Were a utility's monthly charges for voltage-transformation facilities subject to Florida sales and gross receipts taxes?

Plain-English summary

The utility's monthly facilities charges were charges for providing electric energy and therefore entered the Florida sales-tax and gross-receipts-tax bases. Revised TAA 97A-032R reversed the original 1997 advisement, which had treated the payments as a separate service transaction not subject to either tax.

The utility served high-consumption customers needing electricity at different voltage levels. Customers could buy and operate their own voltage-reduction equipment or pay the utility a monthly facilities charge. Under the latter arrangement, the utility provided, installed, operated, maintained, owned, and controlled the transformers and related facilities.

Although the arrangement had been called a facilities lease, the utility described it as voltage-transformation service rather than a true equipment lease. The revised ruling nevertheless concluded that facility charges were receipts from the provision of electricity under section 203.01(7).

Residential and nonresidential treatment differed

• Nonresidential customers: the utility correctly charged both sales tax and gross receipts tax on the monthly facilities charge.
• Residential customers: the utility correctly charged gross receipts tax only, because the cited electric-power rule exempted qualifying residential electricity from sales tax when supplied by a utility subject to gross receipts tax.

The ruling quoted a 7% sales-tax rate for electrical power or energy and a 2.5% gross-receipts-tax rate under the provisions then discussed.

The revision was prospective

The Department issued the revision after TAA 04A-059 reached a conflicting result on another utility's facilities charges. Rule 12-11.007(1), as quoted, provided that a revoked or modified advisement applied prospectively rather than retroactively against the taxpayer. The utility planned to use the revised tax treatment beginning with the first billing cycle after January 1, 2005, and the Department approved that treatment.

What this means for you

A utility charge for special equipment and related service can be treated as part of the provision of electricity even when the arrangement is labeled a lease or separate service. Customer class matters: this ruling applied sales tax differently to residential and nonresidential customers while applying gross receipts tax to both.

Common questions

Q: What did original TAA 97A-032 say?
A: It treated the facilities payments as a separate service transaction not subject to sales or gross receipts tax.

Q: What changed in TAA 97A-032R?
A: The Department treated the facilities charges as charges for providing electric energy and applied the residential/nonresidential tax split.

Q: Who owned and controlled the voltage equipment?
A: The utility retained ownership, operation, and control at all times.

Q: Did the Department apply the revision retroactively?
A: No. The ruling describes prospective treatment beginning with the first billing cycle after January 1, 2005.

Citations and references

• Fla. Stat. § 203.01(1) and (7) — utility gross receipts and facility charges
• Fla. Stat. § 212.05(1)(e)1.c. — sales tax on electrical power or energy
• Fla. Admin. Code r. 12A-1.053(1)(a) — electric-power sales and residential exemption
• Fla. Admin. Code r. 12B-6.001(1)(b) — gross receipts tax
• Fla. Admin. Code r. 12-11.007(1) — reliance and prospective modification
• TAA 04A-059 — later conflicting ruling prompting the revision

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-032R

Original ruling text

SUMMARY

FACTS: Utility received Technical Assistance Advisement 97A-032, dated May 5, 1997, on a question it asked as to
whether sales tax or gross receipts tax should be imposed on payments made by customers for certain equipment
furnished by Utility to such customers who, because of their high electric consumption, require service at various
voltage levels. This TAA held the payments made to Utility by customers pursuant to a "Facilities Lease Agreement,”

were not subject to sales tax, nor gross receipts tax, because such payments were for a service transaction.

The Department had the opportunity to consider the issue again in a separate TAA request by another utility. [TAA
04A-059, dated October 26, 2004] The facts in this case revealed that the utility provides customers with special
equipment and related services, referred to as "Facilities," required beyond the normal delivery of electric energy. The
Department ruled in this TAA that charges for the provision of electricity include receipts from facility charges.
Facilities charges imposed by this utility are charges for the provision of electric energy. [Section 203.01(7), F.S.] Such
charges are therefore subject to sales tax and to gross receipts tax. The utility in this TAA was correct in charging
nonresidential customers sales tax and gross receipts tax on monthly facilities charges and was also correct in

charging residential customers just the gross receipts tax on monthly facilities charges.

This ruling was in conflict with TAA 97A-032. The Department subsequently issued TAA 97A-032R, dated January 31,
2005, to comply with TAA 04A-059.

January 31, 2005

Re: Technical Assistance Advisement: 97A-032R

Sales and Use Tax

Gross Receipts Tax

Facilities Charges Included with the Sale of Electric Energy by a Utility

Sections 203.01(a)1., (b), and (7), 212.05(1)(e)1.c., F.S.

