Were asphalt-terminal throughput charges taxable rentals of equipment or real property, or nontaxable handling services?

Plain-English summary

The Florida Department of Revenue concluded that the monthly and excess throughput payments under this asphalt-terminal agreement were not subject to sales tax.

The terminal operator provided its facility, tanks, loading equipment, employees, connections, and operating supplies to receive, store, handle, and load the customer's paving-grade asphalt. The customer retained title to its product but never took possession of or controlled the operator's equipment.

The arrangement was a transportation and handling service, not a rental of tangible personal property. It also was not real-property rent because the customer relinquished possession and control of the product after delivery and had no direct access to or control over the storage space while the terminal operator held it.

What this means for you

Terminal and warehouse operators

Spell out who operates equipment, supplies labor and operating materials, controls storage, and bears custody responsibilities. Those facts distinguished this service from a rental.

Product owners

Retaining title to stored goods did not mean the customer rented the tanks or terminal property when it lacked possession and operational control.

Accountants and tax professionals

Analyze equipment and real-property issues separately. The same agreement used both kinds of property, but neither was rented to the customer on these facts.

Common questions

Q: Did the customer operate or control the terminal equipment?
A: No.

Q: Did the customer rent storage space at the facility?
A: No, because it lacked direct access and control.

Q: Were the throughput charges subject to sales tax?
A: No.

Citations and references

• Fla. Stat. §§ 212.05(1)(c), 212.031(1)(c), and 213.22
• Fla. Admin. Code rr. 12A-1.070(1)(a) and 12A-1.071(9)(d)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 16A-016

Original ruling text

Executive
Director
Leon M. Biegalski

QUESTION: WHETHER PAYMENTS MADE BY XXXX PURSUANT TO ITS
AGREEMENT WITH XXXX CONSTITUTE PAYMENTS FOR SERVICES THAT
ARE NOT SUBJECT TO SALES TAX?
ANSWER: THE PAYMENTS MADE PURSUANT TO THE TERMS OF THE
AGREEMENT ARE FOR SERVICES THAT ARE NOT SUBJECT TO SALES TAX.
September 12, 2016
Re:

Technical Assistance Advisement 16A-016
Sales and Use Tax – Rental of Tangible Personal and Real Property
Sections: 212.05, 212.08, and 212.031, Florida Statutes (“F.S.”)
Rule: 12A-1.070 and 12A-1.071, Florida Administrative Code (“F.A.C.”)

Dear XXXX:
This letter is a response to your faxed letter dated November 16, 2015, for the Florida
Department of Revenue’s (the “Department”) issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced party and matter. Your request has
been carefully examined and the Department finds it to be in compliance with the
requisite criteria set forth in Chapter 12-11, Florida Administrative Code. This response
to your request constitutes a TAA and is issued to you under the authority of s. 213.22,
F.S.
QUESTION
WHETHER PAYMENTS MADE BY XX PURSUANT TO ITS AGREEMENT WITH
XXXX CONSTITUTE PAYMENTS FOR SERVICES THAT ARE NOT SUBJECT TO
SALES TAX?
ANSWER
THE PAYMENTS MADE PURSUANT TO THE TERMS OF THE AGREEMENT
ARE FOR SERVICES THAT ARE NOT SUBJECT TO SALES TAX.

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement

2

FACTS
You are the representative of XXXX, dba XXXX (“XXXX”). According to your letter,
XXXX has entered into a Product Throughput Agreement (the “Agreement”) 1 with
XXXX (“XXXX”).
XXXX owns and operates a terminal in Florida. Pursuant to Section II, 2., Facilities, of
the Agreement, XXXX will provide and operate the storage and terminaling of paving
grade asphalt (the “Product”) at XXXX’s asphalt terminaling facility (the “Facility”),
located in XXXX, Florida, exclusively for XXXX. In support of your inquiry, you have
provided a copy of the Agreement. Your letter further provides that:
… XXXX will provide the operators, all the connections, other auxiliary
appurtenances[,] and all equipment necessary to receive [the Product]
from vessel, tank, [and] truck, store the product in [moveable] tankkage,
and deliver product into tank trucks. XXXX will provide dock line access
to two berths and operate all equipment and services for offloading XXXX
products into 150,000 barrels of usable capacity [(see Exhibit B)] into
XXXX owned tanks located at XXXX’s [Facility] or it can contract with
[XXXX] for services. In regards to this service[,] XXXX will pay XXXX
a Monthly Throughput Charge [(the “Throughput Charge”)] of
$130,000.00, a month and an excess throughput charge of $1.00 fee per
ton in excess of [60,000] tons per calendar year.
Sections 4, 5, 6,7,13, and 15 of Exhibit A, General Terms and Conditions for Storage and
Product Handling (the “Terms and Conditions”), of the Agreement provide the following:

4. Records: Facility shall maintain accurate inventory records of XXXX’s
   Product….
5. Title: Title to all [of] XX’s Product received at the Facility shall remain
   at all times in XXXX’s name … XXXX shall have a warehouseman’s or
   warehouse’s lien, as applicable, upon any Product in the Facility for any
   amounts owed to XXXX for throughput fees hereunder that have not been
   paid per the Agreement.

