Which internet-exchange services were subject to Florida sales and use tax: peering, cross-connect, managed router, colocation, equipment, or maintenance?

Plain-English summary

An internet-exchange provider operated Florida exchange points where internet service providers and other networks could route traffic through provider-owned equipment. It separately invoiced peering, cross-connect, managed-router, colocation, equipment, and managed-support services.

Florida split the offerings by what the customer actually received:

• Peering: Not subject to Chapter 212 sales and use tax. Customers used their own equipment and paid for routing data between networks.
• Cross-connect: Not subject to Chapter 212 sales and use tax. Although customer equipment had to be housed at the exchange point for the physical connection, the separately described service itself transmitted data and did not rent property.
• Managed router platform: Not subject to Chapter 212 sales and use tax. The monthly charge varied by the bandwidth capacity used to reach IP providers, without a sale or rental of equipment or real estate.
• Colocation space: Taxable as a lease or license to use real property for storing customer equipment.
• Cages, cabinets, and racks: Taxable sales of tangible personal property.
• Managed services: Taxable service warranties because the provider monitored, maintained, repaired, upgraded, tested, and troubleshot equipment it owned or leased to customers. The classification did not depend on whether replacement parts were included.

This was a revised TAA. It replaced the earlier response's treatment of possible communications services tax. The Department expressly declined to decide Chapter 202 taxability because the taxpayer requested only Chapter 212 sales-and-use-tax advice.

What this means for you

Data transmission alone was outside Chapter 212

The peering and router charges did not transfer equipment or grant property rights. That kept them outside the sales-and-use categories considered in this ruling.

Colocation and connectivity must be separated

Housing equipment in restricted data-center space was taxable real-property use, even though separately stated connectivity services were not taxable under Chapter 212.

Equipment support can be a service warranty

Ongoing monitoring and maintenance of taxable equipment fit the statutory warranty definition. Parts were irrelevant to that conclusion.

This ruling does not answer communications services tax

Some services might fall under Chapter 202, but the Department refused to express an opinion. Do not read the Chapter 212 exemption as a CST exemption.

Common questions

Q: Were peering and cross-connect charges taxable sales?
A: No under Chapter 212, because the separately described services only transmitted data and did not sell or rent property.

Q: Was colocation taxable?
A: Yes, as a lease or license of real property used to store customer equipment.

Q: Were managed network services taxable?
A: Yes. Maintenance and support of the equipment were taxable service warranties.

Q: Did the ruling decide communications services tax?
A: No. It expressly left Chapter 202 for a separate request.

Citations and references

• Fla. Stat. § 212.031 (real-property rent or license)
• Fla. Stat. § 212.05 (tangible personal property)
• Fla. Stat. § 212.0506 (service warranties)
• Fla. Stat. §§ 212.054 and 212.055 (local discretionary surtax)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)
• Fla. Admin. Code r. 12A-1.105(1)(b) (service warranty, with or without parts)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 08A-014R

Original ruling text

SUMMARY
QUESTION: Whether the peering, cross connect, managed router, and managed services are
subject to sales and use tax.
ANSWER: The peering, cross connect, and managed router services provide for the
transmission of data only, and do not include the sale or rental of any tangible personal property
or real property; therefore, these services are not subject to sales and use tax. The colocation
services, consisting of the lease of real property used for storage of a customer’s equipment, and
sales of tangible personal property are subject to sales and use tax. The managed services are
subject to sales and use tax under Chapter 212, F.S., as the sale of a service warranty.

October 17, 2008

XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 08A-014R
XXX
FEIN: XXX
Peering, Cross Connect, and Managed Services
Sales and Use Tax
Sections 212.031, 212.05, and 212.0506, Florida Statutes (“F.S.”)

Dear XXX:
In response to your request dated September 5, 2007, the Department issued Technical
Assistance Advisement 08A-014, dated May 22, 2008, pursuant to Section 213.22, F.S., and
Chapter 12-11, Florida Administrative Code. After further consideration, the Department has
revised its response to the questions contained in your request- specifically related to conclusions
regarding the applicability of communications services tax to the services in question. This
response constitutes Revised Technical Assistance Advisement 08A-014R.
ISSUE
Whether the peering, cross connect, managed router, and managed services provided by
Taxpayer are subject to sales and use tax.

