202.12, F.S. Florida's
xxx services tax is imposed upon the "sales price" of xxx services. See generally Section 202.12, F.S. With regard to
sales of xxx services, Florida law defines "sales price" to include charges for the connection, movement, change, or
termination of xxx services. See Section 202.11(13), F.S.
Chapter 202, F.S., does not define the term "termination." See generally Chapter 202, F.S. When the Florida
Legislature leaves a statutory term undefined, Florida law presumes that the term's normal meaning is intended. Dep't

of Revenue v. Val-Pak Direct Mktg. Sys., 862 So.2d 1 (Fla. 2nd DCA 2003). Merriam-Webster's Collegiate Dictionary,
10th ed., defines "termination" as a noun meaning "end in time or existence: conclusion."
Given the common meaning of the word "termination" in the context of Section 202.11(13), F.S., it is determined that
the Florida Legislature intended to include within the definition of "sales price" charges imposed in order to terminate
the provision of xxx services. The charge described above is imposed by the Taxpayer to permit the customer to
terminate the provision of xxx services pursuant to the contract. Therefore, the charges are included within the
definition of "sales price" upon which xxx services tax should be collected. When the Taxpayer imposes charges for
the termination of taxable xxx services, those termination charges are subject to xxx services tax, and the Taxpayer
should collect tax as required by Chapter 202, F.S., and related Florida law.
Conclusion
The termination charges described above constitute termination charges for the purposes of the definition of "sales
price" included in Section 202.11, F.S., and the Taxpayer should include these charges within the sales price of its
communications services when calculating the proper amount of communications services tax to collect from its
customers.
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 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.
If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at
(850) 922-4842.
Sincerely,
Robert P. Babin
Deputy Director
Technical Assistance & Dispute Resolution
Record ID: 23392