Rules 12A-1.053(1)(a) and 12B-6.001(1)(b) and 12-11.007(1), F.A.C.

Petitioner: XXX (herein "Utility"

Dear:

In response to Utility's petition dated December 11, 1996, the Department issued Technical Assistance Advisement
("TAA") 97A-032, dated May 5, 1997, pursuant to section 213.22, Florida Statutes, and Chapter 12-11, Florida
Administrative Code. After further consideration, the Department has revised its response to the question contained in

your petition. This response constitutes Revised Technical Assistance Advisement 97A-032R.

FACTS

On the first page of Utility's letter dated December 11, 1996, Utility quoted, in pertinent part, from an explanation
provided by Utility's Managing Utility Analyst as to the nature of certain equipment furnished by Utility to customers

who, because of their high electric consumption, require electric service at various voltage levels:

To accommodate multiple voltage level service requirements, the customer has the option to either purchase, install
and operate its own voltage reduction facilities (transformers); or, the customer may receive voltage transformation
service by paying a monthly fee, presently referred to as a "lease" of facilities and service from (Utility through its)

"Facilities Leasing Adjustment (FLA)."

... In the situation referred to herein as a "lease," [Utility] provides, installs, operates and maintains the requisite
facilities in return for a fee from the customer. Consequently, what is referred to as a facilities lease is not a true lease
but rather a provision of service separate from and removed from providing electric energy at a single voltage level.

The facilities remain under the ownership, operation and control of [Utility] at all times.

On October 26, 2004, and on November 1, 2004, conversations were held between you and Mr. Gary Gray, to

discuss the Department's determination in its most recent Technical Assistance Advisement, TAA 04A-059, that

facilities charges included with the sale of electric energy by a utility are subject to gross receipts tax and sales tax.

In response to those conversations, your letter dated XX, confirms that Utility accepts a prospective imposition of
sales tax and gross receipts tax on "facilities charges" to its customers beginning with the first billing cycle after

January 1, 2005.

REQUESTED ADVISEMENT

Advice is requested whether sales tax or gross receipts tax is validly imposed on payments made by customers of
Utility for certain equipment furnished to customers who, because of their high electric consumption, require electric

service at various voltage levels.

APPLICABLE AUTHORITY AND DISCUSSION

The charge for electricity is subject to sales tax pursuant to section 212.05(1)(e), F.S. Here, section 212.05(1)(e)1.c.,
F.S., states:

212.05 Sales, storage, use tax.-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 of 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:

(e)1. At the rate of 6 percent on charges for:

c. Electrical power or energy, except that the tax rate for charges for electrical power or energy is 7 percent.

Rule 12A-1.053, F.A.C., provides additional guidance on the sale of electricity. Here, paragraph (1)(a) of this rule

provides:

The sale of electric power or energy by an electric utility is taxable. The sale of electric power or energy for use in
residential households, to owners of residential models, or to licensed family day care homes by utilities who are
required to pay the gross receipts tax imposed by Chapter 203, F.S., is exempt. Also exempt is electric power or
energy sold by such utilities and used in the common areas of apartment houses, cooperatives, and condominiums, in
residential facilities enumerated in Chapter 400, F.S., and in other residential facilities. However, if any part of the

electric power or energy is used for a non-exempt purpose, the entire sale is subject to tax.

The charge for electricity is also subject to gross receipts tax, under section 203.01, F.S. Here, the law provides:

(1)(a)1. Every person that receives payment for any utility service shall report by the last day of each month to the
Department of Revenue, under oath of the secretary or some other officer of such person, the total amount of gross
receipts derived from business done within this state, or between points within this state, for the preceding month and,
at the same time, shall pay into the State Treasury an amount equal to a percentage of such gross receipts at the rate

set forth in paragraph (b)....

(b) The rate applied to utility services shall be 2.5 percent...

Rule Chapter 12B-6, F.A.C., provides regulatory guidance for the gross receipts tax. Rule 12B-6.001(1), F.A.C.,

provides in part, the following:

(1) A tax is imposed on every person receiving payment for any utility service at the rate of 2.5 percent on the total
amount of gross receipts derived from business done within this state or between points within this state. Gross
receipts means total payments received in money, goods, services, or other valuable consideration by every person
for "utility services." For purposes of this rule chapter, the term “utility service" means electricity for light, heat, or

power and natural or manufactured gas for light, heat, or power.

