Was a separately invoiced reimbursement for a janitorial contractor's employee medical insurance taxable with the contractor's nonresidential cleaning service?

Plain-English summary

Florida ruled that a shopping mall's separately invoiced reimbursement for its janitorial contractor's employee medical insurance was subject to sales tax.

Nonresidential cleaning was already a taxable service. The mall required qualifying health coverage for assigned janitorial workers and reimbursed 75% of the contractor's cost for each participating employee. That payment reduced the contractor's cost of doing business and increased the mall's cost of the cleaning service.

Florida's definitions of sales price and cost price allow no deduction for labor, service costs, or other expenses. The insurance-service exemption protected the premium charged by the insurance company, but neither the mall nor the cleaning contractor was selling insurance. Separately stating the reimbursement did not remove it from the cleaning-service tax base.

What this means for you

Contract reimbursements can remain taxable when they pay a vendor's expense of providing a taxable service. The invoice label and separate billing do not control if the payment is part of the total consideration for the service.

Common questions

Was the underlying insurance premium taxable? No. The premium charged by the insurance company qualified for the insurance-service exemption.

Why was the reimbursement taxable? It was an expense of providing the taxable cleaning service and part of the mall's total cost price.

Did separate invoicing change the result? No.

Citations and references

• Fla. Stat. §§ 212.02, 212.05, and 212.08(7)(v), and Fla. Admin. Code r. 12A-1.0161, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-027

Original ruling text

SUMMARY
QUESTION:
Whether separately stated medical insurance charged as part of nonresidential cleaning services
is subject to tax under Section 212.05(1)(i)1.b., F.S.
ANSWER: Separately stated medical insurance charged as part of nonresidential cleaning
services is subject to tax under Section 212.05(1)(i)1.b., F.S. To allow Taxpayer to deduct the
insurance premium paid would violate both the definition of “sales price” and “cost price”,
which does not allow any deductions on account of the cost of labor or service costs.
June 17, 2010
XXX
Re:

Subject: Technical Assistance Advisement (TAA) 10A-027
Sales and Use Tax – Nonresidential Cleaning
Sections 212.02, 212.05 and 212.08(7)(v), Florida Statutes (F.S.)
Rule 12A-1.0161, Florida Administrative Code (F.A.C.)
XXX (Taxpayer)
FEI #: XXX
Bus. Partner #: XXX

Dear XXX:
This is in response to your letter dated April 13, 2010, requesting this Department’s issuance of a
Technical Assistance Advisement (“TAA”) pursuant to section 213.22, F.S., and Rule Chapter
12-11, F.A.C., concerning nonresidential cleaning. An examination of your letter has established
you have complied with the statutory and regulatory requirements for issuance of a TAA.
Therefore, the Department is hereby granting your request for a TAA.
Issue
Whether separately stated medical insurance charged as part of nonresidential cleaning services
is subject to tax under Section 212.05(1)(i)1.b., F.S.
Facts
Taxpayer is a shopping mall in Florida that contracted with a contractor to provide professional
janitorial and maintenance services. The contractor billed Taxpayer monthly for its cleaning
services, and separately invoiced Taxpayer for medical insurance provided to its staff.
Taxpayer imposes a Code of Conduct to its janitorial vendors to ensure the vendors “respect
fundamental human rights, to provide reasonable and healthy working conditions, and to treat
their workforces fairly, with dignity and respect.” In order for the contractor to become

Technical Assistance Advisement
Page 2 of 3

Taxpayer’s janitorial vendors, the contractor must accept the general responsibilities and
maintain the minimum standards set forth in the Code of Conduct. The Code of Conduct
provides that the contractor must offer competitive compensation and the option of health care
benefits to hourly janitorial staff assigned to Taxpayer’s property.
Under the Code of Conduct, the cleaning contractor must provide their employees staffed at
Taxpayer’s property with the option of healthcare insurance at reasonable cost, and the benefit
plan and contribution terms must meet Taxpayer’s standards for employee coverage and
affordability. The Limited Medical Standards under the Code of Conduct provides that
Taxpayer will reimburse the contractor 75% of the cost of each employee who elects acceptable
coverage.
Requested Advisement
Taxpayer requests a determination whether or not the separately invoiced medical insurance is
taxable as payments for nonresidential cleaning service.
Applicable Authority and Discussion
Section 212.05, F.S., provides that it is “the legislative intent that every person is exercising a
taxable privilege who … furnishes any of the things or services taxable under this chapter ….”
Nonresidential cleaning is a taxable service, and the total sales price or cost price for the service
is subject to sales tax. Section 212.05(1)(i)1.b., F.S., and Rule 12A-1.0161, F.A.C. “Sales
price” is the total amount paid “without any deduction therefrom on account of the cost of the
property sold, the cost of materials used, labor or service cost, interest charged, losses, or any
other expense whatsoever.” Section 212.02(16), F.S. “Cost price” is similarly defined as the
actual cost “without any deductions therefrom on account of the cost of materials used, labor or
service costs, transportation charges, or any expenses whatsoever.” Section 212.02(4), F.S.

According to the agreement, the contractor must provide optional health insurance to its
employees for it to retain Taxpayer as a customer. By reimbursing the contractor 75% of the
cost of each employee who elects acceptable coverage, Taxpayer decreases the contractor’s cost
of doing business and increases Taxpayer’s cost price of the service. The cost price for the
cleaning service is the monthly invoice amount for the cleaning services plus the medical
insurance premium paid by Taxpayer; hence, the medical insurance premium paid by Taxpayer
is subject to sales tax as part of the sales price of the cleaning service. To allow Taxpayer to
deduct the insurance premium paid would violate both the definition of “sales price” and “cost
price”, which does not allow any deductions on account of the cost of labor or service costs.
Section 212.08(7)(v), F.S., exempts insurance services from sales tax. Hence, the insurance
premium charged by the insurance company is not subject to sales tax. However, neither the
cleaning contractor nor Taxpayer is engaged in the business of providing insurance services,

Technical Assistance Advisement
Page 3 of 3

therefore, neither party qualifies for the exemption. Section 212.08(7)(v)4., F.S., further
provides that this exemption does not apply to any service transaction taxable under Section
212.05(1)(i), F.S., such as the nonresidential cleaning service provided in this case.
Taxpayer cited Letter of Technical Advice (LTA) 07A-1432, issued on November, 29, 2007, to
an unrelated taxpayer, in support of the view that the separately stated insurance premium is not
subject to sales tax. However, as stated in the LTA, that letter is informal guidance that is the
“opinion of the writer only and does not represent the official position of the Department.”
Conclusion
Separately stated medical insurance charged as part of nonresidential cleaning services is subject
to tax under Section 212.05(1)(i)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 advice is based,
may subject similar future transactions to a different treatment than that 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,

Angel Sessions
Senior Tax Attorney
Technical Assistance and Dispute Resolution
(850) 922-4708
Record ID: 82133