1

Your email of July 6, 2016, states that:
… [T]he [Product] is delivered to the [F]acility either by boat or truck and
XXXX sends the [P]roducts to tanks located at the [F]acility.… XXXX then takes the
[P]roduct from the tanks and sends it to the loading rack where it is loaded into trucks for
resale or sent to ships for resale. XXXX never comes in contact with the [P]roduct.

You have further provided that XXXX offers the Product for resale to XXXX and XXXX obtains the necessary
resale certificates for sales tax purposes.

Technical Assistance Advisement

3

6. Custody: Facility shall have care, custody and control of the Product
   from the time it passes the flange connection between the delivery mode’s
   line and Facility’s receiving line and shall maintain care, custody and
   control until it passes the flange connection between Facility’s delivery
   line and the receiving mode’s connection. Facility warrants that XXXX’s
   title and/or interest in the Product will not be encumbered in any way
   through [the] action or inaction of Facility.
7. Loss or Damage: … Facility shall be liable for damage or loss in value
   to Product resulting from negligence or willful misconduct of Facility ….
   …
8. Independent Contractor: In all its operations hereunder, Facility shall
   be deemed to be an independent contractor retaining control of its own
   employees, agents, and representatives, and shall not be authorized to
   incur liability to third parties on XXXX’s behalf.
   …
9. Insurance: Facility shall maintain marine terminal operators’ liability
   insurance … and shall name XXXX as an additional insured on its marine
   terminal operator liability insurance.
   You request advice on whether the Throughput Charges paid to XXXX for its services
   under the Agreement are exempt from sales tax pursuant to Rule 12A-1.071(9)(d), F.A.C.
   Because the Agreement also raises implications regarding the license to use real property
   (i.e., the Product is stored at XXXX’s Facility), advice will also be given on whether the
   Agreement is a license for the use of real property.
   DISCUSSION
   Rental of Tangible Personal Property
   Florida law imposes a state sales tax on the general privilege of engaging in the business
   of selling, renting, or leasing tangible personal property in this state. See s. 212.05, F.S.,
   and Rule 12A-1.071, F.A.C. The tax is imposed at the rate of six percent (6%) 2 on the
   “gross proceeds derived from the lease or rental of tangible personal property.” See s.
   212.05(1)(c), F.S. Florida law provides that “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.” See Rule 12A-1.071 (7)(d), F.A.C.

2

Discretionary county sales surtax, if any, is also owed on the sale or rental charge if the 6% Florida state sales
tax applies. See s. 212.054, F.S.

Technical Assistance Advisement

4

Rental of Real Property
Florida law also imposes a state sales tax on the general privilege of engaging in the
business of renting, leasing, letting, or granting a license for the use of any real property.
See s. 212.031, F.S., and Rule 12A-1.070(1)(a), F.A.C. The tax is imposed at the rate of
six percent (6%)3 on “the total rent or license fee charged for such real property by the
person charging or collecting the rental or license fee.” See s. 212.031(1)(c), F.S.
According to your facts, XXXX has entered into an agreement with XXXX for certain
Product handling and storage services. Pursuant to the Agreement, certain items of
tangible personal property, as well as real property, will be used; therefore, the general
rules of taxability, discussed above, are implicated and apply.
You have provided that the Product is delivered to the Facility, either by boat or truck,
and XXXX sends the Product to tanks, owned by XXXX, located at the Facility. XXXX
then takes the Product from the tanks and sends it to the loading rack where it is loaded
into trucks and shipped. You have further provided that XX never comes in contact with
the Product (i.e., XXXX does not take possession of the Product). According to the
Agreement, XXXX supplies the equipment, the employees, and the supplies that are
necessary to operate the equipment.4 As discussed above, 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,5 the contract constitutes a service transaction and not the rental of tangible
personal property, and no tax is due on the transaction. See Rule 12A-1.071(9), F.A.C.
Based on the facts presented, the Agreement is a contract for transportation and handling
services that is not subject to sales tax. See Rule 12A-1.071(9)(d), F.A.C. For the
foregoing reasons, the Throughput Charges and payments are not subject to sales tax.
Furthermore, pursuant to the Agreement, XXXX provides Product handling and storage
at the Facility that XXXX owns. However, once XXXX arranges for the Product to be
delivered to the Facility, XXXX relinquishes possession and control over the Product,
and does not have direct access to or control over the Product while it is in XXXX’s care
and custody.6 Therefore, XXXX is not renting or leasing real property from XXXX
within the meaning of s. 212.031, F.S., and Rule 12A-1.070(1)(a), F.A.C. Accordingly,
the Throughput Charges and payments are not subject to sales tax.
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
3

Discretionary county sales surtax, if any, is also owed on the rental charge if the 6% Florida state sales tax
applies. See s. 212.054, F.S.
4
See section II, 2., Facilities, of the Agreement.
5
See section 6 of Exhibit A, Terms and Conditions, of the Agreement.
6
See section 6 of Exhibit A, Terms and Conditions, of the Agreement.

Technical Assistance Advisement

5

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,

Pamela Hernandez, Esq.
Senior Attorney
Technical Assistance & Dispute Resolution
Record ID: XXXX