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(b) The gross receipts tax is levied upon the provider of utility services. The tax may be wholly or partially separately
itemized at the option of the utility provider on a customer's bill, invoice, statement, or other evidence of sale. When
wholly or partially separately itemized, every person, including governmental units and charitable and religious
organizations, is liable for the payment of the tax to the service provider. The gross receipts tax is a tax imposed on
the privilege of doing business and is an item of cost to the service provider. The service provider remains fully and
completely liable for the payment of the tax, even when the tax is wholly or partially separately itemized on the

customer's bill, invoice, statement, or other evidence of sale.

Charges for the provision of electricity include receipts from facility charges. Section 203.01(7), F.S., provides:

Gross receipts subject to the tax imposed by this section for the provision of electricity shall include receipts from

monthly customer charges or monthly customer facility charges. (Emphasis Supplied)

Based on the above cited statutory and regulatory provisions, facilities charges imposed by a utility are charges for the

provision of electric energy and are subject to gross receipts tax and sales tax.

Rule 12-11.007(1), F.A.C., provides:

(1) A taxpayer may not rely on an advisement issued to another taxpayer, except that an advisement issued to a

taxpayer association provides guidance to those taxpayers who are members of the taxpayer association for the
particular transaction(s) discussed in the TAA. An advisement will be revoked or modified at any time by the
Department in the administration of the taxing statutes, if the applicable statutes, rules, case law or policies supporting
the TAA change or if the circumstances initially described by the taxpayer in his or her request for the TAA change. If
an advisement is revoked or modified, the revocation or modification shall be prospective only and such revocation or

modification shall not be applied retroactively against the taxpayer.

As stated in Utility's letter of XX, Utility intends to apply the application of gross receipts tax and sales tax to affected
customers with the first billing cycle after January 1, 2005. Utility is correct in charging nonresidential customers sales
tax and gross receipts tax on monthly facilities charges and in charging residential customers just the gross receipts

tax on monthly facilities charges.

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., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your request
for specific deletions of confidential information has been received. These deletions will be made prior to public

disclosure.

If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at
(850)922-4729.

Sincerely,

Gary L. Gray

Revenue Program Administrator

Technical Assistance & Dispute Resolution

Control No: 62390

This ruling was in conflict with TAA 97A-032. The Department subsequently issued TAA 97A-032R, dated January 31,
2005, to comply with TAA 04A-059.

January 31, 2005

Re: Technical Assistance Advisement: 97A-032R

Sales and Use Tax

Gross Receipts Tax

Facilities Charges Included with the Sale of Electric Energy by a Utility

Sections 203.01(a)1., (b), and (7), 212.05(1)(e)1.c., F.S.

Rules 12A-1.053(1)(a) and 12B-6.001(1)(b) and 12-11.007(1), F.A.C.

Petitioner: XXX (herein "Utility"

Dear:

In response to Utility's petition dated December 11, 1996, the Department issued Technical Assistance Advisement
("TAA") 97A-032, dated May 5, 1997, pursuant to section 213.22, Florida Statutes, and Chapter 12-11, Florida
Administrative Code. After further consideration, the Department has revised its response to the question contained in

your petition. This response constitutes Revised Technical Assistance Advisement 97A-032R.

FACTS

On the first page of Utility's letter dated December 11, 1996, Utility quoted, in pertinent part, from an explanation
provided by Utility's Managing Utility Analyst as to the nature of certain equipment furnished by Utility to customers

who, because of their high electric consumption, require electric service at various voltage levels:

To accommodate multiple voltage level service requirements, the customer has the option to either purchase, install
and operate its own voltage reduction facilities (transformers); or, the customer may receive voltage transformation
service by paying a monthly fee, presently referred to as a "lease" of facilities and service from (Utility through its)

"Facilities Leasing Adjustment (FLA)."

... In the situation referred to herein as a "lease," [Utility] provides, installs, operates and maintains the requisite
facilities in return for a fee from the customer. Consequently, what is referred to as a facilities lease is not a true lease
but rather a provision of service separate from and removed from providing electric energy at a single voltage level.

The facilities remain under the ownership, operation and control of [Utility] at all times.

On October 26, 2004, and on November 1, 2004, conversations were held between you and Mr. Gary Gray, to
discuss the Department's determination in its most recent Technical Assistance Advisement, TAA 04A-059, that

facilities charges included with the sale of electric energy by a utility are subject to gross receipts tax and sales tax.

In response to those conversations, your letter dated XX, confirms that Utility accepts a prospective imposition of
sales tax and gross receipts tax on "facilities charges" to its customers beginning with the first billing cycle after
January 1, 2005.

