How did Florida tax the operator's vessel leases and its customers' crewed charters between Florida and Cuba?

Plain-English summary

The Florida Department of Revenue concluded that the charter operator's own lease or bareboat demise charter of a vessel was taxable only for the vessel's use within Florida.

The operator then supplied crews and chartered the vessels to customers for trips involving Florida and Cuba. Customers did not control vessel operation. Those downstream customer charters were not subject to sales tax under the ruling.

Supplies used or consumed and other charges incurred in Florida remained taxable. The ruling addressed multiple combinations of U.S.- and foreign-flagged vessels and Florida or foreign starting locations through that same framework.

What this means for you

Yacht-charter operators

Separate the operator's acquisition or lease of the vessel from the customer-facing crewed transportation service.

Interstate and foreign charter businesses

Track vessel use inside and outside Florida and separately document fuel, supplies, dockage, and other Florida-incurred charges.

Accountants and tax professionals

Operational control and the location of use mattered more than the label “charter.”

Common questions

Q: Was the operator's bareboat lease fully taxable?
A: Only for use within Florida.

Q: Were customer crewed charters taxable?
A: No.

Q: Were Florida supplies and charges taxable?
A: Yes.

Citations and references

• Fla. Stat. §§ 212.05, 212.06, 212.08, and 213.22
• Fla. Admin. Code rr. 12A-1.007, 12A-1.0641, and 12A-1.071

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 16A-003

Original ruling text

Executive
Director
Marshall Stranburg

QUESTION: WHETHER VARIOUS TYPES OF LEASES AND CHARTERS OF VESSELS
ARE SUBJECT TO SALES OR USE TAX IN FLORIDA?
ANSWER: TAXPAYER’S LEASE OF THE VESSEL IS SUBJECT TO TAX ONLY FOR
THE USE WITHIN FLORIDA. THE SUBSEQUENT CHARTER OF THE VESSEL BY
TAXPAYER’S CUSTOMERS IS NOT SUBJECT TO TAX. ALL SUPPLIES USED OR
CONSUMED AND CHARGES SUSTAINED WITHIN FLORIDA ARE SUBJECT TO TAX.
February 29, 2016
Re:

Technical Assistance Advisement 16A-003
Florida Sales and Use Tax
Vessel Lease/Charter in Interstate and Foreign Commerce
Sections 212.05, 212.06, 212.08, Florida Statutes (“F.S.”)
Rules 12A-1.007, 12A-1.0641, and 12A-1.071, Florida Administrative Code (“F.A.C.”)

Dear XXXXX:
This letter is a response to your petition received on September 8, 2015, for the Department of
Revenue’s (“Department”) issuance of a Technical Assistance Advisement ("TAA") concerning
the above-referenced petitioner and matter. Your petition has been carefully examined, and the
Department finds it to be in compliance with the requisite criteria set forth in Chapter 12-11,
F.A.C. This response to your request constitutes a TAA and is issued to you under the authority
of Section (“s.”) 213.22, F.S.
FACTS PRESENTED
The following facts are based on documents and statements provided by Taxpayer, as well as
Departmental research.
Taxpayer, a registered dealer and Florida Limited Liability Company, has been approved by the
Office of Foreign Assets Control of the United States (“U.S.”) Department of the Treasury for
operation of various yacht charters within Cuban territorial waters. Taxpayer uses various
vessels, which will be used for chartering purposes, within Cuba. All U.S. based vessels are
properly licensed with the U.S. Coast Guard.
These vessels are broken up into three categories:

1. U.S. flagged and based in Florida;
2. Foreign flagged and based in Florida; and
3. Foreign flagged and based outside of Florida.
   Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
   Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
Taxpayer does not own any vessels. Taxpayer states that with respect to foreign-flagged vessels,
Taxpayer will engage in a “bareboat demise charter” of the vessel, whereby Taxpayer will
“charter” just the vessel. For U.S.-flagged vessels, Taxpayer will “charter” the vessel under a
different type of agreement. In either “charter” scenario, Taxpayer will obtain a crew.1
Taxpayer’s customers do not have any control over the vessel. Accordingly, the customers
charter the vessels. At no point in time will the vessels be operated as a “head-boat” or “party
boat.” During the charter, the customers have the ability to disembark.
For the charter, Taxpayer provides two options for the charter to its customers. With Option
One, the customer has a package deal, inclusive of fuel, food, dockage, crew gratuity, visas,
additional health and charter insurance, etc. Option Two allows the customer to pay a weekly
charter rate for the vessel, and an a-la-carte approach to those expenses from Option One that is
incurred. It is worthy to note the meals are not served or consumed within Florida.
REQUESTED ADVISEMENTS
Taxpayer inquires as to tax implications of the following scenarios:

1. U.S.-flagged vessel based in Florida and is chartered via an Uninspected Passenger
   Vessel Charter Agreement:2
   a. The charter commences in Florida, where the charterers board and depart
   immediately for Cuba. At the end of the charter, they disembark in Florida.
   b. The charter commences in Florida, where the charterers board and depart
   immediately for Cuba. At the end of the charter, they disembark in Cuba.
   c. The charter commences in Cuba. At the end of the charter, they disembark in
   Florida.
2. Foreign-flagged vessel based in Florida and is chartered under a Recreational Bareboat
   Charter Agreement3:
   a. The charter commences in Florida, where the charterers board and depart
   immediately for Cuba. At the end of the charter, they disembark in Florida.
   b. The charter commences in Florida, where the charterers board and depart
   immediately for Cuba. At the end of the charter, they disembark in Cuba.
   c. The charter commences in Cuba. At the end of the charter, they disembark in
   Florida.
3. Foreign-flagged vessel based outside of Florida and is chartered under a Recreational
   Bareboat Charter Agreement:
   a. The charter commences in Florida, where the charterers board and depart
   immediately for Cuba. At the end of the charter, they disembark in Florida.
   b. The charter commences in Florida, where the charterers board and depart
   immediately for Cuba. At the end of the charter, they disembark in Cuba.
   c. The charter commences in Cuba. At the end of the charter, they disembark in
   Florida.