FACTS
Your request provides that XXX (hereafter “Taxpayer”) is a subsidiary of XXX, an Internet
exchange provider. Taxpayer operates Internet exchange points within Florida, from where the
Taxpayer provides its services. Taxpayer’s services provide customers with a means of
exchanging information and Internet traffic through routing equipment owned by Taxpayer.
Taxpayer’s services include: 1) peering services, 2) cross connect services, 3) managed router
services, and 4) managed services. Taxpayer’s customers include Internet Service Providers
(“ISPs”) and other service providers seeking to exchange information and data.
The peering services allow parties to exchange information through routing equipment owned by
Taxpayer. Peering services establish a connection between different customers, thereby allowing
an exchange of Internet information. The customers that purchase peering services do not
purchase equipment from Taxpayer. Rather, the customer uses its own equipment. Taxpayer
merely provides a connection into its routing equipment. Taxpayer, through its equipment,
provides the service of routing information between companies or networks. The amount of
information allowed to be routed through Taxpayer’s equipment depends upon the amount of
bandwidth purchased by the individual customers.
Cross connect services also allow customers to share data with other customers. However, the
customers have to be connected to Taxpayer’s Exchange Point Platform. This requires that the
customer’s equipment be housed at Taxpayer’s facility. Taxpayer states that the essential
difference between the peering services and cross connect services is merely the physical
connection necessary to provide each service, which requires the customers’ equipment to be
housed at Taxpayer’s premises.
Managed Router Services enable the customers to interconnect at the OSI Layer 3, the Network
layer. XXX provides a Layer 3 switch for the facilitation of the customers’ access to multiple IP
bandwidth service providers. The customers have the ability to choose at what level of capacity
they want to connect to the Managed Router Platform. The ports available to customers are
FastE (or 100 megs or less), GiG (or 1,000 megs or less), and 10 GiG (10,000 megs or less).
Within the Managed Router platform, the customer chooses the IP bandwidth capacity they need
from the IP providers.
XXX charges the customers a monthly service fee for the connection to the Managed Router
platform. The charge varies depending on the IP bandwidth the customer requires from the IP
bandwidth providers.
Managed Services consist of several individual services. These services include network
monitoring services, installation and testing of equipment at the customer’s premises, secure
network storage, routine maintenance, installation of new technology, and system
troubleshooting. These services specifically pertain to the equipment owned by Taxpayer or
leased to customers by Taxpayer. Therefore, customers who own their own equipment and store
it at their own facilities cannot purchase managed services. Rather, Taxpayer only provides
managed services when it stores and maintains equipment on its own premises.

Taxpayer generates revenue from its peering, cross connect, and managed router services, and
the management of such services. Taxpayer also rents the space and equipment necessary to
store a customer’s equipment, and the customer is charged a fee for this colocation service. The
colocation space is a restricted and supervised area providing several connection options for the
customers’ equipment. In addition, Taxpayer sells items of tangible personal property such as
cages, cabinets, and racks, which are placed in the colocation space used to house the customer’s
equipment.
Taxpayer is aware that the colocation services and the sale/lease of tangible personal property are
subject to sales tax, and it has been charging tax on such transactions. Therefore, Taxpayer’s
question is in reference to the sales tax consequences of the peering, cross connect, managed
router, and managed services only. Each service is listed separately on the invoice and charged
separately. Customers are billed for their connectivity during the month. Taxpayer has been
collecting sales tax on the peering and cross connect services. It is not clear from the
documentation provided whether Taxpayer has been collecting tax on its managed router
services.
In communication with Department personnel, Taxpayer stated that it is seeking guidance
regarding only the sales and use tax liability of its transactions. Therefore, this advisement will
not provide a detailed explanation of any other possible tax consequences.
TAXPAYER’S POSITION
Taxpayer asserts that the peering, cross connect, managed router, and managed services provided
are not taxable because a sale of tangible personal property, as defined in Section 212.02(15)(a),
F.S., has not occurred.
APPLICABLE STATUTES AND RULES
Section 212.031(1), F.S., states in part:
(1)(a) It is declared to be the legislative intent that every person is exercising a
taxable privilege who engages in the business of renting, leasing, letting, or
granting a license for the use of any real property….