REQUESTED ADVISEMENT

Advice is requested whether sales tax or gross receipts tax is validly imposed on payments made by customers of
Utility for certain equipment furnished to customers who, because of their high electric consumption, require electric

service at various voltage levels.

APPLICABLE AUTHORITY AND DISCUSSION

The charge for electricity is subject to sales tax pursuant to section 212.05(1)(e), F.S. Here, section 212.05(1)(e)1.c.,
F.S., states:

212.05 Sales, storage, use tax.-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 of 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:

(e)1. At the rate of 6 percent on charges for:

c. Electrical power or energy, except that the tax rate for charges for electrical power or energy is 7 percent.

Rule 12A-1.053, F.A.C., provides additional guidance on the sale of electricity. Here, paragraph (1)(a) of this rule

provides:

The sale of electric power or energy by an electric utility is taxable. The sale of electric power or energy for use in
residential households, to owners of residential models, or to licensed family day care homes by utilities who are
required to pay the gross receipts tax imposed by Chapter 203, F.S., is exempt. Also exempt is electric power or
energy sold by such utilities and used in the common areas of apartment houses, cooperatives, and condominiums, in
residential facilities enumerated in Chapter 400, F.S., and in other residential facilities. However, if any part of the

electric power or energy is used for a non-exempt purpose, the entire sale is subject to tax.

The charge for electricity is also subject to gross receipts tax, under section 203.01, F.S. Here, the law provides:

(1)(a)1. Every person that receives payment for any utility service shall report by the last day of each month to the
Department of Revenue, under oath of the secretary or some other officer of such person, the total amount of gross
receipts derived from business done within this state, or between points within this state, for the preceding month and,
at the same time, shall pay into the State Treasury an amount equal to a percentage of such gross receipts at the rate

set forth in paragraph (b)....

(b) The rate applied to utility services shall be 2.5 percent...

Rule Chapter 12B-6, F.A.C., provides regulatory guidance for the gross receipts tax. Rule 12B-6.001(1), F.A.C.,

provides in part, the following:

(1) A tax is imposed on every person receiving payment for any utility service at the rate of 2.5 percent on the total
amount of gross receipts derived from business done within this state or between points within this state. Gross
receipts means total payments received in money, goods, services, or other valuable consideration by every person
for "utility services." For purposes of this rule chapter, the term “utility service" means electricity for light, heat, or

power and natural or manufactured gas for light, heat, or power.

wkK*

(b) The gross receipts tax is levied upon the provider of utility services. The tax may be wholly or partially separately
itemized at the option of the utility provider on a customer's bill, invoice, statement, or other evidence of sale. When
wholly or partially separately itemized, every person, including governmental units and charitable and religious
organizations, is liable for the payment of the tax to the service provider. The gross receipts tax is a tax imposed on
the privilege of doing business and is an item of cost to the service provider. The service provider remains fully and
completely liable for the payment of the tax, even when the tax is wholly or partially separately itemized on the

customer's bill, invoice, statement, or other evidence of sale.

Charges for the provision of electricity include receipts from facility charges. Section 203.01(7), F.S., provides:

Gross receipts subject to the tax imposed by this section for the provision of electricity shall include receipts from

monthly customer charges or monthly customer facility charges. (Emphasis Supplied)

Based on the above cited statutory and regulatory provisions, facilities charges imposed by a utility are charges for the

provision of electric energy and are subject to gross receipts tax and sales tax.

Rule 12-11.007(1), F.A.C., provides:

(1) A taxpayer may not rely on an advisement issued to another taxpayer, except that an advisement issued to a
taxpayer association provides guidance to those taxpayers who are members of the taxpayer association for the
particular transaction(s) discussed in the TAA. An advisement will be revoked or modified at any time by the
Department in the administration of the taxing statutes, if the applicable statutes, rules, case law or policies supporting

the TAA change or if the circumstances initially described by the taxpayer in his or her request for the TAA change. If

an advisement is revoked or modified, the revocation or modification shall be prospective only and such revocation or

modification shall not be applied retroactively against the taxpayer.

As stated in Utility's letter of XX, Utility intends to apply the application of gross receipts tax and sales tax to affected
customers with the first billing cycle after January 1, 2005. Utility is correct in charging nonresidential customers sales
tax and gross receipts tax on monthly facilities charges and in charging residential customers just the gross receipts

tax on monthly facilities charges.

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., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your request
for specific deletions of confidential information has been received. These deletions will be made prior to public

disclosure.

If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at
(850)922-4729.

Sincerely,

Gary L. Gray

Revenue Program Administrator

Technical Assistance & Dispute Resolution

Control No: 62390