1

In reality, Taxpayer is dry-leasing the vessel and then hires its own crew when Taxpayer’s customers charter the
vessel. Taxpayer enters into a separate contract for the crew.
2
This name is of the contact Taxpayer has provided.
3
The bareboat agreement is another sample contract Taxpayer provided.

Technical Assistance Advisement
Page 3
Taxpayer also inquires as to when:

4. Sales tax applies to the chartering of the vessels, i.e., will the tax be paid on Taxpayer’s
   “charter” of the vessel from the primary charterer or will tax be payable by Taxpayer’s
   customers?
5. Tax is due on any lease, at a rate of six percent (6%) plus county discretionary sales
   surtax. Furthermore, tax is not due on any of the chartering direct costs, such as visa
   fees, charter management, services provided in Cuba, fuel, dockage, and provisioning.
   LAW & DISCUSSION
   Section (“s.”) 212.05, F.S., provides every person is engaged in a taxable privilege when
   engaging in the business of selling or leasing, at retail, tangible personal property. In order to
   exercise such a privilege, tax is levied at a rate of six percent (6%).4 See s. 212.05(1)(a)1.a., F.S.
   Furthermore, any tangible personal property not purchased or leased in the State but brought into
   the State for any use, consumption, or storage will have tax levied at a rate of six percent (6%).
   See s. 212.06(1)(a), F.S. Tangible personal property is “property which may be seen, weighed,
   measured, or touched or is in any manner perceptible to the senses, including … boats ….” See
   s. 212.02(19), F.S. Therefore, the lease of a boat in Florida is subject to tax, unless an exemption
   applies. See also Rules 12A-1.007(13)(a)1. and 12A-1.071(16), F.A.C.
   There are specifically enumerated exemptions from various taxes. See generally s. 212.08, F.S.
   It is well-settled law exemptions are strictly construed against the taxpayer, causing the burden
   of proof for the exemption to be on the taxpayer. See State ex rel. Szabo Food Servs., Inc. of
   N.C. v. Dickinson, 286 So. 2d 529, 530-32 (Fla. 1973); Green v. City of Pensacola, 126 So. 2d
   566, 569 (Fla. 1961); State v. Thompson, 101 So. 2d 381, 386 (Fla. 1958). Any doubt as to an
   exemption is resolved favorably towards the State. See Szabo Food Servs., 286 So. 2d at 531;
   United States Gypsum Co. v. Green, 110 So. 2d 409, 413 (Fla. 1959).
   One such partial exemption from tax exists on vessels engaged in interstate or foreign commerce.
   See s. 212.08(8), F.S.; see also Rule 12A-1.0641, F.A.C. Essentially, one will owe tax computed
   on the Florida usage of the leased vessel based on an apportionment factor.5 See s. 212.08(8)(a),
   F.S.; see also Rule 12A-1.0641(3), F.A.C. Based on Taxpayer’s stated facts, Taxpayer is
   transporting people in interstate and foreign commerce. Because Taxpayer is engaging in the
   lease of a vessel, the rental (“bareboat demise charter”) of the vessel is subject to tax, based upon
   Taxpayer’s use within Florida.6 The corresponding charter of the vessel by Taxpayer’s
   customers is not subject to tax. See Rule 12A-1.071(15), F.A.C.
   4

Counties are authorized to impose, up to 1.5%, a county discretionary sales surtax in addition to the State sales tax
rate. See ss. 212.054 and 212.055, F.S.
5
The cited statute provides the apportionment factor is calculated as the prior fiscal year’s total Florida mileage
divided by world-wide mileage. However, for the initial fiscal year of operations, the apportionment factor may be
determined using estimated Florida mileage divided by estimated world-wide mileage.
6
The Florida Constitution defines the State boundaries. See Fla. Const. art. II, s. 1. The State boundaries extend no
farther north than where the States of Alabama and Georgia meet Florida, and the coastal boundaries generally
extend no farther than the distance permitted under United States law or international law. Thus, one may conclude
“in this state,” as found in ss. 212.05 and 212.06(1)(a), F.S., to mean within the physical boundaries of the State of
Florida.

Technical Assistance Advisement
Page 4
With respect to the supplies used or consumed and charges incurred during the charter, only
those supplies used or consumed and charges incurred within Florida will be subject to tax.
CONCLUSION
Taxpayer’s lease (i.e., “bareboat demise charter”) of the vessel is subject to tax only for the use
within Florida. The subsequent charter of the vessel by Taxpayer’s customers is not subject to
tax. All supplies used or consumed and charges sustained within Florida are subject to tax.
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 10 days of the date of this letter.
Sincerely,

David J. Brennan, Jr., Esq.
Senior Attorney
Technical Assistance & Dispute Resolution
Florida Department of Revenue
Record ID:

203930