(c) For the exercise of such privilege, a tax is levied in an amount equal to 6
percent of and on the total rent or license fee charged for such real property by the
person charging or collecting the rental or license fee. The total rent or license fee
charged for such real property shall include payments for the granting of a
privilege to use or occupy real property for any purpose and shall include base
rent, percentage rents, or similar charges.

Section 212.05, F.S., states 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:
(a)1.a. At the rate of 6 percent of the sales price of each item or article of tangible
personal property when sold at retail in this state, computed on each taxable sale
for the purpose of remitting the amount of tax due the state, and including each
and every retail sale.

Section 212.0506, F.S., states in part:
(1) It is the intent of the Legislature that every person is exercising a taxable
privilege who engages in this state in the business of soliciting, offering,
providing, entering into, issuing, or delivering any service warranty.
(2) For exercising such privilege, a tax is levied on each taxable transaction or
incident, which tax is due and payable at the rate of 6 percent on the total
consideration received or to be received by any person for issuing and delivering
any service warranty.
(3) For purposes of this section, "service warranty" means any contract or
agreement which indemnifies the holder of the contract or agreement for the cost
of maintaining, repairing, or replacing tangible personal property. The term
"service warranty" does not include contracts or agreements to repair, maintain, or
replace tangible personal property if such property when sold at retail in this state
would not be subject to the tax imposed by this chapter, nor does it include such
contracts or agreements covering tangible personal property which becomes a part
of real property.

DISCUSSION
The peering, cross connect, and managed router services provide for the transmission of data
only, and do not include the sale or rental of any tangible personal property or real property.

Therefore, the Department agrees with Taxpayer’s assertions that these services are not subject
to sale and use tax under Chapter 212, F.S.
Based on the information available, the managed services constitute the sale of a service
warranty. Taxpayer’s original request for technical advice stated in part that it “maintains the
equipment their clients need to do business.” Pursuant to s. 212.0506(3), F.S., a service warranty
“means any contract which indemnifies the holder of the contract for the cost of maintaining,
repairing, or replacing tangible personal property.” Rule 12A-1.105(1)(b), F.A.C., reiterates the
definition of “service warranty” as provided by the statute and further adds the statement
“whether or not the contract provides for the furnishing of parts.” The facts do not indicate
whether parts are provided as part of the maintenance, but pursuant to Rule 12A-1.105(1)(b),
F.A.C., this fact is irrelevant to our determination. According to the facts as presented by
Taxpayer, its customers purchase managed services for the purpose of maintaining equipment.
Therefore, the sale of these services is subject to sales and use tax under Chapter 212, F.S., as the
sale of a service warranty.
The Department agrees with Taxpayer that the colocation services, consisting of the lease of real
property used for storage of a customer’s equipment, and the sale of tangible personal property,
such as the cages, cabinets, and racks, are subject to sales and use tax under Chapter 212, F.S.
Section 212.031(1)(a), F.S., provides that every person engaging in the business of renting,
leasing, letting, or granting a license for the use of any real property is exercising a taxable
privilege. Section 212.05, F.S., provides that every person who engages in the business of
selling tangible personal property at retail in this state is exercising a taxable privilege. These
privileges are taxed at a rate of 6 percent of the sales price of the item of tangible personal
property, or the total rent or license fee charged for the use or occupancy of the real property.
See Sections 212.031(1)(c) and 212.05(1)(a)1.a., F.S. In addition, the county in which the
transaction occurs may levy a local discretionary surtax, which would also be calculated based
on the sales price or total rent or license fee. See Sections 212.054 and 212.055, F.S.
CONCLUSION
The peering, cross connect, and managed router are not subject to sales and use tax under
Chapter 212, F.S. The colocation services and sales of tangible personal property are subject to
sales and use tax under Chapter 212, F.S. The managed services are subject to sales and use tax
under Chapter 212, F.S., as the sale of a service warranty. The Department notes that some of
the services discussed in this advisement may be communications services under Chapter 202,
F.S. However, the Taxpayer has not requested an opinion regarding the applicability of
communications services tax to its services and the Department specifically declines to express
such an opinion here. If Taxpayer desires an opinion regarding the applicability of Chapter 202,
F.S., to the services it sells, it may request a separate Technical Assistance Advisement.
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 Section 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,

Tammy S. Miller
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 488-9669
Ctrl # 35805